“There’s a lot of money flowing into this space, especially to the earlier stage brands, and so I think we try to decipher those people who are really in it for the long haul or for the right reasons, as opposed to those who just think they can make a quick buck which is hard to do in this industry.” -Ben Fenton
Today, we’re talking with Ben Fenton of Boulder Food Group about the do’s and don’ts if you’re looking for outside investment for your food or beverage company.
Ben is a VP over at BFG, which if you’re not familiar with this firm, is a venture capital group that partners with early stage food and beverage brands, and they partner with some brands like Barnana, Birch Benders, and Chameleon Cold-Brew, just to name a few.
In this episode, you’ll learn:
- What firms like BFG consider potential red flags when assessing potential brand partners
- Which metrics on your income statement are the most important to investors
- What founder attributes make you more marketable to VC’s
…and plenty more.
If seeking outside funding is on the horizon for your company, you’ll have plenty to learn from Ben in this episode.
The Book of Joy – Archbishop Desmond Tutu Dalai Lama
Alex: Ben, welcome to the show.
Ben: Thank you, Alex. Happy to be here. Thanks for inviting me.
Alex: So can you tell our listeners what you do?
Ben: Sure. I’m a vice president at a food and beverage-focused venture capital firm called BFG partners in Boulder, Colorado. We invest and partner alongside early-stage food, beverage, consumer-packaged good businesses.
Alex: So how did you get into that role, and what’s your history in the industry?
Ben: I moved out to Boulder about three and a half years ago from New York City after graduating college in 2004, spent the next ten years across a number of jobs within the finance world. A few years in investment banking, a few years in private equity and then a few years doing distressed and high yield credit for a couple different hedge funds.
I wanted a change both professionally and geographically, and Boulder kept popping up for a number of reasons. And I had an opportunity to move out here to partner with someone to start a food company. So that was the original, I guess, the genesis of getting me out to Colorado.
I moved on from that food opportunity, but I knew that the natural products industry is where I wanted to focus my career and fortunately was introduced to Tom Spier, the founder of our firm. And just fortuitously was with him when BFG launched in November of 2014.
Alex: One of the reasons why we were excited to have you on the show was to get a perspective of somebody who was potentially looking to invest or partner with the types of companies that our audience here does marketing for or has founded. So what types of companies does BFG typically partner with when it comes to revenue or the stage of business that they’re in?
Ben: Yeah, absolutely. So we’re exclusively focused on food, beverage, and dietary supplement consumer-packaged goods businesses. So we won’t look or invest in anything outside of that.
So you know nothing in food tech or Ag or restaurants. We’re just really, you know, exclusively focused on this particular area. We defined, you know, early stage as brands doing anywhere from 1 to 10 million in sales.
The idea is investing past the ideation phase and having some proof of concept. So we can go earlier than a million in sales. And by proof of concept, we really mean on-shelf performance, you know, sell food velocity, repeat order rates from retailers or distributors.
Those are some of the key metrics that we really look for when we define kind of an early stage brand, again, doing anywhere from 1 to 10 million in sales.
Alex: So 1 to 10 million in sales is that aggregate or is that yearly revenue?
Ben: We typically say, you know, we look for, you know, a 1 to 10 in trailing 12-month sales. So yes, not aggregate across the business since inception.
And again sometimes, if a company just took on a bunch of distribution, we’ll try to obviously give them credit for that new distribution assuming they can demonstrate again that the product is turning in those new distributors, and that there was…or retailers, and those retailers are reordering. So there’s certainly a bit of flexibility around that, again, that million trailing number.
Alex: So I’m sure there’s a very comprehensive and drawn out process of due diligence. But what’s one of the most important or first things that you look for in a potential investment?
Ben: Yeah, I know, great question. And we throw it up right on our website. A couple of key things that we really focus on: people, product, brand and strategy.
On the people side, you know, we’re a minority investor in all the companies that we invest and partner alongside. And we really seek to back and support exceptional entrepreneurs. Again as a minority investor, we’re not making the day-to-day decisions or running these businesses.
So it’s, you know, obviously extremely important that we have the utmost trust and faith in the entrepreneurs that we are backing. Obviously, the product has to taste really good and have a brand that we believe is scalable and potentially iconic. So those are some of the key metrics that we think about.
