The Startup CPG Podcast

Greer
We actually were the founding investors of a company called ao, which is this flavored mayo brand that was, you know, we helped launch with Molly Baz. We put the first check into that business and so it didn't really exist before we put our capital in. We'll do something like that, but it really needs to be the right opportunity. But I think a majority of our deals will sell it. Doing anywhere from, you know, a million and a half in revenue up to like 10 million in revenue is the first for our first check in.

00:37
Luke
And I will say the second fund that we're in the process of raising is, you know, hopefully going to be three times the size of the first fund. So we are trying to hit higher check sizes as we have a clearer line of sight to how much money we're going to raise. But the goal is to be deploying, you know, anywhere between half a million to 2 million per deal once we have our fundraise a little bit more locked down.

01:02
Hannah Dittman
Hey, everybody. I'm Hannah Dittman, operations and finance correspondent at startup CPG and the current founder of Ready Basics, a confidence boosting personal care brand. As a former CPG investor, I'm especially excited to host this investor spotlight with Greer Tesler and Luke Goldstein from Simple Food Ventures. If you're not sure where to start with fundraising, what investors are actually looking for, or even what that first meeting should feel like, well, you'll be learning it. Today we're going behind the scenes with the team at Simple Food Ventures, an early stage fund that's all about backing the future of better for you foods and products. Greer and Luke bring a ton of operational experience to the table, plus a unique edge through their strong ties in grocery retail, including a deep relationship with the Albertsons network.

01:43
Hannah Dittman
In this episode, we'll cover how they evaluate brands, what really stands out in a pitch, what the diligence process is like behind the curtain, and their best advice for founders who are gearing up to raise. Enjoy. Hey, everybody. Welcome back to the Startup CPG podcast. I'm Hannah and today I am here with Greer Tesler and Luke Goldstein, investors from Simple Food Ventures. Luke and Greer, welcome to the show.

02:08
Greer
Thank you for having us. We're excited to be here.

02:10
Hannah Dittman
Yeah, of course. I'd love to kick off with both of you guys introducing yourselves. Can you share maybe your title and a brief background of your experience prior to Simple Food Ventures and what led you to investing? Sure.

02:23
Greer
So I can start. So I the founding partner of Simple Food Ventures. I founded the fund in June of 2020. In the peak of COVID where you realize that everybody is so focused on what we're putting into our body and how important it is to eat clean and how expensive and not really accessible that is. So really founded the fund with the goal of creating more assets, better for you products and foods to drink for everybody. Prior to that, I actually spent my career in consulting. And so I worked with Albertsons. It plays into the whole differentiation of our fund. But I worked with Albertsons per about really through the bulk, the entirety of my career.

03:02
Greer
First when they were merging with Safeway, I was on the diligence team during the merger, and then I worked with them doing agency review to looking at their marketing organization and everything in between. And so I leveraged that relationship when I was starting to really give help these brands get access to a large grocery partner to. To facilitate scale for these brands and then create differentiation for what we're trying to build.

03:28
Luke
Yeah. And I'm Luke Goldstein, careers partner. I'm a managing partner at Simple Foods. We've been doing this for about four years now. But I started my career mainly as a founder and an operator. I started two consumer companies when I was 24 and ran them for about three years and did pretty much everything you can do wrong when running startup, but learned a tremendous amount about consumer entrepreneurship, consumer finance, managing the cash flow of a. Of an emerging startup, really from beginning to end. And when that chapter closed and I was looking for sort of my next opportunity, venture investing seemed like the natural next step. And so I entered the venture industry, spent some time as an investor. And then when Greer starting Simple Foods, we connected and the mission resonated for the two of us and we've been doing it ever since.

04:18
Hannah Dittman
That's awesome. I love that you guys have a operational lens, an entrepreneurial lens to come into investing with. I feel like backgrounds like that are far and fewer between, I would say, on the consumer side than maybe they are on the tech side. And it really, I would imagine, helps a lot on the seed stage and the earlier stage where you're. You need to know a little bit more of how those early days look to. To make the right bet there.

