The Startup CPG Podcast

Brian Bernstein
So if you are building a specialty brand that may become a great lifestyle business for you and your co founder and maybe a few other folks, but it may not have the potential to scale to be the next hundred million dollar disruptor in the category you're building in. You may want to think about ways to build the business without raising venture money because once you have an investor in the business outside of friends and family, you have to report to them and they're going to push you to get a return they're investing to eventually get their money back and a return on that investment.

00:43
Hannah Dittman
Hey everyone, I'm Hannah Dittman, operations and finance host of the Startup CPG podcast and today I'm excited to be joined by Brian Bernstein of Rich Products Ventures, the corporate venture arm of Rich Products. Brian brings a rare full stack perspective to food and consumer investing. He spent time across investment banking, operating roles and corporate venture investing, including experience at Blue Apron and within QSR at RBI before joining Rich Products Ventures. That background gives him a deep practical understanding of what it actually takes to build, scale and evaluate businesses in the food space. Not just on paper, but in the real world. In this episode we break down what corporate venture is and how it differs from traditional vc, the core buckets of diligence Brian and his team focus on and the metrics that actually matter when evaluating early stage food businesses.

01:32
Hannah Dittman
We also talk through exit pathways, what makes an investment compelling during diligence and the lessons Brian has carried forward from a long career spanning finance, operations and investing. If you're a founder curious about how corporate venture thinks, how strategics evaluate risk and upside, or how to position your business for long term partnership and optionality. This conversation offers a thoughtful behind the scenes look full of practical learnings and advice. Enjoy. Hey everybody. Welcome back to the Startup CPG podcast. This is Hannah and today I'm here with Brian Bernstein, an investor from Rich Products Ventures. Brian, welcome to the show.

02:11
Brian Bernstein
Thanks for having me.

02:11
Hannah Dittman
Hannah, we're so happy that you joined us here today. I think this is going to be a really fun chat to get into. I'd love to kick off with just getting a brief background of your career, your path to Rich Products Ventures and what you're doing there now.

02:25
Brian Bernstein
Little background on my career to start. I. I've always been a food person but I've taken that through a number of different capacities from a career perspective. I started investment banking working at bank of America in their consumer retail group advising some of the largest CPG companies, food manufacturers and some other retailers. The Fun deal I got to work on back then was doing Yeti coolers ipo which at the time was a brand no one really knew and now they're everywhere. So cool to have been part of that. Coming out of investment banking, everyone traditionally goes into private equity. Coming out of banking, it's kind of this training ground. I wanted to really understand the operator's side of the table rather than just being an advisor.

03:09
Brian Bernstein
So instead of going to a private equity shop, I joined Blue Apron, which at the time was kind of the hot consumer direct to consumer company. I thought it was really going to change the way people were eating forever. So joined there just before the IPO got to be there for the fun and ultimate downfall of the company, which I think was probably a better learning experience than it would have been if a company was continuing to do well. Really had to learn how to operate in challenging times with cash that was becoming more and more precious and guiding the company towards profitability. So learned a lot during my time there in a number of strategy and finance roles and ended up after a bit seeing the writing on the wall, wanted to pivot a bit in my career from a role perspective.

03:58
Brian Bernstein
So applied to business school and around business school, continued to work in food, so spent some time at AB InBev. During business school I got my feet wet in the investing world working at a small VC fund that was run by the founder of Insomnia Cookies who had obviously had a successful exit and had a little VC fund that he was running on the side. So it was he and I running that fund. And then after business school I was at business school at Warden and after business school I I moved down to Miami and joined Restaurant Brands International which is the parent company of Burger King, Popeyes and Tim Hortons.

04:32
Brian Bernstein
I was in a business development role there and learned the food service world which is a whole other beast but great learnings there and ended up coming across the opportunity to join the fund where I am now about a year into my time at rbi. So took advantage of the opportunity and joined Rich Products Ventures which is the corporate venture fund connected to Rich Products. Our parent company is about a $6 billion revenue fund food manufacturer. They're 80 years old, based in Buffalo, New York, still privately owned by the Rich family and they have innovated and acquired to be where they are today.

05:09
Brian Bernstein
So they're one of the largest frozen food manufacturers in the country with about 20ish manufacturing facilities domestically and another call it 15 or 20 internationally that the parent company sells about a billion plus of CPG business and the remainder is actually into food service and B2B. So it's a diverse manufacturer producing products across a number of categories, Whether it's pizza or baked goods or proteins or frozen appetizers. They're one of the largest in store bakery companies in the country. So if you ever go to a kroger or a walmart and you see those clamshells of cookies or cakes, those are products that riches makes. And then on the branded side, a few of the brands that riches owns are Farmrich, which is one of the larger frozen appetizer businesses in the country.

