The Startup CPG Podcast

Andrew Montgomery
We got to see that retention grow and sort of stick, which was really meaningful for us in terms of how we thought about the business. And then the other thing is were all using it, were all customers of it. And we actually gave him feedback in the pitch or in a follow up and said, hey, the dashboard is awesome, but like, if you could do this, it would be really cool. And within one day, two days, he was turning around product feedback. Not all of it, because sometimes he would say, you know, we thought about that, but we don't want to do it for this reason. Or he says, that's actually a good idea. I'm going to implement that.

00:37
Hannah Dittman
Hey everybody. I'm Hannah Dittman, operations and finance correspondent at Startup CPG and the founder of Ready Basics. As a former CPG investor, I'm especially excited to host this Investor Spotlight with Andrew Montgomery from Collaborative Fund. If you've ever wondered how to stand out to investors, what really makes a founder unforgettable, or how and when to get started fundraising, this episode is for you. We're sitting down with Andrew Montgomery of Collaborative Fund, a venture firm investing at the intersection of for profit and for good backing companies whose products and services make the world a better place. Andrew shares how he applies the villain test when evaluating companies, offers tangible examples of what separates good founders from great ones, and breaks down exactly how to nail your first meeting. So investors immediately see your differentiation.

01:20
Hannah Dittman
You'll get an inside look at how Collaborative Fund approaches diligence walks, why they lean into purpose as much as profit, and the kind of storytelling that inspires them to invest. Enjoy. Hey, everybody. Welcome back to the Startup CPG podcast. This is Hannah and today I'm here with Andrew Montgomery, an investor from Collaborative Fund. Andrew, welcome to the show.

01:42
Andrew Montgomery
Thank you so much for having me, Hannah.

01:44
Hannah Dittman
Yes, we're excited to have you here. I'd love to kick off with you introducing yourself. Can you share your title, a brief background of your experience prior to Collab Fund, and what led you into investing the first place?

01:55
Andrew Montgomery
Sure. Happy to and thank you again for having me. It's a great pleasure to be on the podcast with you today. So I'm a partner at Collaborative fund. I joined three years ago, but I've known the team there since 2012, so we've worked together for a long time in some form or fashion. Most recently, before Collab Fund, I was running finance and strategy at one of our portfolio companies, actually a company called lovevery, and it was a really fascinating time to be there. The team raised quite a Bit of Vetra capital and it grew tremendously through Covid. It's a kids subscription toy business and my kids always thought I was Santa Claus, but I had to tell them that I actually just counted the toys. I never actually made the toys.

02:29
Hannah Dittman
Oh my gosh, I love that.

02:31
Andrew Montgomery
Three and a half years. It grew from maybe 45 people when I joined to about 245 when I left. Revenue was below 50 and when I left it was over 200 million. So quite a bit of growth during that time and fascinating to see a startup sort of inside go through that scaled operation. Rewinding my career all the way. I actually started investment banking and really started to understand consumer businesses and media businesses through that landscape. Did seven years. I think I was listening to another podcast you did with Todd who was a reformed investment banker as well.

03:00
Hannah Dittman
Yeah, we're clearly everyone's made the big leap to the more fun side.

03:05
Andrew Montgomery
Exactly. And so spent seven years there. And through a lot of work and good fortune we also were able to launch a co investment fund. And so I actually spun out and ran that and that's where I first met Craig and the team at Collaborative. We co invested in a handful of deals. We had raised money from strategic angels and companies like Conde Nast and Sony Music, Heim Saban and invested in probably 60 to 65 consumer investment consumer companies notably Triplelift was one of them and Hungryroot and Tala which we shared with Collaborative. So that's where I first sort of got to know Craig and the team and got to understand the ethos around Collaborative. The investment bank was ultimately acquired by another investment bank. And so my wife and I took the opportunity to move to San Francisco, spent five years there.

03:46
Andrew Montgomery
Most of that time I was actually at Google doing corporate development. So helping the different product areas think through investments, acquisitions, what have you. And I got to work with incredibly smart people and look at whole number of deals from very small ones to much larger. So if I look back at my career it seems like a straight line. It certainly didn't feel like that at the time, but really got to go from really small companies to much larger companies and see how different types of companies and technology companies thought about investing resources, whether that's time, talent or money at big scale or much smaller scale. And also along the way co founded a company so I can empathize a little bit with the founder journey.

04:20
Andrew Montgomery
I was a for profit education company teaching coding back in the day and we ultimately exited that to Strayer Education.

04:27
Hannah Dittman
Love hearing about your background. Would love to kind of pick apart what was kind of the driving force. Before we go fully into your investing wheelhouse, what was the driving force behind making you want to make the switch? You know, you've had operational experience. It sounds like you've got founder experience. You've seen it all get made in all the different angles. So what really drew you to the investing side?

04:47
Andrew Montgomery
Sure. You know, I recall this is dating myself a little bit, but I remember being in my dorm room in College and TechCrunch had just launched and Michael Arrington was still writing every post by himself. And I would refresh the page multiple times a day, just waiting for the next thing. And I my parents are both entrepreneurs and sort of it just felt really fascinating to see companies built where there was nothing. All of a sudden there is something, and occasionally it can be a very large something that endures for many decades and generations. And so that was always really inspiring to see. And then through my career, as I mentioned, I sort of got a lot of different flavors of working with different people and different types of people.

05:24
Andrew Montgomery
And it's one of the most fun parts of my job is getting to sit with entrepreneurs who are having that vision of there is not something here, but by sheer force of will and authenticity and inevitability, I'm going to make it exist. And that's just such a fun process to go through. I also like the fact that we get to work with lots of different companies and different types of founders and different categories. It's fun for my brain to be able to sort of bounce around and take some of the learnings from each of those and combine them.

