Hillhouse Capital and VMG Partners launch $200m fund, invest in babyfood brand Little Freddie

30-Oct-2018 - Last updated on 30-Oct-2018 at 14:59 GMT

Hillhouse Capital and VMG Partners have launched a strategic partnership to co-invest in innovative consumer brands looking to expand their global reach, with the first tranche of capital going to organic baby food brand Little Freddie.

Founded in 2014 by husband and wife duo Piers Buck and Taslim Ho - who source their ingredients from Europe and sell their wares in Kong Kong, China and the UK - Little Freddie makes pouches, cereals, and snacks for children and will use the undisclosed sum from Hillhouse and VMG to drive expansion in China and the UK.

“Little Freddie was showing tremendous growth and really resonating with consumers," Mike Mauzé, founding partner and managing director of VMG told FoodNavigator-USA.

"But what really impressed us about the entrepreneurs behind the brand was their vision, their passion and their tenacity. We’re seeing increased demand for better for you products from mothers around the world, and I think there is also a perception that international brands in the Chinese market are offering higher quality.”

More and more entrepreneurs we talk to want to take their brands to China

Hillhouse, which has years of experience helping brands expand their presence in Asia, has previously co-invested in several brands with VMG including Ancient Nutrition, Solid Gold Natural Petfood and Stone Brewing (the latter recently entered the market in Shanghai).

Under the new partnership, Hillhouse and VMG will each invest up to $100m, he said. “More and more entrepreneurs we talk to want to take their brands to China, and with this partnership is the ability for both of us to provide capital and expertise to US companies in key categories to expand over there, as well as to Chinese companies that would benefit from our knowledge of these categories in the US, sourcing, and product safety.”

Whereas US or European brands seeking to break into the Chinese market have historically targeted a particular city and sought to partner with local distributors supplying bricks & mortar retailers, many emerging brands are today focusing initial efforts on ecommerce platforms such as Tmall, which is operated by Alibaba, said Mauzé.

“It used to be very challenging for a US brand to get distribution in China, but that’s changing.”

Little Freddie China — Little Freddie products are widely available in China including in-store at Sam’s Club, as well as online at T-Mall and JD.com. In the UK, its products can be found in-store at Boots as well as online at Ocado, Amazon and Tree of Life.

Industry trends don’t drive our deal sourcing. We like to meet entrepreneurs early and build relationships.

Rather than ‘trendspotting’ – ‘insect protein/cell-based meat/CBD is the next big thing… I’ve got to invest in this segment…’ –VMG’s approach is to get to know great brands and entrepreneurs and only then ask if the trends they are following make sense, said Mauzé.

“Industry trends don’t drive our deal sourcing. We like to meet entrepreneurs early and build relationships. Sometimes we might work with people for several years before we invest in them, perhaps introduce them to a co-manufacturer or help them build their team, so when the time is right for them to look for a capital partner, we could be well positioned to be that partner.”

He added: “We like to invest in brands that are like grapevines, that dig really deep into the soil with scrappy management teams that can build brands without an abundance of capital, that can last through storms and upheaval.

“In today’s market we’re seeing a lot of companies with vines that don’t go very deep because they are getting so much fertilizer [capital]. They don’t have to be as scrappy. The challenge we have as food investors is trying to understand which brands are really connected with consumers and which ones are setting sail because there is so much capital out there.”

Big CPG companies have a tendency to look backwards

Successful entrepreneurs see something that the rest of the market doesn’t see (yet) and are willing to bet on it, he said. “Big CPG companies have a tendency to look backwards. 'This did well for us last year, let’s focus on it this year…' and they are often a step behind."

He added: “Between Hillhouse in China and our team in the US we’re meeting the leading entrepreneurial brands in key categories and looking at their ability to go cross border and offering up not only our capital, but our services.”

Asked what size checks they will be writing, he said: “We’ve invested anything from $10m to $200m in the past and we want to be flexible.”