06:00
Brian Bernstein
Cpac, which is a frozen seafood business, for real, which is milkshakes and smoothies that are in convenience stores. With a smart blender, you take the milkshake out of the freezer, put it into the blender, it blends it up and you have a freshly blended milkshake. And then we continue to look at new opportunities to acquire new brands. That for real was one of the most recent acquisitions though today Rich's announced actually that we acquired a pizza manufacturing business called great kitchens. So continue to be acquisitive as a parent company. The venture fund was started eight years ago. That's where I sit. We're based in the bay area. We're a small team of three of us and we invest in kind of anything that touches food after the farm. So that takes kind of categorize it into four different categories.

06:45
Brian Bernstein
One is what we call the future of food service and food retail. So that's automation and software and hardware that goes into the food supply chain or into food service operators. The second bucket is what we call sustainable production, which is food waste reduction technologies and sustainable ingredients and proteins that could help shape the way people eat in the future and serve as inputs into consumer brands as they develop new products. Third is the dynamic supply chain. So that's software and hardware solutions that go into the food supply chain, Think next gen distribution models and stuff like that. And then lastly, and where the startup cpg community is likely most interested is nutrition and health, which encompasses better for you cpg, which is a real focus area for us nowadays. So that's kind of us and our parent company in a nutshell.

07:37
Brian Bernstein
We are traditionally a follower as an investor, so we do not traditionally lead rounds that we have, but happy to share more details on kind of what we look for and what our standard investments look like.

07:50
Hannah Dittman
Yeah, that's so helpful and thank you so much for the colorful context. I feel like first of all, you have the perfect background for where you're sitting. I mean everything from QSR to like very interesting, dynamic, modern ways to approach food and food services with blue apron, tons of finance experience and broader food and consumer backgrounds. So it makes perfect sense to me how you ended up at riches. And I feel like it's almost like faded for you in a way that the way your career has planned out. Second of all, I am a huge sucker for the bakery section of the grocery store. And so I'm sure that I've been a consumer many times and it's one.

08:30
Brian Bernstein
That, that has been stale and is ripe for innovation too. So it's an exciting category for sure.

08:36
Hannah Dittman
Yeah. Listen up founders, anyone Revolutionizing the better for you bakery section. We've got your guy. Yeah. And as you mentioned and kind of led me to I'd love to double click a little bit more on some of the baseball card stats of your investment profile. Mainly stage check size and kind of like mandate as it comes to investment, whether that's like a revenue target or a profitability target or certain things that you're focusing on specifically when you evaluate investments.

09:06
Brian Bernstein
So from an investment perspective, what our standard investments look like is we're generally investing somewhere between 1 and 3 million as a first check into startup businesses. Those companies can be a variety of stages nowadays, especially where a number of businesses may have been around for a while and maybe looking at recaps. We've done deals in businesses that are pre revenue and we've done deals in businesses that are approaching nine figures in revenue. So it's relatively wide mandate. So could be seed all the way through series B or C. Huge mandate, very opportunistic, which means that we're looking at a lot too. So in any given year we're probably looking at somewhere between 350 deals of those three or 350 deals. We're probably actually investing in somewhere between three to five new businesses any given year.

09:59
Brian Bernstein
So you know, call it 1% of the companies we look at we end up investing in. So it gives kind of a little bit of a peek under the covers as far as when you are doing your outreach for fundraising. Definitely be strategic with who you're reaching out to, but you need to cast a wide net because a lot of investors are looking at a lot of deals and there's only so many checks to go around. So definitely be strategic with who you're looking for, but also be willing to kiss a lot of frogs. As far as where we traditionally look for businesses to be to invest especially in the CPG world. Your business would have some traction in retailers. We like seeing that chasm start to be flirted with when it comes to crossing the chasm between natural and conventional.

10:46
Brian Bernstein
A lot of brands will succeed in natural and have no standing in conventional. So to become a big brand with the ability to generate an outsized return for an investor, I always think you need to be able to cross that chasm. We as a differentiator for the fund, I'd say versus some other traditional financial investors. We are definitely investing to get a financial return, but we have the strategic capabilities that Rich's brings to the table that we're able to support our portfolio companies with. So I'm happy to dive more into some of what that looks like. But in general I like to think of us as a financial investor with extra value added capabilities that we can bring from riches. So that could take the shape a variety of different strategic capabilities that we have as a business.