05:51
Hannah Dittman
That's awesome. We love a good cheerleader investor who understands the plight of the other side of the table. You know, it's far and few between sometimes to get investors with operating backgrounds. And I feel like, especially on the early stage side, that's such a huge plus because so much of what you're encountering is early traction where you kind of really need to have an understanding of what can set a brand up for success, not be smacked in the face with obvious success that they already have. So kind of pivoting over to collaborative fund now, I would love for you to give the introduction of your firm.

06:21
Hannah Dittman
It would be great touch on things like maybe any major investment criteria, your stage, focus, themes, sectors, how you differentiate as a fund, your mandate, average check size, aum, you know, give us the pitch that all the founders have to do for you.

06:35
Andrew Montgomery
Sure, happy to do that. And just to Follow up on the prior point, Actually, of the four partners, each of us has operating experience. So we've all been sort of entrepreneurs before of different levels of scale and success, and then have gotten into investing as well. So hopefully we can empathize a little bit with that founder journey.

06:49
Hannah Dittman
For sure. That's awesome.

06:50
Andrew Montgomery
Yeah. Collaborative Fund was founded in 2010 by Craig Shapiro and the original thesis was, and what remains our core investment thesis today is we invest at the intersection of for profit and for good. And what we really mean by that is we're looking for the overlap of that Venn diagram where we think there's really mission driven founders with building those sort of enduring generational companies. And so we ask, when we look at companies, we ask two questions. The first is the company making the world a better, more interesting place? And that could be everything from better food, better health, finance, education, kids, sort of anything primarily in the consumer stack, but not all the time, but mostly that's our core.

07:30
Andrew Montgomery
And if the company checks that box, which is a little bit easier, I would say the second question is, would a villain invest in or use this product? And what we call that is the villain test. And we think it's a really fun way to sort of look at these companies and ask do the economics of the business sustain on their own, or would someone who has pure self interest at heart want to use the product relative to what's out there today because it's better, faster, cheaper, stronger, whatever the case may be a great example, we've had the fortune of investing in hundreds of great founders and some have gone on to build really large businesses. On the CPG side, that's everything from Olipop, were seed investors to the farmer's dog to sweetgreen.

08:09
Andrew Montgomery
On the consumer software side, Upstart Financial, Tala, Reddit, Kickstarter, eta, Speak. So a number of great companies and the villain test, really what we say is Olipop's a great example of this. People might want to have less sugar, they might want to drink something that's healthier for them. It's got prebiotics, what have you. But if it doesn't taste good, they're not going to do it. Even if they want to do it, they want to be healthier. And so we ask, would a villain drink this? And people want that indulgence, they want the refreshment that they've grown nostalgic for in their childhood. And so Olipop is a good example of something with much less sugar, much better for you. Tastes exactly the same as what is out there today at the same price point.

08:46
Andrew Montgomery
People aren't, we think, willing to pay 20 or 30% more for something if they can substitute it with what's out there today? And so that's really the core of our investment thesis. We've got two different vehicles, investment vehicles. The core of what we do is on the consumer side at the seed stage. But we can write checks for pre seed all the way through to series B. We've got a growth vehicle as well. I would say 80% of what we do is consumer with a small set of consumer stack. So a lot of the companies and software that power those as well. Check sizes range from 500,000 to $3 million. And then we reserve quite a bit of capital for follow on as well. And total AUM today is around 1.5 billion.

09:23
Hannah Dittman
That's awesome. Yeah, you guys clearly have a very impressive track record. I love the idea of a counter thesis almost in a way to kind of devil's advocate your way through an a quick investment pulse check that. That's really interesting and unique. I know I peppered you with so many questions at first teeing up the fun. I'd love to kind of double click on series and stage focus and how you guys are defining that. So for you know, what is pre seed series A, et cetera, does it have to do with distribution points, revenue targets, years in business, or what are kind of the parameters that you're looking at and defining those things by?

09:59
Andrew Montgomery
Sure, great question. And I would say it tends to be a little bit nebulous. And every time there's a new wave of disruption like AI, I think some of the lines get blurred. Back when I started, seed rounds were, you know, 1 to 2 million dollars. And now a seed round could be anywhere from 5 million to 50 million. I mean there's a huge range.

10:15
Hannah Dittman
It's gotten so crazy. I think especially in cbg, everything's just like, let's just change the label and move everything later.

10:22
Andrew Montgomery
Exactly, yeah. The way we think about it is we don't necessarily have, I'll say religion or strong conviction about should it be classified as a pre seed or a series A or a seed. What we really think about is how much capital has the company raised to date, how much are they trying to raise now? What do we think they'll ultimately need to raise in future rounds? And then a little bit also, are they pre distribution? Do they have revenue? Sort of. Where are they in that scaling journey? And typically what we look at is More how much capital they're raising relative to the valuation that they're hoping to get. Or there might be, you know, the market would put on that company.

10:56
Andrew Montgomery
And so the nomenclature could be anything, but it's a little bit more just like where is the company in terms of its stage. And some companies take longer to get to certain levels. Certain things might be more scientific and have more deep research that required to go into those before they can launch. And others might be a little bit more, I don't want to say off the shelf, but a little bit faster to launch and iterate.

11:13
Hannah Dittman
That makes sense. So are you guys looking at anything pre revenue or are you post launch only?

11:18
Andrew Montgomery
We look at both. We've done pre launch and we've done quite a bit of post launch. I would say most of what we do is probably post launch in some form or fashion just to see if there's early nuggets. And I would say, you know, things have gotten generally over time. This is a broad generalization, but things are a little bit easier to launch, I think, or to at least get it into the hands of consumers to get a sense of is their product market fit. Is there some feedback? Is there some pull from the community? Something that we really like to look at is dive deep into forums and Reddit and see if there's like people talking about it. Even if it's a couple going back and forth like deep in a corner.

11:50
Andrew Montgomery
We'd love to get a sense of that, but we've done lots of investments pre launch. I'm on the board of Smash Kitchen, which was founded by Samir Shan and Glenn Powell and that, you know, those founders had a history of launching national brands. And so that was one that we invested in pre launch. But we've done a few of those.