But again, I think people is number one. I mean we really view our relationships, our investments as partnerships, and we hope the founders view the same as a couple of our partners have a significant experience in the industry.
And we really try to be beyond just a source of capital, but really a value-added strategic partner as well.
Alex: There’s a lot of betting on the horse or betting on the jockey talk, and it sounds like you guys place a lot of importance on the entrepreneurs themselves. So what separates a founder or an entrepreneur that’s worth investing in versus one that might hurt a company’s chance in receiving investment in two similar, I guess, in all else held constant?
Ben: Yeah. It’s a good question. Especially I think this is partly a function of what’s happening in the natural products industry today and where consumers and dollars are shifting away from the big food CPG brands to some of these newer brands.
Again, the product has to taste good and fulfill a need, but you know, the brand has to be authentic and have a story that resonates with consumers beyond just the actual product itself. And consumers increasingly care about the brand’s mission, what they stand for, kind of the supply chain.
Is it organic? Is it non-GMO? And so you know, when we talk to companies, we ask them, “Why are you doing this? Why is this important to you?” because building a food business like probably any, you know, building any business from the start takes a lot of time.
And so I think consumers increasingly can tell the difference between someone and a brand that’s being authentic, and one that’s, you know, quite frankly, fake. Having that authenticity is huge, and also someone that can, you know, go out and sell the product.
The CEO or founder is the face of the brand, and oftentimes, companies use their party sales force. But ultimately, I don’t think anyone can tell the story like the founder can.
And so those are some of the things that can separate someone, I think. You know, it’s pretty clear oftentimes if someone’s just doing this because starting a food company is sexier, is in vogue right now, and there’s a lot of money flowing into this space especially to the earlier stage brands.
And so I think we try to decipher those people who are really in it for the long haul and for the right reasons as opposed to those who just think they can make a quick buck which is hard to do in this industry.
Alex: Now outside of the founder and just looking at some metrics or a PNO, what are some the most important metrics that you care about in a potential investment?
Ben: From a top line perspective, retail velocity doesn’t show up on an income statement, but in terms of stuff that we look for and by retail velocity, I mean how fast does the product turn on shelves, and that’s usually measured by units per skew, per store, per week.
And you can get that through some syndicated data like SPINS or IRI.
Or if the company is sold at Whole Foods, Whole Foods provides this information to companies as well. And so generally have a sense for kind of what is good velocity for a category, and so we can benchmark a prospective investment across, you know, other brands that we’ve seen in that category.
But the next thing that, you know, from a pure PNO standpoint, manufacturing and gross margin, these brands are often early and don’t have significant scale in their supply chain.
Or if in fact, they manufacture themselves, probably do not have significant, you know, scale or they’re underutilized in whatever they’re manufacturing.
But you know, a demonstrable gross margin or manufacturing margin or a path to a really strong and solid gross margin is something that we place significant importance on.
You know, again, I think the capital markets are not gonna be open for these businesses forever, and so if in fact the interest and the venture capital money dries up in the space, I mean, having a business that, you know… If growth could slow, could they sustain themselves?
People look for, you know, gross margins anywhere from 40% plus, and I think that one allows the company’s cash flow below the line to reinvest and support and grow their businesses. And so gross and manufacturing margin is something that we place, you know, a lot of emphasis on.
The other thing that we look to and it’s tied to gross margin, but we look at capital efficiency that can be defined a lot of ways.
But we think about it as, you know, the amount of capital the business has raised relative to the amount of, you know, trailing sales they’ve generated, i.e. how productive has every dollar that they have raised been in driving sales.
You know, and often, it’d be great, you know, for these businesses that they could show that for every dollar that they’ve raised or invested have generate two plus dollars in sales.
The reality is that that’s often a challenge at this early stage. But if you can be a right around one, that’s a pretty solid place to start.
Alex: And I know you mentioned that the potential and the growth of a category is obviously important in determining whether a specific brand or company is worth investing in. And the meat snacks category has been on fire for these past several years. Are there any other product categories that have your interest at the moment?