11:33
Brian Bernstein
I think I hit on all your.

11:34
Hannah Dittman
Points, Hannah, but yes, no, you're doing a great job. You don't even need me here. I feel like you've got a down pat. This is such great context and super helpful. I'd love to spend some time talking about corporate venture. That's not maybe a term that everyone is as familiar with or type of firm or investor that they've encountered. I think sometimes the knee jerk reaction for founders, especially earlier stage founders, can have like a little bit of a layer of fear with corporate venture because they're thinking, okay, I might be kind of competitive with their existing portfolio or their parent company. How does this all work out? Like would they like steal my ideas if our deal didn't work out? Or would they need my information and then just use it for my information but not actually want to invest in me?

12:21
Hannah Dittman
How do I think about this? What does this mean for exit potential for me? You know, I think there's a lot of nuanced questions that stem from maybe not fully understanding what corporate venture actually is, how it is similar and how it is different to the more mainstream, if you will, I guess financial institutions in the consumer investing space. So I'd love to give you the floor, pick your brain and kind of get the spiel on corporate venture and your thoughts. If I was a founder approaching you with some of these concerns, what you would be telling me about them?

12:53
Brian Bernstein
Happy to explain corporate venture to folks. So corporate venture has taken a number of different shapes in the consumer industry over the years. Some have been much more strategic in nature, some have been purely financial. In nature, we're somewhat of a hybrid. I'd say we're probably about a 7 out of 10. If you were to put a scale between 1 being 100% strategic, 10 being 100% financial, we're probably sitting around a 6 or a 7. So what does that mean when we're looking at investments? We understand that corporate venture funds could be viewed as a threat. They could be viewed as a burden potentially. We like to view our fund as an asset. And why do I say that? I like to think what we're doing is a hundred percent of what a financial investor would do from a diligence perspective.

13:36
Brian Bernstein
From a financial support, you know, we're going to invest and then we'll potentially be a follow on investor as well. We'll be there to advise you on big strategic decisions. But we'll also have true operating experience around the table. Whether that's the three of us at the venture fund who are all former operators. The other two partners at the fund, one has been at Rich's for over 20 years. The other one was actually Furreal's first employee and stayed on board when For Real was acquired by Rich's. So has the experience from that for real business as a startup and then as a startup within a big food company. So we bring all that operational experience and then we're also able to bring some of Rich's assets to the table to help strategically.

14:19
Brian Bernstein
So whether that's sales resources or if it's customer relationships or manufacturing support, or maybe it's just looking at how your supply chain operates today and advising you on how it may be able to operate more efficiently based off some of the experts we have internally. So those are all some of the things that we could bring to the table as a strategic investor. Now that the big concern with strategics is, like you said, they're either going to be a burden to have on your cap table because they're going to make me report differently or they're going to make me operate within the confines of this big company. I think what's important to note is normally when we're investing we're having single digit ownership percentage. We are not going to be reporting you as a business segment within the broader company.

15:05
Brian Bernstein
We're investing in you from a separate entity, the Rich Products Ventures entity that we're investing off the balance sheet. We're actually set up independently so we don't share information kind of across the wall that we draw when we sign NDAs, which that's a whole other story. I don't encourage NDAs in early stage businesses. I understand some of the desire to get one in place but we are very clear when we talk to businesses that none of this information crosses over to the corporate side. We do not sign any sort of right of first refusals which is another big concern with corporate venture funds is that they're going to make me sell to them down the road and it's going to limit my exit options. We don't burden any of the startups that we invest in with that.

15:49
Brian Bernstein
That said, if we invest in the business and everything's going well theoretically down the road we could make the handoff over to our corporate development team and say hey this is a business that we've invested in. They are coming to market now we're going to hand it over the relationship to you guys. We own X percent of the business but we are not going to stand in the way of any negotiation that you have from a potential acquirer perspective. So that's generally how we will operate. Are an evergreen fund so we don't have to fundraise in the future. So that's another valuable component of C VC investors is they don't have this five to seven year timeline. Instead we ideally we do want exit still on a traditional VC timeline but we are longer term investors.

16:36
Brian Bernstein
We want to be good partners for the long term and we understand how successful food businesses will be made which is with the long term in mind. So riches hasn't made it 80 years with kind of that short term mindset that a lot of traditional financial VCs may push onto their investments.