12:05
Hannah Dittman
Awesome. Well, it seems like you guys are very agile, situational, depending on where you're going to lean in, and obviously have a very large AUM and seem pretty flexible, especially relative to your lowest check size. So you guys must be busy running around.

12:18
Andrew Montgomery
Try to be. We want to deliver a lot of capital back to them and we want to invest in lots of great entrepreneurs.

12:22
Hannah Dittman
So yeah, kind of flipping the script a little bit before we dive into the juicier questions for our fellow founders out there. Kind of wanted to take a second to focus on analyzing a good investment partner. I think we've kind of touched a little bit on this with operational background conversation. But you know, what makes your firm a strong fit for a founder and how do you think founders should be evaluating their investment partners in return. You know, I really like to empower founders. I feel like the power dynamics can be pretty skewed against them, especially in the fundraising process, which is just such a small puzzle piece in their larger experience as a founder. So what three to five questions should they be thinking about asking you to really help them get the ball rolling on evaluating things?

13:05
Andrew Montgomery
Yeah, it's a great question. And it's, you know, fundraisers, they always feel like a very discreet, oftentimes a short term sort of dating. But if you sort of zoom out, the average startup lasts a very long time, especially the ones that work Well, I mean, 10 plus years easily. And so I think, you know, founders really should understand is this person someone that I want to talk to frequently for the next 10 years of my life. And so I think it's just rapport. And I think there's another element which is alignment. We talk a lot about this internally and then also with our founders. There are lots of different types of investors out there, from angel investors to small seed funds, larger seed funds, multi strategy, and they all are looking for different things.

13:46
Andrew Montgomery
And that could be the amount of money they have to put in, it could be the amount of involvement they want to put in, it could be the time horizon of the investment and it can even be the return that they're looking for. And so I think really having founders ask those questions, probably not in the first like two minutes of a pitch, but at some point in the first call or two to get a sense of if this goes really well, what are you looking for? What are you hoping for to understand that alignment? Because ultimately, as soon as the deal is over, you want to be on the same side of the table as those people and everybody's rowing in the same direction.

14:16
Andrew Montgomery
And if you have a weird structure or you didn't align on those things ahead of time, you can obviously often get into sort of loggerheads and be against each other, which you don't want. I think the other things you want to suss out are how do people respond when things are not going well? Because inevitably there are going to be bumps down the road. It's a hard question. You can't sort of say, hey, if something goes bad, like how are you going to react to that? But I think you can start to tease it out. You can ask other founders they've worked with because inevitably that will come up. Look at the portfolio of founders they've invested in before.

14:44
Andrew Montgomery
Are they not every venture investment turns out, but are there some in there that are real outliers where the founders speak highly of those investors. Are they responsive to your emails? If they're not responsive, sort of during the pitch process, that person's probably not going to be responsive once they wire the money. Or they'll then come out of the woodwork and say, hey, you know, where's my update? Or what have you. So I think you really want to tease into some of those habits and behaviors that people have, not just the answers to the questions, but how are they actually engaging you during that pitch process?

15:11
Hannah Dittman
Yeah, I think that's great advice. I feel like it often feels, I think, like a job interview where you're so desperate for the job you need the money, that you're just like, let me answer all these interview questions. And then you're not really thinking, like, do I actually want to work at this company, or am I just, like, really need a job?

15:26
Andrew Montgomery
Yeah, and there are times when you really need that job or you really need the investor. And so you're going to be willing to do things or take money from people. But, you know, you don't agree. Sometimes I'll ask a question during a pitch and a founder might say, you know, that's not like, I have no interest in being that type of company. And even if you just sort of get that out there at the front, I mean, I think it's very helpful to just make sure you're sort of aligned and talking about it in the same way. Like, some investor might say, well, how are you going to have AI, like, so you don't have to hire anybody. And the founder might say, well, I actually want a core number of people to work here.

15:56
Andrew Montgomery
And yes, of course we're thinking about AI as everybody is, but I also want a team and I want people and I want, you know, sort of something else. And so, you know, I think it's just important to put that out on the table ahead of time. And there's ways to do it that are, you know, thoughtful and sort of don't disrupt that. But if it causes rift in that first pitch, inevitably in several weeks, even if you do the deal, you're going to have problems.

16:14
Hannah Dittman
Yeah, that's a great point. And I think alignment is a great way to use to navigate that. You know, what's a successful exit for you guys? How large would you need us to grow to get the type of return you would be looking for from us? Like, things like that? So that a founder can be kind of thinking in the back of their mind, what's it going to take for us to get there? And is that what I believe our company should or could be doing?

16:38
Andrew Montgomery
Yeah, we have pitched a lots of great founders and you know, we've turned down, we said no to investments. And I'm so grateful that we got to talk to them and look at the company and understand it and just get smarter generally, because founders are going to be much smarter than I am in terms of different markets. And they're building great businesses. Some have tens of millions of dollars of revenue, they're in Whole Foods, they're in wonderful distribution outlets. And it still is not a fit for us for some random reason, because maybe we think, or maybe a home run scenario for them as they get to $50 million of revenue, a hundred million, that is an amazing outcome. And there are very few companies that do that. And you can be really successful and so proud of that.

17:15
Andrew Montgomery
When we underwrite a deal, we have to assume that it can get to a billion dollar outcome, which usually in CPG means, you know, you're at least 500 million in revenue and growing quickly from that point. Because we target 10 to 15% ownership. If it sells for a billion, we can return our fund off that, which is really the math that we're looking for. And so making sure everybody is excited about the same potential home run outcome is really important.

17:37
Hannah Dittman
Yeah, that's great. And I think a really helpful, practical way to break down some of the math so it feels less ambiguous. I feel like I love stripping ambiguity out of the fundraising process because I think when everyone has perfect knowledge, you know, founders are overachievers and they will give you an A plus gold star. I think a lot of times they just don't have investing backgrounds or haven't been familiar with it and are really just looking for the know how of like, what do you want from me? How is this supposed to go? So kind of going off of that, you know, what's the diligence process typically look like? How often are you meeting with a founder before an investment decision?