Ben: Yeah. I’m perhaps speaking from personal bias here, but you know, having just come back from Expo West, the big natural products expo in Anaheim in March. As you mentioned, meat-based snacks have been extremely popular, and I think continue to be so.
But you know, I guess on the other end of the spectrum, plant-based foods and plant-based, you know, supplements are huge right now.
And whether it’s consumers who are vegetarian or vegan or are looking to shift a little bit away from animal products, the plant-based market across all sorts of foods and categories and supplements is growing, you know, exceptionally fast right now.
And whether it’s Pea Protein, seems to be especially hot. And brands like Beyond Meat use like an extruded pea protein or pea product for their products, but, yeah. I would say plant-based is a big trend that we see right now.
And again, I don’t know that it’s a trend. I think it’s a real secular shift that consumers are looking for cleaner, healthier foods and again, that they perhaps view as ethically, environmentally better as well.
Alex: Do you have any examples of potential red flags that might sink a company’s possibility to partner with a VC firm?
Ben: Yeah, so at this early stage, there’s only a certain amount of qualitative stuff that we can look for from a PNO standpoint. Most of these companies have, you know, short operating histories.
So there is definitely a softer component as well or a harder to measure component. You know, I think one is on the people side.
Again, I think we wanna have a real relationship and connection with the founders, and we hope that they’re, you know, equally as excited about partnering with us as we are with them.
We want people who admit when they, you know… They don’t know what they don’t know and are open to questions and our help.
But if we view the people, you know, aren’t necessarily receptive to that, it’s probably not a good fit. Because we do, you know, seek to add value beyond just being a financial partner.
I think going back to some of the things that we talked about earlier, if it’s just a really small, niche market, perhaps the business can, you know, grow to a decent size.
But for us, you know, ultimately we are investors, and so we need companies that we think have a path to be 20 to 100 plus million in total sales. So if they’re playing in a category that’s, you know, 50 to 100 million or even smaller, it probably doesn’t make a whole lot of sense for us.
Other things that we look for… We’re primarily investing in organic and non-GMO brands. And you know, as such, we’re often looking at brands that get early distribution at Whole Foods or other natural channel retailers.
But you know, at the end of the day, Whole Foods is only a 400-plus-store chain. So you know, we have to believe that the brand can travel to grocery, to mass the club as well.
And so if early on, whether it’s a price point issue, if the products are selling, you know, for too expensive, and we just don’t think there’s a path to get it down to a more conventional or to a price that we think can attract most shoppers, I think that’s gonna be a potential red flag as well.
So I think those are a couple of things and also certainly capital efficiency. I mean again, there’s a lot of money flowing in this space, and I think it’s often a red flag to see brands that have raised 5 to 10 million and are only doing, you know, half a million or a million plus in sales.
And that’s a big hurdle. That’s a big capital structure to grow into, and we usually try to avoid those opportunities.
Alex: Does the board of advisors influence the marketability of a food company as an investment?
Ben: Yeah, it’s a good question. I think it’s always great to, you know, when we talk to a company, to see who they have around the table and who they partnered with.
I certainly think that speaks to the entrepreneur, not only their networking ability. But clearly if someone surrounds themselves with smart people, I think that speaks, you know, pretty highly of the entrepreneur that again, they want input, they want to be surrounded with people who have experience in the industry.
So yeah, absolutely. But that alone, you know, doesn’t make a successful business, of course, and so I think the business has to stand alone on its own as well. And people around the business can no doubt help. I mean, I don’t know that the food industry…
There’s certainly you know nuances, and I think having people who have been through it can absolutely help kinda navigate the rollercoaster ride that, you know, being a food startup is.
And so I certainly think it does make it, you know, more attractive if they’ve surrounded themselves with good people. But I don’t think it’s a red flag if they haven’t.
Alex: This is a marketing podcast after all. How does BFG market itself and how do you guys network and meet entrepreneurs?
Ben: You know, I mentioned Expo West, and we try to attend both Expo West, Expo East. And there’s a handful of other trade shows as well that we try to go to, certainly walk the floor and connect and connect with entrepreneurs. That’s definitely one way.
