Having approached more than 4,000 companies over the past five years, New York-based venture capital firm AccelFoods is undoubtedly one of the most active investors in the emerging food and beverage space. It has so far invested in a number of high-growth consumer brands, including plant-based food company Alpha Foods and Jica Chips. But the increasingly competitive CPG space partially driven by large companies’ unabated appetite for appealing to younger generation of consumers through M&A is pushing private investors to explore new investment strategies.
I recently spoke with AccelFoods’ managing partner, Jordan Gasper, on what strategies AccelFoods uses to identify future shopper trends and why more women are needed in the food and drink investment space.
Jordan Gasper: What metrics do you use to find investment targets that represent the future of food?
Douglas Yu: We look for a high conviction around the founders. From our perspective, it has to be a highly qualified founder or management team that we believe has the capabilities to scale their businesses. In addition, we are looking for challenger brands that are disrupting traditional categories and creating new products. Beyond that, we have a secondary set of qualifications – once we have a macro perspective on whether there is an opportunity, then we will determine whether there is a fundamental that makes the business a high likelihood of success.
Because of the scope of our business and sourcing, we often see companies coming in groups. We sometimes saw 10 or 15 companies within the course of two months which will give us an idea that there is something bubbling up in the space.
We used to say that we look for 100% year-over-year growth rate from a company, but that has evolved since some of them are able to come into the space and have significant growth within their first few years just because of the appetite of the retailer and the capital community that has cropped up in the past five years. Companies like Alpha Foods, which we invested in this past winter, ended up having a launch during the second half of 2018, and because of their high profile of plant-based protein and formats, they were able to launch nationwide through multiple retail partners.
We also think about capital efficiency, making sure the growth is just not fueled by capital but also by true consumer demands and strong velocity on self.
JG: What qualities are you looking for among entrepreneurs? What are the most common mistakes they make when pitching their products?
DY: Resourcefulness, resiliency, and relentlessness. The founders of their companies are the champions and the advocates. They are the people who are really driving the conviction around the company, so it is really important for entrepreneurs to have that conviction but also a true authentic passion for what they are building. Collaboration is particularly important – if you’re unable to work well with your team and your investment partners, chances are that you are going to face bigger challenges ahead. We do see this is an industry that is built around partnership, whether it is your retail partners, investment partners or people you really enjoy working with.
Most entrepreneurs do not really realize the importance of taking advantage of the first and second impressions. I think it is really important to read the room and to know how you talk to people in order to catch their attention, making them resonate with your messages. You are the founder looking for capital, so you are expected to be a jack of all trades in understanding the full scope of your business on the macro dimension.
JG: Do you expect cauliflower, plant-based and keto to be long-term consumer trends? What are your upcoming investment plans?
DY: Keto is a trend that has existed for some time and the high fat diet is not new; it just comes in new forms. I believe high fat diet will continue to resonate with consumers. Plant-based protein is certainly having a high degree conviction – around that, we are an early investor of Koia, which is a plant-based protein beverage that has scaled quite rapidly. From our perspective, all those cauliflower-based products reflect the broader grain-free trend, and that is why we invested in Soozy’s, a grain-free bakery product.
I think we are going to continue investing in grain-free foods and plant-based protein. We are going to stay true to ingestible format and broader applications with ingestible products.
As a 100% women-owned VC fund in the space with four kids between the two founders, we have a high degree of conviction around family directed brands. We certainly believe that there should be more products in the market geared towards young families or more broadly positioned for females.
Additionally, convenience is a big trend as consumers are looking for hand-held solutions that they can easily carry.
We have not invested in the baby food category to date. We have a wonderful partnership with Danone, and that category has certainly had a lot of disruption since 2013 with [Danone’s] acquisition of three independent baby food companies.
While we would like to see what the evolution of the baby food category will be, we do believe kids’ platforms are a little broader than baby food, so we tend to focus on products that can work with young consumers between ages of two and 14.
JG: What is the most exciting thing to work in a VC fund dedicated to the food and beverage space?
DY: The best part about being a venture capitalist is we get to invest in things that we are eating every day. We are very proud of AccelFoods’ commitment to healthy brands. These are the products we bring home to our families. When I look at my own two kids, I often feel a sense of pride that these products are the staples in their diet versus the food that I grew up on. I have said this before and I will continue to say that my kids do not have access to soda; they do kombucha and sparkling water instead.
The food and beverage space has grown considerably over the past five years, and it continues to develop. Young brands are coming up pretty quickly, and retailers are having an unprecedented commitment right now to on-boarding these products on their shelves. So I think we are just getting started with the next generation of food.
This Q&A has been edited for concision and clarity