18:09
Hannah Dittman
You know, if I was an old high school friend and you were kind of giving me the rundown of what things look like in the inside scoop, what would you be telling me?

18:16
Andrew Montgomery
Yeah, well, I think the best way even before the pitch process to meet VCs is through a warm intro, some connection. You know, there's lots of. I think with all the AI that's out there today, the volume of cold emails has just skyrocketed for everybody. So I think warm emails really Help or some kind of hook. You know, we've got a huge portfolio and a huge network of co investors. And so I think, you know, with LinkedIn, you can really get a sense of who knows who and connect with people in an authentic way. Maybe it's on Twitter, maybe it's on LinkedIn, you know, whatever it might be. But connecting through a warm intro.

18:48
Andrew Montgomery
And then I think the process, you know, in an ideal world, and there's a broad spectrum here, just given timelines, sometimes the diligence process could be one to three weeks and you know, we'll meet with the founder a handful of times. Sort of the initial pitch, which I like to have 30 minutes, some people schedule longer, some people like shorter. But know to me, 30 minutes and really dive into. Founding a company is not an easy thing. And I was talking to a new potential candidate today, a potential investment today. And the first thing I like to ask is, why, if it is so hard to build a company, do you want to start this? Like, why scratch this itch? What is compelling you to do this? And oftentimes people are leaving incredible jobs or opportunities. They've had success before in some way.

19:26
Andrew Montgomery
So what is it that makes you want to leave that to start a company? And I love to understand that, just to understand what makes people tick and what will, when they hit speed bumps, will keep them driving through that. If they have a co founder, like, how do you guys work together? If you don't have a co founder, who are you going to go to in those hard times? Or when things are going really well? And so, you know, the first 30 minutes is really to dive into that, the product, the brand. I love when founders send the deck ahead of time. So I can be a little bit smarter to dive in, but then use it as a scaffolding and then we can just go from there.

19:58
Andrew Montgomery
So after that first original process and happy to answer questions about that first meeting, typically it'll be a couple more calls or meetings in person. If it's an actual product, food especially, we want to try it. Like if it's not good, even if we're not at the target market, if we're just like that is not for us or for the target market, then you know, it's going to be really hard for us to get there on investment. So we definitely want to try the product, understand distribution and how you're thinking about that. You know, there's so many different ways to go to market. What's going to be authentic to that brand, to that founder. You Know, do we think there's sort of white space and opportunity? We'll do reference checks, whether that's with customers, people you've worked with in the past, pre seed investors.

20:35
Andrew Montgomery
And then ultimately it's about aligning on terms and sort of what does that structure look like that everybody's happy with and then marching to close. So it can be anywhere from a very compressed timeline of a week to a much longer. And maybe we've gotten to know an entrepreneur before in a prior business or even just when they started. And you know, they're not raising, but we want to get to know them six months in advance. So it can take a whole different form.

20:56
Hannah Dittman
This is going to be a big question with a big, ambiguous, lots of different answers, but just to kind of distill it down in a couple of tangibles, noting that, you know, there's a million things you're not going to say, what kind of makes every part of that go right and gives you momentum to get to the next step. So, you know, a couple, two or three things that would push you along that curve. So from the first reach out, XYZ happens and that gets you excited for a first meeting, and the first meeting you heard or saw xyz and that got you excited for the second meeting and so on and so forth.

21:27
Andrew Montgomery
Yeah, great question. So the first thing that we look for is what was the source of the intro? Not that it has to be through a particular source, but I think, you know, somebody has figured out a way to get to us and also through somebody that we trust. Maybe it's the founder of sweetgreen, or maybe it's the founder of another company and they come through us. That's a filter. And so we look at that. But we've had lots of cold outreach as well. I think the thing that gets us excited at the start is what's the brand?

21:53
Andrew Montgomery
And when we say the brand, we don't just mean what's the logo and the font and the color scheme, but like, what is every intentional and unintentional decision that's gone into that, from the name to the design of the deck, how they've thought about who they've hired, who they've highlighted in the deck, who they've not, what's their target market. It's all of those things. It's even the way they write emails and sort of think about how fast they are to respond. You know, all of that is a reflection of brand. And then we'll also, like I said, sort of look at Reddit or on social media and just see how people are talking about it. Are they, their reviews in the App Store, what are people saying about it? Have they included some of that commentary in the deck because they're proud of it?

22:30
Andrew Montgomery
All of those things are indications to us of brand beyond just, you know, look and feel. We love to try the products before we meet with somebody, as I said. So I would say brand is sort of what gets us excited. Also the market, is it a huge market? You know, we love investing in pets and things like that and farmer's dog. And so it's, that's a massive category, obviously lots of big tailwinds behind that. So we look at market size and then we look at the founder. Not just, you know, they don't have to have experience in that category necessarily. It helps. But we've invested in people who've come straight outta school and this is their first job.

23:03
Andrew Montgomery
We've invested in people who aren't outta school and this is their first job and we've invested in people who have multiple companies, but it's sort of what's their track record of success, what is their excitement and what is their edge to win? So maybe they're just, this is their first job, but maybe their family has some connection or maybe they have a big online following or you know, maybe they have something else that gives them a unique hook or insight that others don't have or would be very hard to replicate. So I would say first it's the brand, then it's the market size, then it's the founder. And I think in the first meeting you want to try to hit on all of those elements. But don't go too deep.

23:38
Andrew Montgomery
Like leave enough so that there's a follow up conversation so we can be like, oh, let's talk go to market or let's talk retail strategy, let's talk hiring. Who are you going to hire and how? And so we want to sort of hit on all those things. One thing we talk about internally again is sort of momentum begets momentum and so does the founder. And we work with our founders as they go raise more money after us is what's the sort of drumbeat of progress and momentum during that fundraise so that you get people excited the more they dig in. So maybe you had a meeting and then at the end of the week you signed some retail partnership that you already knew was coming.

