The news was announced as Sonoma Brands - the venture fund and new products incubator that created SMASHMALLOW – closed its second fund ($60m) in a bid to be “the partner of choice to emerging brands situated for breakout growth.”
Launched by KRAVE founder Jon Sebastiani and based in Sonoma, California, Sonoma Brands has thus far invested in snack brand Dang Foods, and developed two concepts of its own: SMASHMALLOW snacking marshmallows, and ZÜPA NOMA chilled, drinkable soups.
ZÜPA NOMA has been a slightly slower burn, given the embryonic nature of the drinkable soup category and the “limited real estate” in store chillers, although it has already attracted some very loyal fans and is picking up traction as a “direct to consumer play,” Sebastiani told FoodNavigator-USA.
SMASHMALLOW, however – which launched in August 2016 and is already in 10,000 stores with a predicted run rate of $30m by the end of 2018 - was a hit straight out of the blocks, added Sebastiani, who has already launched a line extension (rice crispy treat SMASHCRISPY), and is planning a third product launch later this year.
SMASHCRISPY launched in early November 2017, and is already “selling extremely well in Publix, many divisions of Kroger, REI, and Wegmans and Safeway are coming,” he said. “It has half the sugar of an RXbar and it’s a fun non guilty treat. We also don’t have to train America on what it is, and we think it’s a really big potential category for us.
“We believe SMASH can become an iconic brand in the non-chocolate confection space, it’s a fun, nostalgic and delightful brand, and there are lots of categories we could play in, from s’more cookies, to frozen, there are a number of different opportunities.”
"By the end of 2018 we will be at a run-rate of $30MM in sales, more than tripling our business from last year.”
David Lacy, CEO, SMASHMALLOW
First investment for Sonoma Brands II is in Guayaki yerba mate tea
The goal – with Sonoma Brands’ new $60m fund – is to focus on outside minority deals, as the team seeks to partner with “visionary and imaginative entrepreneurs,” said Sebastiani, who has assembled a group of experienced brand builders to support new partners.
“With the second fund, we’ll likely incubate one brand, or maybe two, but the lion’s share of the $60m will be invested on outside companies, because entrepreneurs really are the rockstars in this industry,” he explained.
“We completed one investment just before Christmas into Guayaki (yerba mate tea) and I seek to do between five and seven deals in Sonoma Brands two. The sweet spot will be [investments of] $5-12m, although if there is a great [earlier stage] company with a great founder, we may write a one million dollar check.
“Likewise, if there is a larger opportunity, we have a strong base of LPs that encourage us to reach for the stars, so for deals bigger than $12m, they may co-invest alongside us.”
Usage occasion disruption
As for the criteria, he said: “I have never had an interest in being a me-too entrepreneur or investor, so I am constantly looking for differentiation, and I think with this second fund, we’re going to stretch a bit beyond our core domain expertise in snacks and beverages, so we’re looking at deals in the retail and the beauty space and the broader consumer base. But we’re still focused on scalable businesses in large categories.
“I’m also focused on usage occasion disruption, taking products that everyone is familiar with, but changing the conversation about how and when they are used, which can completely change the dynamic of the category, which you’ve seen with KRAVE and with SMASHMALLOW.
With SMASHMALLOW, for example, Sebastiani took a familiar product – marshmallows – cleaned up the product label (ditching artificial flavors, colors or whipping agents such as tetrasodium pyrophosphate), added a gourmet twist (with flavors such as meyer lemon poppy seed), and presented the products in re-sealable packaging as a snack, creating a new category/usage occasion.
Third incubated company to launch at Expo West 2018
He added: “I’m not alone anymore being an entrepreneur-led investor, they are everywhere now, and I suppose if you compare us to groups like Catterton or VMG Partners you could say $60m is not that big of a deal, but for me it’s a very big deal.
“This announcement is particularly special to me because we are delivering against the original thesis of Sonoma Brands, which was to build an incubated concept and test it in the marketplace with a fail-fast mentality.
"The market has responded incredibly well to SMASHMALLOW, and we’ve raised $10m [half from the new Sonoma Brands fund, half from VMG Partners] and hired a new CEO, which allows me to focus on Sonoma Brands two [the new $60m fund] and the next incubated company, which we are looking to announce at Expo West.”