16:52
Hannah Dittman
Yeah, huge bonus for your job as well not having to go through the whole fund cycle fundraising process and be on that hamster wheel all the time. And I think to three things you said really stood out to me. The first of all is there's kind of like that big barrier information wall similar to like a sales and trading and investment banking floor where you're not really technically part of the same entity but there's rigorous checks in place to make sure there's no insider trading or insider information sharing going on. Second of all, yeah huge value add being so niche and specialty focus but also have so much information at your disposal and pattern recognition across a portfolio of hugely successful brands and an understanding of needs to get there.

17:34
Hannah Dittman
And third of all I think to your point of you're an investment firm so the incentives are aligned for you as an investment firm to show returns and the best return might be a different Strategic exit or like you're saying to even, you know, for your best performers to even have a pathway to like an auto filled in exit could be amazing and could be a huge benefit to founders or if not your goal is going to be to get the highest return for your company. That's what your job is going to be based off of. And so you're really aligned with the founder in a lot of ways of what they're going to be looking for to in terms of building a successful company and then eventually ideally exiting a successful company.

18:15
Hannah Dittman
So I think those are all worth double clicking on and just re highlighting some of the things you said that really help I think explain a lot of the benefits of corporate venture and kind of unique quirks that can add some special additional sprinkles of help on there and qualm some of the fears or the unknowns maybe that founders might initially kind of be thinking through as they are very strategic and forward thinking people typically. So what makes a company a compelling investment target for you? You know we're talking a little bit of stats earlier as far as like some sort of traction and distribution and revenue and scale and things like that, but would love to just more deeply understand what really seals the deal for you in a diligence process.

18:58
Hannah Dittman
And as an investor, what are the things you're really looking for a company to index on for you to feel high conviction in getting a deal done?

19:07
Brian Bernstein
Yeah, the most recent investment that we made was into a business called Evergreen, which is a frozen better for you waffle business. They have been around for a few years but really excited about what they're doing to the frozen breakfast space and going after the big Eggos of the room. So what do we look for and what drove us to the conviction to make an investment in that business? One was really the founder. So Emily Grodin, who's the CEO and founder of the business, created the business because of personal pain point that she had in serving kid her kids healthy breakfast on the go any morning, any regular day of the week. And that was a pain point that she wanted to solve.

19:49
Brian Bernstein
So she was an attorney and went into the food world without prior food experience, but really identified this as a challenge that her and other moms were facing. So developed the product in her own kitchen, started manufacturing it was scrappy with figuring out how to manufacture it because it was a unique product that there wasn't a ton of co main capacity for at the time. So she created this brand, started to sell a natural channel it's now kind of crossed that chasm into the conventional channel that we like to see. And we really were fans of the brand because of what we saw as the ability to expand this brand into a potential platform play down the road.

20:26
Brian Bernstein
So I can't provide any of the kind of secrets as far as what's in the pipeline there, but expect some exciting announcements to come in the coming months. So you know that's a product that's going after a giant category which is something that we look for frozen waffle categories over billion dollar category. It's dominated by ego today. There's been some other insurgents who have been acquired by private equity brand or other strategics over the years, but there was never anything that was truly going directly after Eggo. Everything else was either gluten free or protein based. And Evergreen is a hundred percent just better for you good tasting frozen waffles. So that was something that we liked about that business. We liked the founder market fit, given that she was a mom trying to solve her own problems.

21:13
Brian Bernstein
And the product tasted great, which is another key criteria for us. And it was starting to show they already had great velocities in the natural channel and it was starting to show the signs of really gaining traction in the conventional channel with some strong retailers and further new retailer banners that are coming this year. So that's what drove that investment and we're definitely excited about the path that they're on. Some of the other recent investments in the CPG category that we've done, one is in a larger business called Ripple which makes pea milk, plant based milk and other pea protein based beverage products. They're a more scaled business. So that kind of shows the diversity of scale that we're able to invest in.

21:56
Brian Bernstein
And then the other one that I'm excited about in our CPG portfolio today is Delicious, which is a frozen novelty bite size permissible indulgence. I can throw a bunch of buzzwords out there, but there are these really delicious cookie dough and gelato bites that are about the size of a golf ball and you pop one and it's a hundred calories and it satisfies for dessert. And honestly that one came about because when I met them at Expo West a year ago, it was the best tasting product as I walked the floor. And we as a result knew that there was something there and that they had a platform that could kind of reinvent the frozen novelty space. It's a category that's dominated by some of the big ice cream players.