24:14
Andrew Montgomery
You'd signed it two weeks ago, but you waited to sort of tease it, or you had a big press announcement or a Hire or, you know, an advisor. Come on. There's lots of different ways to sort of engineer that, but I think it is a really important skill because you're also going to use that with customers. So I think you want to figure out how you sort of have that drumbeat of excitement and momentum throughout the.

24:33
Hannah Dittman
Process that's really interesting. Little drip campaign of successful dating Flex. So it sounds like whatever you're kind of seeing or alluding to in that first email and that first kind of beginning, you just want to keep bubbling that up and doubling down and expanding on those same exact pillars throughout the process. When you're reviewing a deck pre first meeting, what is like the perfect version of a deck for you guys? How many slides? What information does it cover? What is the meet really focused on? How text heavy or detail heavy are the slides or how high level should they be? I think without having a physical example in front for somebody, what are some general guidelines you can give them for an A plus grade on the assignment?

25:20
Andrew Montgomery
Yeah, great question. I think there's lots of content about this online, but there's probably lots of different perspectives about it.

25:26
Hannah Dittman
Oh, it's so different. I think that's part of the hard thing. It's like every firm you talk to, they've got their own desires. There's not like the school of investors where everyone comes out with the same ideas.

25:36
Andrew Montgomery
Yeah, totally. So for me, I actually really like a deck that's probably 10 to 15 pages, 10 to 12. Something in there where there's enough that you're not, like, ripping through pages in 30 minutes, like, all right, and here we're onto this. And here we're onto this. But something that gives you enough so that an investor asks a question. You have something that you can present that shows that you've thought about it. You don't want to overwhelm with detail. And I think there's lots of great ways to have sort of minimal text, minimal numbers, but display a ton of information, a ton of thinking.

26:08
Andrew Montgomery
That's very thoughtful, because if you can't articulate it in a sentence or in one short, compelling story, I think it's really hard to then, you know, as you get more complicated and you're talking about the whole company, that's just a very hard process. And so part of what we're looking for is storytelling. Can somebody tell an authentic quick story? And then we can ask follow up to go down? But I'd say 12 pages to start. And I actually, like. Some investors don't like this. I actually like when a founder will present the slides on the screen because it's a little bit of a scaffolding for the conversation. I think it lets the founder be in the driver's seat a little bit more than like coming in, like, what do you want to talk about?

26:44
Andrew Montgomery
I think it's nice when the founder comes in and says, I want to tell you about my business owner, tell you why I started it, who's working on it with me, what the product is, why now? Oh, and here's why. It's going to be a billion dollar outcome and sort of touch on those. If somebody then asks a question, you can say, you know what, I've got some great info, I'm going to follow up with that. So if you're going to go into unit economics, I think it's good to have a high level in there. But then you might have a data room that you follow up with this. As you know, other people have been asking about this. That's a great way to say, like, I'm talking to other people and here are some questions that they're asking and they're smart questions.

27:15
Andrew Montgomery
So here's a really good answer that I've already pulled together. So I think it's a little bit upfront and then again more of that teasing and that drip campaign that's really helpful.

27:23
Hannah Dittman
So you think it's preferred that a founder's leading the charge of the conversation. They're coming in like it's a board meeting almost where they've got their deck ready. Maybe they're not glued to it, but they're anchored on it. They're clearly the one in charge in the power seat and kind of running through the story of their business. I imagine through the lens of momentum, traction and the metrics that you would probably be the most excited about. And then anything else is kind of following later. How much time should they spend going into the nitty gritty of their product, their brand mission? Kind of the more consumer selling points of what they're doing versus the business operations of what they're doing.

28:05
Andrew Montgomery
If you think about that first phone call, I probably spread everything pretty evenly and the way I like to do it. And again, every investor is different. I like to ask that sort of upfront, 60 seconds to 2 minute, tell me why you want to do this, why you're so passionate about it. I often start a call with saying I'm not shy with questions. So I'm going to. They start and then I start to ask questions. What I love is if I'm asking the questions in the right order and the deck is flowing from one side to the next, like, oh, I'm glad you asked that question. And then it's just the next slide that's obviously like when you get into that flow.

28:34
Andrew Montgomery
And I think it's nice if it sort of, again, signals that you both might be thinking about the business and what the outcome is in the same way. Whereas if I ask a question and it's their 40th slide, we're sort of maybe already, you know, you can get there and do it smoothly, but you may be not speaking in the same way. And so I think, you know, sort of going through in that form or fashion is really helpful for me.

28:56
Hannah Dittman
You know, a question that often needs to be addressed early on is what makes your brand different? Or, you know, what's your value proposition? Things like that. Could you maybe give a more tangible example of a portfolio company that you think had a really strong answer to that question, or a company you've met with or, you know, any tangible example where you can walk through this is the ideal way. I like to hear this or think about this. And these are the pillars that really matter for that answer.

29:22
Andrew Montgomery
Yeah, well, I'll give you two examples, but before I start, it's highly specific to each company, but the way that we think about it, yeah, like I said, it's very specific to each company, but some different ways you might look at it. We're investors in Bandit Running, which is one of the most powerful community driven companies I've ever seen. I mean, the authenticity, the excitement, the. Just the passion that the customers and particularly the members have for that brand, the fact that they go in real life to the stores, they run together, they run with the founders, they run with the employees. Like there is just such community alignment there that you can't fake it. That is like core to their brand. And the founders, Tim and Nick and Ardith are just so tapped into that and so focused on it.

30:09
Andrew Montgomery
And they put that above everything. I mean, honestly, they put it above everything. And so they had a lot of stats in their, you know, their pitch. And what we talked about was how do you figure out, like, how do you tap into that community? How do you recreate it if you want to launch new categories or new SKUs? Like, how do you think about it? And so looking at what is that sort of NPS score of the founders in different ways or the customers in different ways? And another one, we invested in a company called Rhythm Health where I'M on the board seed round and it's the easiest monthly at home blood test. And the way we look at that one, I mean, the retention.

