AccelFoods on investing on food, red flags in pitches, and CBD: ‘This could be a $20bn category by 2021'
“Is it a fad? No, we don’t think CBD is going anywhere," co-founder and managing partner Jordan Gaspar told FoodNavigator-USA.
"We’re going to see huge growth in CBD [which most firms are supplying via hemp extracts as the FDA says CBD per se is still not permitted as a food/bev ingredient as it was first investigated as a drug].
"If anything, we think there’s a possibility it could be a $20bn category by 2021. It’s opening up in food and beverage products, and supplements. The retailers are all talking about opening up space for it and the strategics are very aware of it.
“There will definitely be delays and regulatory concerns and challenges, but from the consumer standpoint, there just seems to be an appetite for the anti-anxiety effects and stress relief effects.”
She acknowledged that right now, much of the evidence touted by brands in this space about the benefits of CBD is anecdotal, with the strongest human clinical data focused on medical indications (seizures, epilepsy, PTSD, relief from chemo-induced nausea etc), which doesn’t align entirely comfortably with the motivations of grocery shoppers looking for the next big trend in health & wellness.
But that will change, she predicted: “As we see leaders surface in this space I think things will change. It’s still very early, and many of the entrepreneurs here are young and just starting their journeys, and are themselves figuring out how they want to build their [hemp/CBD] brands.”
Alpha Foods: It’s so exciting to see plant-protein going into a burrito that’s sold in Walmart
She added: “Although it’s not new, we also see strong potential in plant proteins. We’ve just invested in Alpha Foods, which is bringing plant-based proteins [via center-of-the plate products and high protein portable snacks such as burritos and pies] to the mainstream consumer.
"It’s so exciting to see plant-protein going into a burrito that’s sold in Walmart.”
‘There’s room in strategics’ portfolios to acquire and create platforms appropriate for families and Moms and children'
As for the kids’ food space, there are big opportunities in healthy snacks, frozen meals, and beverages, she said, noting AccelFoods’ investment in RETHINK Brands, which makes organic clean label zero calorie drinks containing water, 1% juice, and natural flavors; and kids’ frozen food brand Kidfresh.
“We’re big believers in children’s food and beverage platforms. Part of that stems from the fact we’re both [Gaspar and AccelFoods co-founder Lauren Jupiter] working mothers with young children. I have two children aged eight and six, and they didn’t grow up eating the staples you or I might have, they grew up eating these products [the speciality/better-for-you products AccelFoods is investing in].
“I do feel like we have a unique lens as investors in this field as we’re the ultimate purchasers and consumers of these products. Annie’s was a great success story and we feel that there’s room in many more strategics’ portfolios to acquire and create platforms appropriate for families and Moms and children.”
"The first thing that raises an alarm bell for me is when an entrepreneur doesn’t know the numbers. No one expects you to be an accountant, but you need to know the basics, the cost of goods, sales metrics, profitability metrics."
Jordan Gaspar, co-founder and managing partner, AccelFoods
There is a proliferation of tech-minded entrepreneurs that are redirecting to the consumer space
So how is the food and beverage investment landscape evolving?
“The scope of the entrepreneurs has changed significantly in the past couple of years,” said Gaspar, who founded AccelFoods with Lauren Jupiter in 2014.
While tech-focused investors are increasingly getting into the food space, she said, that's in part because tech-minded entrepreneurs are entering the space: “There is a proliferation of tech-minded entrepreneurs that are redirecting to the consumer space and launching healthy living directed brands.”
'There’s a record amount of capital in this space'
More generally, she said, “What we see with an escalation of multiples and the opening up of distribution channels, we are finding more companies are achieving rapid success.
“There’s a record amount of capital in this space, and there are pressures that come with that capital, but also opportunities, and if entrepreneurs do their homework on their investors, they should be in a good place.”
'Due diligence is a two-way street'
She added: “We always say diligence is a two-way street. In the same way that we do very strong due diligence on founders, every founder should be doing the same [on potential investors] because not all capital is created equal. Does the investor know the retail landscape? Do they have connections that can be supportive? Can they help operationally in terms of building out a team? Are they proficient in supply chain management? Will they help with IP protection?
“There is so much more than just capital.”
Asked about the recent influx of capital from the venture arms of big CPG companies (Campbell, Kellogg, Tyson, Danone, General Mills etc) she said: “The strategics often invest in conjunction with private equity and venture capital, so it’s collaborative capital. I don’t personally view it as competitive."
One of the largest VC funds focused on food with $90m assets under management (AUM) and investors in brands including Harmless Harvest, Teadrops, Koia and Soozy’s, AccelFoods' latest fund is backed by the venture arm of Danone, noted Gaspar.
“We are a welcome co-investor to strategics, we have a very strong relationship with Danone in particular.”
AccelFoods’ investment strategy: Is there a path to grow well beyond $100m in sales? Is the brand challenging the status quo?
AccelFoods will write checks ranging from $500,000 to $5m in aggregate, spanning start-ups at the pre-revenue stage to companies with sales of $50m at the time of identification, she said.
“We’re looking for great partners, great people. Is there a path to grow well beyond $100m in sales and is this a challenger brand with a disruptive go to market strategy, ingredient profile or brand identity? Is it challenging the status quo?
“Beyond that we look at the overall market opportunity, the quality of the revenue, the velocity vs store count, the margins, market penetration, scalability of the supply chain, quality controls, the team, barriers to entry, IP, you name it,” added Gaspar, who says AccelFoods might talk to as many as a thousand companies a year as it seeks to establish connections with brands at an early stage, often well before it might consider an investment.
‘The first thing that raises an alarm bell for me is when an entrepreneur doesn’t know the numbers’
So what red flags give Gaspar pause for thought during a pitch?
“The first thing that raises an alarm bell for me is when an entrepreneur doesn’t know the numbers. No one expects you to be an accountant, but you need to know the basics, the cost of goods, sales metrics, profitability metrics.
“You also need to know what you don’t know, and if we’re truly excited about a company and an opportunity, we can help founders find great complementary team members to help them lead the company. You can’t do anything alone.”