22:40
Brian Bernstein
There's been some success with, you know, True FRU and Fruit Riot, but nothing that was really very indulgent, clean label and had the potential to really create a new form factor that people could love in the future as an everyday treat for themselves. So they're one that we're also excited about. And also similar story to Evergreen, saw the velocity of natural, starting to see great velocities in conventional and we want it to be part of their success.

23:07
Hannah Dittman
Super helpful and thank you so much for the different kind of lenses on case studies of different things you've got going on to compare and contrast against. I think some of the patterns I'm pulling out from you, if I had to boil it up, is one, you know, you have your market thesis, which is essentially kind of the high level exit potential or scale potential narrative that you're saying, which is, you know, an aisle that's ready to be disrupted, a white space that's needing to be filled. It's the kind of the right time, right place, why this makes sense in the market today and why this could be so big. Second, you're talking about founder fit.

23:42
Hannah Dittman
Either a really compelling founder background or a really strong reason why the founder has specific knowledge or is the right person to kind of build and drive this plane. Third, you're talking about product evaluation. Feeling really confident as a consumer yourself, feeling like that product will resonate strongly and kind of pass the test of what you all think about products. And then fourth is this kind of a little bit more ambiguous bucket we're talking about, which is metrics and what you're calling traction. And I'd love to kind of double click on that since obviously all of those things are critically important. But I feel like traction and metrics typically drive such a big portion of the diligence process.

24:24
Hannah Dittman
I'd love to get an understanding what you're really looking at specifically what indicates like good metrics, bad metrics and kind of run through that portion of a deal evaluation process in itself.

24:36
Brian Bernstein
Yeah. So I'll start on the finance side. So top line revenue is one thing. We like to see how much of this top line revenue is being driven by promotional activity versus truly customers just wanting the product. So part of that then gets into what is your product price, that is it at a price premium to conventional products that is going to be acceptable by the average American, or let's say upper middle class American. That's a need that some of the products that come out nowadays that are at 3x the price point of a traditional product. We just don't see it necessarily reaching the broad scale that it would need to drive a venture style return.

25:15
Brian Bernstein
The other thing financially that's important that we really like digging into, other than your pipeline, which you know is going to drive that top line, is your margin bridge and is that margin going to scale over time, how is it going to scale? What initiatives do you already have in the works that we can really put a finger on to see? Yes, we believe that it's going to be going from a 15% to a 30% contribution margin because of X, Y and Z. It's one thing to just say it's going to happen. It's another thing to show what initiatives you have in place to make that happen. So that's really some important hard financial criteria that we dig into. And then on the Velocity piece, I think this is something that you'll hear over and over again from investors.

25:59
Brian Bernstein
It's all about depth, not breadth, at least at first. So it's great to have 10,000 doors as an early stage brand. But ultimately if you're moving one unit a week in a category that moves four units a week and you're in those 10,000 doors, the writing's probably on the wall that you're not going to last that long in those doors. You know, they're these retailers are looking for productive real estate. Every slot on that shelf is real estate that they're selling to the brand to occupy. So they're looking at turns. So as a result, we're looking at turns and we want to see you at least at Target or beating Target based off what retailer guidance has been to each of the brands. Every category is different. So for some categories that may mean only moving 2 units per store per SKU per week.

26:43
Brian Bernstein
But for other categories the standard may be 10 or 12 or 15. So just looking at how that benchmarks to your specific category and if you do have that early velocity, that likely will lead to distribution gains in the future. So it's just looking at how that early velocity benchmarks to your category. If you've been able to prove it out in maybe just a few conventional doors to prove that the demand is there as well, which will allow you to scale to get that distribution down the road.

27:12
Brian Bernstein
I'm going to rip a quote from a friend of mine, Adam, at the Angel Group, who evaluates all the all of his deals through what he calls the Toledo test, which basically looks at they look at any brand and if it won't sell in Toledo, Ohio, so you know, call it middle of the country average socioeconomic stats. If it cannot scale and sell in Toledo, it's not a brand that we necessarily want to invest and partner with. So that's something that I'd say also is more of a soft analytical test that we put against all of our investments. But it's something that stuck with me over the years.