30:39
Andrew Montgomery
And we got to know Robbie over a long period of time and two things stood out to him and his pitch. One is the retention just get better and better as the company grew in a way that you don't typically see in consumer companies, which was really fascinating. And because we had a period of time where he wasn't raising, but we got to know him, we got to see that retention grow and sort of stick, which was really meaningful for us in terms of how we thought about the business. And then the other thing is were all using it, were all customers of it. And we actually gave him feedback in the pitch or in a follow up and said, hey, the dashboard is awesome, but like, if you could do this, it would be really cool.

31:12
Andrew Montgomery
And within one day, two days, he was turning around product feedback. Not all of it, because sometimes he would say, you know, we've thought about that, but we don't want to do it for this reason. Or he says, that's actually a good idea, I'm going to implement that. And so it showcased us not just he listened to his customers. His customers clearly liked the product. He was open to feedback, but not feedback for the case of feedback. But he was willing to pick and choose which things he thought was really important and would resonate with everybody, not just a single customer. So I think in those two cases, really diving into the customer love was really important.

31:45
Hannah Dittman
I think it's really helpful that you gave those examples because both of them happen to be company performance metrics. That makes them a big differentiator. And I think I just had a recent podcast episode where we kind of dived into the psychology of fundraising in this topic. And we have a newsletter coming out focused on the same thing where when you get that question, as a brand founder, I think your knee jerk is to think immediately what you would tell your consumer about why your product is different, which is part of differentiation, but for an investor, it's the business operations side of the answer of that question. So you're saying almost agnostic of the concept, which of course you guys are evaluating, but you're saying the nps, the community driven reality, is so important to us as investors. That's what's giving us conviction.

32:29
Hannah Dittman
And then you're saying it's the retention, it's how sticky this is with our consumers. That's what's giving us conviction. Not so much that, hey, we're the first at home blood test, you used to have to go to the doctors and now da, da. Like that's the novel to the consumer aspect of it. But for you, the conversation used to anchor on, of course, explaining that and getting that out of the way, but then moving on to okay. And so I think that's a really great example and really helpful context as well. When you get to the part of the conversation and maybe it's in the first meeting or maybe down the road, it would be helpful to understand when this subject should be broached. How does the structure of the ideal ask question look like?

33:06
Hannah Dittman
You know, can you model an example of what you expect that to be? Like, for instance, I'm looking for $500,000 for X, Y and Z or at whatever valuation or how do you like that to be structured?

33:17
Andrew Montgomery
Yeah, great question. I think it depends who you are asking money from. I think the best way to have the ask is to have a slide at the very back that says we're raising a range 1 to 2, 2 to 3, 3 to 4, whatever the number that's right for you is. And then I wouldn't sort of address valuation on that slide. And the reason I'll get into that. But I think if you're pitching angels, it can be helpful to have a valuation in mind that says I'm raising a million dollars at a 10 million post money valuation. Because I don't think angels necessarily want to be in the business or having to go through the complexity of pricing the valuation.

33:51
Andrew Montgomery
Some most certainly will, but I think a lot of angels who are going to invest are going to say, I'm going to invest in you as a person. It could be at any valuation that's sort of reasonable. So early rounds typically are mid single digit million post. And so I think it's helpful to speed the process along. If you give them a number with funds, I think you're better off not naming evaluation and saying we're looking for market dilution. And I think that will put something in the head of the VC and it will put something in the head of the founder of a series. A might be 20% dilution. If it's lots of interest and you have multiple term sheets, it'll be less dilution. If you have one, it'll be that dilution or maybe a little bit more.

34:30
Andrew Montgomery
But I think founders can get in, you know, a little bit of trouble if they put a number out there because if they have high aspirations, I'm going to Hear that and say, well, I can't hit my ownership. Also, you know, I think the next round is going to be really hard to raise. If you raise something very high now and you sort of don't grow into it or you do, but the market has changed, it's just very hard to get that next round. And so again, it's sort of you want to align those incentives. So I think it's helpful to look at how much other people have raised. I don't think raising 5 million because your closest competitor raised 5 million is a good number, a good reason, but I think most people have a sense of like, what's that dilution?

35:03
Andrew Montgomery
And again, there's so much writing out there of Carta does a bunch of great data analysis of like, what's standard dilution for a seed series A, series B? And so I think if you sort of everybody starts along those lines, at least in the first conversation, that's the best way to do it.

35:16
Hannah Dittman
Very helpful. And appreciate the candid and explicit feedback on that. You know, you mentioned early on that a founder is a big portion of what you're evaluating early on, especially and obviously throughout the process. When you're evaluating a founder, what traits matter most to you? What are you looking for? What signals, leadership, communication or experience? Maybe through the lens of a. A rockstar founder from your portfolio, as an example, what stood out to you when you first met them and why?

35:45
Andrew Montgomery
Great question. I mean, there's so many examples in our portfolio. Maybe I'll talk about Samir Mehta, Sean Cain and Glen Powell from Smash Kitchen. They're a unique combination for a host of reasons. But what I would say is one thing we look for, and one thing they brought, is I often talk about this internally, is there's an inevitability when the founder speaks. And it's not hubris or bravado or ego, but it is an inevitability of. I'm going to tell you the story of what I'm building, and I would love for you to be a part of it. And I want you to be excited about it. It's going to come to fruition, sort of whether or not you join us or not. But I'm making this my mission to succeed.

36:23
Andrew Montgomery
And there's a way that they talk that's still humble, like, I'm going to hit bumps along the way, but I just know that this in my bones will exist in 10 years and I'm going to build a big company. So I think there's a way that people Speak. And I don't have a good, like you can't describe it. It's just sort of like if you see it, you know it, you know, Samir and Sean have obviously built global brands in the honest company or in jinx dog food. And so when they came to us and said, hey, we're launching Smash Kitchen to, you know, sort of redo the pantry aisle for mass consumers at organic, with organic products at mass affordable prices, we said, great, you guys have done this before, you've got the distribution. We dove in a lot more than that.