We’re constantly, you know, walking the shelves of our local grocery stores here and trying to discover new brands. And we’ll certainly, you know, reach out or directly cold call the brands that we think are interesting.
You know, now that we’ve been at this for two and a half years and have a portfolio of nine different brands, those folks obviously have networks and are very plugged in to the food community as well.
And oftentimes, if they hear one of their friend’s companies that is looking for advice or to raise capital, you know, that’s definitely one source of deal flow that we see.
Again, two of our founders have been in the industry for a long time. And it’s a large industry but also quite small.
A lot of our deal flow comes through our own internal relationships as well.
So it’s kind of a combination of, you know, attending trade shows, our portfolio companies, walking grocery store shelves, attending industry conferences and trade shows. I would say the bulk of our deal flow just comes from within our own networks and space.
Alex: What’s the best way for somebody who’s looking to potentially partner with you guys to get on your radar?
Ben: Certainly emailing us directly. We’ve got a link on our website and kind of some of the criteria that we lay out and look for.
And we get a lot of email inbounds from companies that weren’t necessarily on the radar, and we’re thrilled to see that because you know we can’t be everywhere and certainly see everything.
So I think that’s probably the best way unless, you know, they’re local. We try to attend a bunch of the Naturally Boulder events, so we’re often there. And we certainly encourage, you know, and help people that come forward or come up to us and introduce themselves.
And we love having these conversations and meeting new people, and so that’s why we’re in the business.
Alex: I really appreciate your perspective and insights here. It’s a really cool opportunity for anyone who’s looking to potentially partner with a VC firm just to at least get that overall sense of what it takes. Now, we’ve got a few closing questions that we ask each of our guests.
Is there anything that you’ve learned about the industry or just about food and beverage in general in the course of being in your current role that you wish you could go back and tell yourself when you first started?
Ben: Yeah, I think it just takes time. I mean it’s a slow-moving industry, and I think despite, you know, I guess a lot of the emerging technologies and disruptors in the space given our focus on the traditional grocery channel, it’s a slow-moving industry.
And every so often, you hear the brands like a Chobani nearby that, you know, seemingly out of nowhere are overnight multiple hundred million dollar businesses.
It takes time, and there’s an education component not only to retailers but to consumers as well. So I think just be patient and stick with it. So the overnight successes especially in this industry are pretty hard to come by.
Alex: Interesting. So is there a book that you like to recommend to people or that you’ve read that has influenced the way you think about either finance or just the industry in general?
Ben: Oh, man. I mean I’ll just talk to the most recent book that I read which I think is fantastic. It’s called, “The Book of Joy.”
I’m not sure who the author is offhand, but it’s… He spent five days, I believe, five or six days with the Dalai Lama and the Archbishop of South Africa, I think something Desmond Tutu, I believe it was.
And just a really fascinating look into their lives and their perspectives of the world.
And it was really eye-opening and just a fascinating read. So “The Book of Joy” is my most recent read, and I would highly recommend.
Alex: All right. Last question here. So what’s the best piece of advice that you could offer an entrepreneur looking to partner with a firm like BFG?
Ben: Good question. The best piece of advice that I could offer an entrepreneur looking to partner with a firm like BFG. Obviously, I guess it assumes that they need some other criteria from a product and brand perspective.
But again, you know, I’ll just go back to the people point.
And you know, we’re a small firm. There’s four of us. We all like to be as involved in possible with each of the brands that we work with.
And so like I said this earlier, we view these partnerships as relationships. And so we wanna find people who are willing and excited about working with us, and I think that gets us as excited as anything.
And so it’s a bit hard to quantify, but I generally think the people that we are most excited to partner with, there’s a genuine, you know, connection.
And we believe and are excited about their story and their message, and excited about, you know, helping them tell that and build that.
Alex: Well, Ben, thank you again for coming onto the show as a guest. What’s the best place for people to find out more about Boulder Foods Group, and potentially reach out if they have questions or wanna get in touch?
Ben: Yeah, absolutely. Our website is www.bfgpartners.com. There’s a link to all of our bios, our portfolio companies and also on there is an investment criteria page with an email link there as well if you have an interest and kind of wanna reach out.
Alex: Awesome. Well, thank you again, Ben.