27:49
Hannah Dittman
Yeah, I've never heard it communicated that way. I've kind of heard it like can it do well in Walmart? As kind of a euphemism for the same kind of mentality of trying to understand how mainstream can this get, how approachable can this really drive mass market appeal to get to a point of scale where it's really exciting and exitable for a certain criteria. And of course there's nicher products that do really well and everyone has a different journey and there's a piece of the market for everyone. I will say, but I think that's really helpful color and context for the way you all think about investments. And it makes perfect sense with kind of the background portfolio of the parent company and where your guys's power lane and knowledge base is really coming from.

28:28
Brian Bernstein
And definitely don't want to throw shade on anyone in Toledo who's listening to this because I've never been there, but I'm sure it's great.

28:36
Hannah Dittman
We love you Toledo. You're the gold standard for what we're benchmarking against.

28:41
Brian Bernstein
Exactly, exactly. So I think the one other thing to add in there that you just kind of triggered me thinking about is venture money is not necessarily the right fit for every brand. So if you are building a specialty brand that may become a great lifestyle business for you and your co founder and maybe a few other folks. But it may not have the potential to scale to be the next hundred million dollar disruptor in the category you're building in. You may want to think about ways to build a business without raising venture money because once you have an investor in the business outside of friends and family, you have to report to them and they're going to push you to get a return they're investing to eventually get their money back and a return on that investment.

29:25
Brian Bernstein
So when you're starting out your brand, you should think about is venture the right model for me to partner with or should I look at non dilutive options and maybe just bootstrap the business if possible and try to build a nice lifestyle business without the pressure of having to build it to be a hundred million dollar brand? You know, that's something that we see a lot is a business that they're projecting will get to be $10 million in sales in 10 years. Well that's great and that could be a great healthy business for you to run forever, but it may not be the right fit for traditional venture.

29:58
Hannah Dittman
Super helpful and sage wise advice. I think every journey is different and I think the capital knee jerk reaction or the fact that everyone quote unquote knows that you should fundraise or things like that can get into people's minds a little bit. But there's a lot of different approaches to raising capital. We talk about that in the finance newsletter often. There's debt financing, there's tons of different ways to manage your working capital to grow your business. And every founder I think should evaluate right timing and right need for themselves and the implications of all of that. So thank you for highlighting that point.

30:35
Hannah Dittman
I think it's a wise one and makes a ton of sense and also it's always nice to hear from investors because I think it shows some alignment that, you know, it's not just like taking over someone's company or trying to money grab or whatever. You know, like I said earlier in this conversation, you know, you want the incentives to be aligned because when a company does well, goes as planned, it's all the stars align, everything's good. That's when both parties benefit the most. That's when investors are going to make the most returns for themselves and when founders are going to have the biggest success for their company as well. So I think that's great thought leadership expounding on that even further. Maybe you've seen like hundreds of deals a year.

31:12
Hannah Dittman
You've been in the space for a really long time, you've got a big broad range of portfolio companies as well. Reflecting on all of this in your career, are there any lessons learned or compelling anecdotes that you think others founders, operators can learn from? Or if you had to give some pieces of advice, what would they be and why?

31:33
Brian Bernstein
Yeah, I think everyone should go into the food world only with the pre existing knowledge that it's a very hard business to succeed in. There's so many things that can go wrong and threading the needle on what can go right takes a lot of hard work and it's a long game. So understanding that if you are going to start a business and raise money, it's likely going to be seven to 10 years until you're at the point where a private equity firm or a strategic could be interested in acquiring your business. You know, it's going to be a lot of hard decisions, you'll have to make a lot of pivots. So just understanding that going into food is hard and it's a long game. I think the other piece that I'd add in is within cpg.

32:23
Brian Bernstein
I really struggle sometimes with businesses that aren't solving a need and I like asking businesses other than just understanding the competitive landscape and what's out there, if you're another salty snack that there's 30 other chip brands in your category and what's your differentiator? It's my brand you should probably think about, think twice before starting that business because you may not be solving a need or a consumer pain point. So think about what that consumer pain point is, how you're going to position your brand so that it is something that is solving that pain point. And then it comes down to execution and you know, are you developing a great product that tastes good, that people want, that people repeat purchase and that could eventually grow into a hundred million plus business. So that's from a advice perspective.

33:14
Brian Bernstein
It's something that I've seen a lot of brands not necessarily have that crisp story down during their initial pitch and something that I recommend really reflecting on before you start that venture, investor outreach because you know, it's difficult to kind of thread the needle on everything that'll drive that long term success. I think it could also not be a straight line up. It's likely not to be. So just be ready for there to be fits and successful periods and not successful periods of the business and just be able to learn from those failures along the way. I think that's something that, you know, when I was at Blue Apron we did, we tried to do was kind of do a lot of look backs and look at why didn't this work?