37:01
Andrew Montgomery
But we looked at them and said your backgrounds, obviously you have the pattern recognition and relationships and understanding to do this. And then coupling that obviously with Glenn's sort of authenticity and excitement about the brand was sort of a home run situation for us. Or at least what we thought was a good opportunity.

37:17
Hannah Dittman
Yeah. Any other kind of like core pillars of personality traits or things that you look for.

37:22
Andrew Montgomery
So the other things that we look for in addition to that inevitability. And this goes back a little bit to what I was talking about, the tangible and intangible decisions of the brand or intentional and unintentional decisions of a brand is how do they respond to emails? Are they responding quickly? Are they a good salesperson? Not salesy. But can they hire great people? Has the first employee been hired and are they a very impressive person? If so, it means that they were able to sort of pull that person loose probably from a very good opportunity. So there's hiring, there's selling, not just to the VCs but also to customers. So we look for that. Are they good fundraisers? Because usually we're not the last round of capital. Usually we're just the first of a few.

38:00
Andrew Montgomery
And so can they sell to customers, can they sell to investors and can they sell to employees? Because that's going to be super important. And I think again, the sort of drumbeat of excitement through that process sort of also shows that kind of pivoting.

38:14
Hannah Dittman
Onto a little bit more of broader thought leadership in this space. You know, CPG and consumer investing especially often comes in category waves can be polarizing concept in itself. Is that how you're thinking about what types of companies you're looking at? Or are trends less relevant to you or sector focus? How are you thinking about your portfolio architecture, exposure and what categories you lean into in?

38:37
Andrew Montgomery
Great question. Another question we ask internally a lot is what is niche today that could be mainstream in 10 years? And what we're trying to understand is what is a trend? What Is an enduring durable trend or maybe a full consumer behavior shift versus what's a fad today? You know, we investing in lower sugar enduring trend, south beach diet fad. You know, we're going through a lot of high protein diet changes today. It seems like there's lots of companies that are targeting high protein. I personally don't think that's a fad. I think that's an enduring change. With that said, I don't know that we should have protein in every single item. And so like when I see Starbucks putting protein in their foam, I think we're not investing in that category.

39:19
Andrew Montgomery
So we want to be really careful of what we invest in from that perspective and make sure that things are enduring. We were very fortunate to invest in the farmer's dog. The sort of core behavior shift that we invested in there was people are treating their dogs and pets like members of the family and like their kid. And actually there's been some research recently. If you were facing harder times, you'd more likely pull back on your own spending on you versus your spending on your pet. And so as we thought about, okay, human grade dog food, that seems like an enduring shift. Then also there were some really strong tailwinds from e commerce. Pet ownership during COVID exploded. And so there were sort of natural tailwinds that we couldn't have foreseen but sort of, I would say shifted. That helped the farmer's dog.

40:01
Hannah Dittman
I think that's a great way to package that sentiment. Spent a lot of time doing consumer survey work back in my consulting days in my due diligence. Worked at a due diligence shop and yeah, we called it flash in the pan. Are we looking at a flash in the pan or are we looking at a long term trend? So I think that's like such the core question on the investing side of consumer probably a little bit more so than on the founder side.

40:23
Hannah Dittman
Even when you're evaluating these cc's or trends that you're getting conviction in or coming up with, how much of that is a founder coming to you and explaining it to you versus you guys already have thesis kind of built in mind and you're just kind of waiting for a founder to come along and scratch some of the itches that you have listed across the board?

40:46
Andrew Montgomery
Sure, I think it's a bit of both to be totally honest. I mean, in some cases we might have a thesis of, for example, we invest in a category, what we call precision health. And what we mean by that is, you know, we're seed Investors in whoop. We're seed investors in Rhythm Health, in Loyal, which is a dog longevity company. But these areas where consumers can take control of their own health in certain ways and it's less about, you know, FDA approved biotech, long investment cycles, and more like what can consumers do to understand their health better and make more proactive decisions. And so that might be a broad thesis we have. And then when we see companies come in, we'll already have a little bit of a perspective on it.

41:25
Andrew Montgomery
There are also going to be cases where we've invested in something where a founder brought it to us and were like, we have never thought of that idea before. We've never even been close to it. And it is fascinating to us. But if you sort of think about our scaffolding of better for you, better for the world, we start to see where the villain test overlaps with some of those things. And so it's a bit of both in terms of we might have an overview, sort of a broad landscape view, but there's going to be specific things where a founder's been thinking about this for years or it's just so niche that it certainly never came up to us.

41:56
Hannah Dittman
Yeah, that's always the most exciting thing. I think everyone loves those moments where you're learning something huge and you're like, wow, you feel like you're being sold to as the consumer for the first time almost where you're like, yeah, I would totally be in on that. You've kind of touched on a few through your portfolio. But what current changing consumer trends, habits, categories, maybe channels, price points, anything are you interested in right now and why and kind of looking forward to in your future investments?

42:23
Andrew Montgomery
Yeah, I mean, I think there's a couple things that I would probably point to. One is distribution. You know, I think a lot of the retailers have gotten very sophisticated about bringing in new brands much earlier in their life cycle and testing them in different regions or different store formats. And so when we think about new companies, it's. That may not be such a signal as it used to be of, oh, wow, you're in every single Whole Foods or you're in a region of Costco. That's still a huge signal, but it may not be quite the, okay, this is ready to scale to the mainstream. And so thinking about what is the unique edge on distribution? There's so many different channels now to reach consumers.

42:57
Andrew Montgomery
You know, people could go through Erewhon, they could go through Talkshop, there's all different categories to understand that and think about that. So one way that we look at that is just what's the unique advantage that somebody might bring to distribution? And so we're thinking about that of how are people changing the playbook? And then let's go find companies that might be working differently. I think Rode and what they did, obviously is a huge example. And then the second thing, you know, AI we're looking at how is that going to impact consumer behavior? Every time you go through these sort of technology shifts, whether it was from computer or mobile or social, it really changes how people interact with their hardware or their data or just a product. And so what we're thinking about is how does that evolve in the consumer landscape?