04:44
Greer
We also really think about ourselves as neither one of us have a true finance background. We think outside the box in a very different way than most other venture investors do. And that's the best part about this space, is that you can come with different backgrounds and like, still provide different types of value.

04:59
Hannah Dittman
Yeah, for sure. I feel like the more you've gotten your hands dirty yourself the better off you probably are. Greer, can you provide an overview of simple food ventures and walk us through your investment criteria? I'd love to get an understanding of your stage, focus, key themes, maybe how you differentiate as a fund, your mandate, average check size, all the good stuff.

05:20
Greer
So it's funny because we're fundraising right now, so I feel like I could sneak our elevator pitch in my sleep. So if this sounds rehearsed, it's not. It's just repeated many times every single week.

05:31
Hannah Dittman
Right now we all have to get our elevator pitches beat to death at some point, don't we?

05:36
Greer
Yeah, we're an early stage CPG fund. We invest in really anything sold in a grocery store. And what we're looking at investing in are we call it like better for you versions of grocery staples. So we look at products that have cleaner ingredients, avoid a lot of those like toxic ingredients that are starting to get banned on shelves today. We're really not asking the consumer to change their shopping behaviors or enter into new trends that they're not really used to. And the way that we work is we have a relationship, really like a strategic relationship with Albertsons. I've again like I said, worked with them for the entirety of my 15 year career from like a consultative standpoint. And so we leverage our relationship to help our portfolio companies grow. And so before we actually make an investment, we talk to the buyer.

06:22
Greer
We understand if the buyer at Albertsons is interested in looking at the business for their next review. If they are, we invest. And then for our deals, we structure like an added kicker to our all of our deals that we call performance equity. So we get additional equity for actually opening up points of distribution and helping our companies actually go into the stores. And we've been really successful at that. We've gotten eight brands national at Albertsons in a little under a little over two and a half years. We continue to work with them and it's just been a really valuable thing along the way for from our fund, but also for our brands.

06:57
Hannah Dittman
Yeah, no, that's a really interesting mandate and I think a unique value proposition you're offering. I was asking what differentiate your fund and that clearly is a huge differentiator to have inroads into a go to market strategy like that. You mentioned that you're clearly focused on better for you food. Do you extend your kind of thesis or thinking to other aisles that you might find in the grocery store? For instance, there's beauty, personal care, there's pet aisle. Anything else you guys look at besides food? Are you pretty narrowly focused on that?

07:27
Greer
No. So we'll do really anything sold in a conventional grocery store. Beauty's a little bit more difficult for us because you don't really go to like an Albertsons, which by the way is the third largest grocer in the US So it's not just Albertsons, it's Safeway, it's Bond, it's pavilions. They have 13 different divisions. I'm sure, obviously you know that they are, but. So we'll do pet. We have two pet food investments. One in a company called Pet Plate, that's a premium fresh dog food company. And then we have one in a company called Smalls, which is a premium human grade cat food company. So like we'll do those types of investments. We'll do a little bit into supplements, but they need to make sure that it makes sense to eventually be distributed in the store.

08:07
Greer
We'll probably stay away from health and beauty the most. But other than that, we're pretty open to what we're looking at. And we'll do everything from pre revenue for the right opportunity all the way to like Series B.

08:17
Hannah Dittman
Awesome. That sounds really interesting and expansive for your focus areas. You may have touched on this already, but I just wanted to circle back a little bit. Kind of your average check size and the stage of company. I guess that would be equivalent to that check size.

08:31
Greer
Average check size will depend when you ask us this. But right now as we're in the midst of raising our next fund, we're being a little bit more conservative. So typically 250k to start. For fund one, it was anywhere from a hundred k to 500k. But our sweet spot is like 200 to 250. I think our sweet spot is really a seed company or company who. Yeah, like seed to Series A. Again, like we'll do a pre revenue, pre launch investment. We actually were the founding investors of a company called ao, which is this flavored mayo brand that was we helped launch with Molly Baz. We put the first track into that business and so it didn't really exist before we put our capital in. We'll do something like that. But it really needs to be the right opportunity.