33:55
Brian Bernstein
How can we improve this consumer experience when we come out with a new product? What do we need to achieve from a margin profile for this new business unit to actually make sense for us to invest in and not being too committed to something that you may need to pivot away from and being willing to make those pivots. So it's much easier to start a brand now than ever before with all the fractional resources and AI resources that are out there. So start as scrappy as you can and then build a team around you as the work gets painful. So you know, once it's painful to do your own finances, that's when you should start thinking about bringing in external resources or hiring someone.

34:36
Brian Bernstein
But the biggest burden is if you hire too early and you end up needing to change paths later on in the company's life. I think that's one piece of advice that everyone should follow is, you know, just hire when it's painful.

34:49
Hannah Dittman
All such great pieces of advice and I think hard earned and well thought for insights as well. Obviously you've had a long journey and things haven't always gone right and you've seen things go wrong too. So I think all great perspectives and really helpful. You kind of started answering this a little bit already in your most recent answer, but I'd love to double click on it with you a little bit more. As you know, startup CPG has the largest Slack community in the industry with now over 35,000 members. I'd love to pull a question directly from our channel and have you answer it as a case study for any founder that may have a similar question. Today's question is how many years does a brand typically operate before it is acquired?

35:29
Hannah Dittman
And I think they're talking about the full lifecycle journey of a CPG brand from beginning to maybe final exit. I know you kind of alluded to the period of seven years or so in your answer, but maybe also it would be helpful in addition to number of years, what kind of needs to be in place for that acquisition to happen. That also might be helpful knowledge as well.

35:50
Brian Bernstein
I think it takes a number of different forms. There's an exit to a strategic, there's an exit to a private equity firm or a financial sponsor, and there's an exit through going public via ipo. We've seen Once Upon a Farm filed for their IPO recently, hopefully see that go well. But the IPO track is probably something that unless you're building the next billion dollar brand, you should keep that on the back burner. That'll take decade plus. You'll need to have a full senior leadership team in place who can deal with all the SEC requirements and it's really a big pain that you shouldn't think about unless you're truly scaling to be that next billion dollar high growth brand. When it comes to financial sponsors or strategics, I think it could be as short as a few years.

36:41
Brian Bernstein
It could be as long as 20, 30 years. That's where I said that average I'd say is somewhere in that 7 to 10 year range. On the shorter time period, I think brands could be acquired earlier on. If there's something truly proprietary there that's a threat to the strategic who would be potentially looking to acquire it. That said, Strategics often mess up a brand once they acquire it. So they want to acquire it once there's sufficient scale, so call it 75 million plus in revenue for it to be at the point where a strategic can acquire this business, potentially let it run independently for a bit, maybe fold in parts of the operation, but they're looking for true scale. That is going to be a needle mover. You have to remember these businesses have billions in revenue.

37:26
Brian Bernstein
If they're acquiring you at 20 million in revenue, they're probably going to mess you up. So just they want to make sure that you're at the point where you can operate independently or have enough going for you that you're going to be able to be folded right in and operate under the fold of the parent company. On the financial sponsor side of things, the private equity firm normally wants cash flow. So more so even than, you know, top line revenue, which they. Private equity firms could buy businesses as small as, call it $20 million in revenue and they can buy businesses with hundreds of millions in revenue. But what they're going to be looking for is what sort of cash flow can they underwrite their investment to.

38:04
Brian Bernstein
Once they put some debt on the business and make some operational changes, they're looking to eventually exit the business themselves. So they want to make sure that they can create value. So they're going to be looking at what's your cash flow, what's your margin profile today? What do we think we can achieve over the next five, seven years and as a result, what can we eventually sell it at? That's generally the private equity model. As a result, you know, you have to be focused on how quickly can I get to profitability with still scaling the business and able to achieve healthy, sustainable growth.

38:36
Brian Bernstein
So unfortunately not a cut and dry answer as far as how many years it'll take, but it will be a, it'll be a journey and hopefully one that you have the right investors around you to support you along the way. Because when you choose an investor, it's a marriage, it's not a short term relationship. So definitely be choosing your investors wisely.

