Earlier this week, low-carb and keto snack brand, Fat Snax, announced the closing of a $4.5m Series A funding led by BFG Partners and BIGR Ventures.
"It was about having really great partners that were going to help us get this company to $100m in sales. And when the world came to a screeching halt and deals disappeared, VCs got spooked, money got pulled from the table... they [BFG Partners and BIGR Ventures] did not hesitate; they walked down that road with us," Fat Snax founder and CEO, Jeffrey Frese, told FoodNavigator-USA.
"It was a Monday that America stopped and on Friday we had money in the bank."
Launched in 2017 in specialty stores such as the Vitamin Shoppe, Fat Snax proved its mainstream appeal by securing distribution in more than 4,000 grocery retailers including Whole Foods Market, Sprouts, Kroger, and Wegmans.
Using its new capital, Fat Snax plans to be in 6,000 doors by the end of 2020. And while decreased foot traffic has made it difficult for emerging brands to stand out to consumers at physical stores, the consumer shift gave Fat Snax an opportunity to revisit its initial direct-to-consumer business strategy that first launched the brand.
"Anything that we lost in retail, we made up for in spades online. And I don’t think that consumer habit is going to change much when we’re back to normal."
Frese added that the rebranding and packaging refresh of Fat Snax (designed and executed by Interact Boulder) completed and debuted late last year is also helping with sales and catching the eye of new consumers.
"It’s been a huge improvement," said Frese.
Fat Snax is also entering a new category of packaged crackers, where the void for low-carb options "is huge," according to Frese. Fat Snax crackers are made from an almond flour base (with 2 net carbs per serving) and will come in three varieties: original sea salt, sharp cheddar, and everything flavors.
‘OK’ and ‘Great’ is just going to become a wider gap
Tyler Morgan, VP at venture capital firm BFG Partners, who considers its firm more conservative in terms of investment strategy, believes that investments will continue throughout the pandemic, but not without challenges.
"It’s going to be harder. I don’t think you can sugarcoat that, particularly for early stage businesses of which in the last five years we’ve seen a dramatic increase in what I would call ‘super angels’ or more early-stage funds that might be willing to do a little bit less diligence," Morgan told FoodNavigator-USA.
"You’re certainly seeing that people who are investing off a personal balance sheet are going to be more affected than a committed capital fund like ours where we have investors that have agreed to give us money and are paid to deploy that money… as opposed to folks that look at something on a deal by deal basis. Certainly there’s going to be more discretion around those kind of investments."
Ultimately, he said, "the best product offerings and the best teams are still going to be able to find capital.
"I think the difference between ‘OK’ and ‘Great’ is just going to become a wider gap because I think we’ve seen a lot of OK business get funded on the principal that it might turn into something."
As far as what attracted BFG Partners to invest in Fat Snax despite dealing with an unprecedented event such as COVID-19, Morgan added that it saw a clear and demonstrated ability in Fat Snax to scale profitably in large part due to its channel diversification. The firm is also taking a closer look at a brand's team and founder.
"You want a team and a founder who has peacetime capabilities as well as war time capabilities, and the ability to manage cash flow appropriately," said Morgan.