After recently closing its third fund with investments from dozens of founders and executives from leading food and beverage companies, including Stonyfield Farms founder Gary Hirshberg, Stacy’s Pita Chips founder Stacy Madison and Honest Tea founder Seth Goldman, the firm is actively investing in a companies with $2m to $25m in revenue who are looking for $2m to $10m in capital over time.
Unlike other investors that may play the odds by investing in a dozens of businesses hoping a few ‘unicorns’ eventually will succeed, managing partners Andy Whitman and Liz Myslik explain in this episode of FoodNavigator-USA’s Investing in the Future of Food how they help every company in which Loft Growth Partners invests “thrive and grow and scale” by drawing on their experiences as former entrepreneurs as well as that of their investors.
They also share how entrepreneurs, with their help, can successfully scale without diluting their holdings through multiple investment rounds by learning how to efficiently use limited resources to drive high velocities and margins while simultaneously keeping their customer acquisition costs low.
‘We’re thrilled that … the emerging brand ecosystem has grown so much’
As Loft Growth Partners kicks off their third fund, the team recognizes that while the investment landscape in CPG has changed dramatically over the past 20 years, many of the challenges that individual entrepreneurs must overcome have not.
“When we started 20 years ago, it’s a little hard to imagine living in today’s world. In 2001, there was nobody whatsoever really investing in these emerging brands. So, it’s sort of fun to have seen the evolution, and over 20 years we’re thrilled that … the emerging brand ecosystem has grown so much,” Whitman said.
Despite the increased competition from other investors and the new name, he notes Loft Growth Partners remains committed to elevating entrepreneurs, their brands and their teams to achieve “all the great things they set out to do.”
Loft Growth Partners is well-positioned to do this because its partners are former operators and they know what it takes to run and build a business – from finding a co-packer and dealing with chargebacks from distributors to connecting with consumers, Myslik explained.
She also noted that Loft Growth Partners investors do more than provide money – they also offer their expertise and open their networks to startups that are welcomed into the fund.
Real solutions to real problems
When evaluating potential investments, Loft Growth Partners looks first for passionate entrepreneurs who offer real solutions to real problems and who are reward by loyal consumers who come back over and over.
“Fundamentally, we’re in the business of partnering with entrepreneurs who are brilliant at solving complex problems” with products that appeal to the masses, Whitman said, adding that they also need to be “a pathological optimist, and maybe a little bit crazy” to take on the challenges that lay between them and their goal.
High margins & velocities are fundamental
The group also looks for companies with strong margins, which Whitman says should be at least in the 30% range, but the higher the better and the more likely a founder can remain a primary owner of their business long-term.
He explains that high margins are about more than profit – they also signal the extent to which consumers value a product or brand and how much they are willing to pay to support a company’s mission, which signal whether a product is a flash in the pan or has long-term potential.
Next, Loft Growth Partners looks at companies’ sell-through, which Whitman notes can be more meaningful than distribution doors.
“You can always find new distribution, but at some point, ether you run out of real estate or it gets to expensive if your business isn’t growing on a sort of same store basis,” Whitman said.
To ensure that a product is hitting velocities necessary to stay on a shelf – either real or virtual – Myslik said entrepreneurs need to ask retailers what their expectations are on a weekly, monthly and annual cycle to remain in the store or on the site.
Low customer acquisition costs signal long-term success
When it comes to online sales, Loft Growth Partners balances velocity with return on ad spend – looking to see that entrepreneurs’ customer acquisition costs are sustainable and that orders are larger than their CAC, Myslik added.
Ultimately, Loft Growth Partners believe that investors can and should be doing more to support challenger brands and to help entrepreneurs grow and keep their business as they scale, which is why it provides additional resources on its website to help “demystify” the investing world.