38:55
Hannah Dittman
Such a well structured and well thought through answer and I appreciate the nuance you shared there and it's so true. I was also holding back some EBITDA jokes on the financial sponsor one, but yeah, no, really well said and I think those three outlays make a lot of sense and I would add a fourth and just say there may be no acquisition for your brand if you build a really solid lifestyle business that is cash flow positive that you're able to maybe pay dividends out to yourself or something like that. That could run. Those are some of the generational brands that you see running independently and still family or founder owned for quite a long time. So there's always different paths out there. You could be the next richest products potentially and building an empire of your own one day.

39:38
Brian Bernstein
The one thing I'd add is think about capital constraints are tough nowadays, but a lot of times when you're thinking about your exit down the road, what assets do you really have? And think about what the asset light way of growing the business using commands versus the more capital intensive way of having your own manufacturing. But if you do have some sort of proprietary manufacturing process or product that you want to keep tight to your chest, potentially be a reason why someone feels the need to acquire you in the future because they can't do it themselves. That's something that strategically you should be thinking about early on.

40:18
Brian Bernstein
And maybe that means for the first three years I'm going to use commands, but then I aspire to be able to, you know, have enough cash flow to invest in my own business and build out my own manufacturing line. If it's something proprietary from a form factor or from an actual recipe or trade secret perspective, that could be something that really drives incremental value and increases the likelihood that you could be acquired down the road.

40:41
Hannah Dittman
Well said. And yeah, I mean a huge ambition and goal, but makes a ton of sense when you get to a certain scale and size thinking about your business in a completely new chapter and phase of life and protecting those margins and getting those cash flows going. I'd love to take a second to wrap up, Brian. I feel like we could chat all day. You have such amazing wisdom and knowledge and so many interesting perspectives and such a colorful wealth of experience in your personal career as well. It's been such a fun time diving in with you and you're so sharp and intelligent and it comes through so clearly. For founders or brands that may want to get in touch with you, where can they find you? Or what's the best way for them to get in contact?

41:23
Hannah Dittman
And second question, for operators or others that might be looking to transition into investing similarly to how you did, what advice would you have for them?

41:32
Brian Bernstein
Yeah. So to get in touch. I'm on LinkedIn. Brian Bernstein. I think I'm LinkedIn.com in BrianBernstein. You can also find us on our website. Our website's rich products ventures.com and you there's actually a submission link on there where you can submit a link to your deck and kind of, you know, shoot us a note and we man that inbox so it's not going to go unanswered. And then I'm also at a lot of the trade shows and conferences that I'm sure a lot of you go to as well. So hope to see you walking the floor of Expo west in March or some of the other fun industry trade shows that happen across the country throughout the year.

42:12
Brian Bernstein
And then, you know, as advice for folks looking to get into investing, I think having some operational experience plus financial experience is a good kind of matrix to have when you're going into the investor seat. So for me it was investment banking plus Blue Apron and rbi. And you know, it's something that is a networking game. So these roles aren't posted often, the teams are often lean and a lot of times the funds will hire people as they need to based off raising new funds. So just, you know, if you're looking to get into the consumer investing side of things, put together a target list network with all the folks that you're able to get in touch with. Get warm intros when you can, rather than reaching out cold, because warm intros are always more likely to be responded to.

43:01
Brian Bernstein
And then think about what your thesis is and what your differentiator is that you would bring to the table. So, you know, work one or two theses that you think are relatively unique, that would be areas that you would be excited to invest in and be ready to talk about that when you are interviewing or having conversations with different venture funds and you know, go into it with excitement and show that you're going to be willing to roll your sleeves up and do some grunt work potentially at first, which will eventually lead into more of a productive, you know, investing type capacity. So it's an exciting part of the CPG world to be in. There aren't a ton of investors in it, but if you can break into it, I'm looking forward to getting to know you.

43:47
Hannah Dittman
Well said and again, another nugget of wonderful wisdom. Thank you so much Brian, for all of your time today and all the lessons learned and insights that you shared and perspectives. Such a great chat and we really appreciate you being here. So thank you.

44:01
Brian Bernstein
Thank you, Hannah. Have a good one.

44:05
Hannah Dittman
Well friends, we've now arrived together at the end of another episode of the Startup CPG podcast, the top globally ranked podcast in cpg. And if you love this podcast, you'll love our Slack community even more. Here at Startup cpg, we're a community of brands and experts and you should join. Sign up@startupcpg.com you'll then get an invite to our online Slide Slack community of over 35,000 All Star CPG members, hear about amazing events near you and all our special opportunities to get you in front of buyers, investors, brands and more. It's a free community. So what are you waiting for? I'll catch you on the next episode and I'll see you on the Slack.