43:36
Andrew Montgomery
ChatGPT and Google are obviously huge consumer companies, but I think we've not even scratched the surface of like what is to come and how will AI really change the software around consumers and all the data? And I think there's a huge opportunity in finance and so really looking for companies in and around those categories that are thinking of what's that next step, what's that leap forward in terms of AI and how they're using it for consumers.

43:59
Hannah Dittman
Very interesting. Great answers. As we come up on our last couple of minutes, I want to pivot to our last kind of case study question. As you know, startup CPG has the largest slack community in the industry with over 25,000 members. I'd love to pull a question directly from our channel and have you answer it as a case study for any founders out there that might have a similar question. The recent question is when is a good time to start fundraising? A business needs capital from day one. We all know this is like a chicken and egg situation. So needing it doesn't really seem like the right answer. How long should you try to bootstrap or find alternative funding before starting to try to raise? Everyone says wait as long as possible. But what's a realistic answer to this?

44:38
Andrew Montgomery
Great question. Lots has been written about this. Raise when you don't need the money, raise when you do need the money, raise at all times, don't raise.

44:45
Hannah Dittman
A million opinions.

44:46
Andrew Montgomery
A million opinions. I would say two things. One, I think the reason people say to wait to fundraise is one, so you can maximize the valuation and the amount that you can raise and sort of show as much traction as possible. I think the other reason is to sort of align again what you're looking for. Do you want to raise angel money where you can keep control of the business for 20, 30, 40 years and sort of not beholden to have an exit. That's one option. Or bootstrap it and then you can control your own destiny. Or do you want to take venture money and sort of sign that implicit contract, explicit contract, that you're going to sell the company in five to 10 years? Or that's at least the goal.

45:24
Andrew Montgomery
So I think really making sure before you even raise money, what is your goal for an outcome? I would go back to what I said before about having that drumbeat of momentum. I think the first round you raise from angels is going to be all from friends and family and people who trust you, who you've worked with, who you might have access to, who can say, you know what, I'm betting on you as a person. And whatever you do, whether it's start X or start Y, I'm going to give you the money. So I think the question is really about venture funding, and I would say it's when you have enough traction and a drumbeat of momentum that you could reasonably go raise money. And also when you're like, I've burned the boats, I've left my other job. I'm like all in on this.

46:04
Andrew Montgomery
If you haven't done that, I think it's really hard to go raise money because I think it signals, at least to me, that maybe you're not fully committed and that's a hard way to go into. So I would say look forward at the next 6 months, 12 months, and figure out when are you going to have a new product coming out that you could sort of meet with somebody right before and then give them the new product. Maybe you have a new distribution partnership, maybe a new coman or, you know, lots of different things that you could look at to sort of drum that up. But yeah, our founders have gone through crazy processes ahead of time to figure out when's the right time to raise. And you're not sort of selling that momentum. But it's not an easy option for any founder.

46:40
Andrew Montgomery
So I empathize with that.

46:41
Hannah Dittman
What's your take on fundraising? When you know you're going to be able to close the fundraise because it can be a huge time suck. And kind of to your point of momentum, it's like there needs to be some compelling narrative, not just from a brand story perspective, but from a business perspective in place for you to be able to get over the finish line, which I think can kind of dictate quite a lot about timing in your business.

47:03
Andrew Montgomery
Yeah, the timing is really hard, especially because, you know, fundraisers could take six months. And so you've got to plan ahead far enough that you don't run out of money. Like if you're running out of money in a month, I think it's probably already too late. One I think CPG companies can do a couple of things. They can demonstrate that they could have better margins in the future at higher volumes, but you could order a small volume that is sort of palatable today, sign a key customer where you can then go to an investor or go to some kind of investor that could say, hey, I just need a million dollars or half a million dollars to fulfill this invoice that I have from somebody.

47:37
Andrew Montgomery
So I think there are ways that you can sort of stagger when you actually need the cash to when you can get the cash. And being pretty creative about that process I think is probably super important. It's a tightrope, high wire act that most founders have to do.

47:50
Hannah Dittman
Very helpful feedback and really appreciate the examples. Before we wrap up, I just wanted to take a second to make sure our audience can have an actionable next step to apply all of this amazing knowledge to for founders that want to get in touch with you, where can they find you or what is the best way for them to get into contact? And for operators looking to transition or other people that might be interested in a role working directly with collab fun or investing, same question. How can they get in touch with you or what advice do you have for them to follow along?

48:15
Andrew Montgomery
Yeah, for me, I really appreciate you having me. It's been a blast to be on and thank you for asking all the good questions.

48:20
Hannah Dittman
Yeah, thank you.

48:21
Andrew Montgomery
To reach me, LinkedIn or email are the two best for me. Obviously if you know anybody in touch in common, feel free to send them my way. But andrewllabfund.com awesome.

48:29
Hannah Dittman
Well, thank you so much for your time today Andrew and all the amazing insights and learnings. I'm sure I'm a lot of people are going to find a lot of useful nuggets in this conversation, so thanks again. We really enjoyed having you.

48:40
Andrew Montgomery
Awesome. Thank you Hannah. Great to be here.

48:45
Hannah Dittman
Thanks so much for tuning in everyone. If you like this episode, show us some love with a five star review at ratethispodcast.com startupcpg I'm Hannah Ditman, podcast host and correspondent here at Startup cpg. I hope you'll join me again as we dig into more juicy topics like ops, finance and all the real talk founders actually need. Come say hi on LinkedIn or ping me on Slack. I'm always eager to hear your questions or brainstorm future episode ideas. If you're a potential sponsor and want to get in on the fun and appear on the podcast, shoot us an email@partnershipstartupcpg.com and last but not least, if you haven't already, don't miss out on our free Slack community for emerging brands and CPG lovers alike. Join us at Startup cp. We'd love to have you. See you next time.