09:14
Greer
But I think a majority of our deals will sit doing anywhere from a million and a half in revenue up to like 10 million in revenue is the first for our first check in.

09:23
Luke
I will say the second fund that we're in the process of raising is hopefully going to be three times the size of the first fund. We are trying to hit higher check sizes. As we have a clear line of sight to how much money we're going to raise. But the goal is to be deploying anywhere between half a million to 2 million per deal once we have our fundraise a little bit more locked down.

09:43
Hannah Dittman
That's awesome. And best of luck to you guys on the fundraise process. I'm sure there's many founders in that can empathize with you and are in your shoes as well right now. None of us can really fully escape it.

09:53
Greer
Being a fund manager you get what the founders go through because you go through the fundraising process yourself. You know how treacherous and exhausting it can be, but how beneficial obviously it is in the end for sure.

10:05
Hannah Dittman
And you mentioned you touched on pre revenue seed, series A, series B for founders listening or other people listening that maybe aren't as well versed in what the end caps of those things could potentially mean. How are you guys defining for you what seed is? Is it stage of business, lifetime of revenue, size? All of the above. Can you give a little bit more of concrete parameters around what that actually looks like?

10:31
Luke
Yeah, like first and foremost like the nomenclature around like series seed, Series A, like throw it out the window. No one really, I think that those are relatively arbitrary. I think of a seed company as being someone that's broken a million in top line and trailing 12 month revenue and probably has a pretty solid retail roadmap. Maybe they sold into one major distributor, whether that's Costco, Target, Walmart, Kroger, Albertsons understands sort of their supply chain, but maybe hasn't materialized that 5 or 10 million trailing 12 month figure yet. As Greer said, like we play mostly in that environment. We'll, we'll go up to series A, we can go up to series B really just depending on the deal and how much we can help with Albertsons and with distribution.

11:13
Luke
But yeah, I think seed is that like special place where you've demonstrated enough traction to prove that your concept has validity and know enough about your business to really map out the next 18 or 24 months. But you hadn't really gotten to that sizable growth yet.

11:28
Greer
I think also it's like you can justify when you're a seed stage company and you're asking for valuation of 10 million plus, you can actually justify asking for it versus the pre seed company that is breaking 500k to a million in revenue, but really is only sold D2C and maybe a couple of independents or just like a little bit of natural specialty. There's so much risk associated with it still that it's just harder for the investor to take that chance with those higher valuations. Which is why you've seen it shift recently to being more of an investor's market. But that's why it's a little bit.

12:01
Luke
Of a more difficult question and like why we really like the true sort of like pre revenue incubation space. Because like oftentimes if you're getting a really favorable valuation, it doesn't carry that much more risk than a company doing 1 or 2 or even 5 million in top line. But the upside is way more favorable. So I think depending on valuation like seed can be a tricky place for a lot of firms to get involved.

12:26
Hannah Dittman
Yeah, I think that's where the operating background really helps out on the pre revenue. On the early side, I think you saw a lot of people flock, you guys probably know better than anyone being in the space, but a lot of investors flocked into the sector, maybe didn't really fully understand the business fundamentals, went really early, obviously like over committed on the DTC side or the heavy spend side, didn't really understand the growth curves or what the trajectory for these kind of businesses would be like and then pulled out. And the ones that did stay, I think they have to answer to a lot of LPs expecting a little bit more of a clampdown.

12:59
Hannah Dittman
So I think there's a lot of different external factors going on that are creating this market convergence where a lot of players that were once earlier are moving down later stage and competing a little bit more in the PE end of the world and then the ones that remain are the watermark has been raised more and more for the early side and what constitutes, I think seed or pre seed or any of these things. I think all the definitions have shifted a little bit over the last four or so years. So really helpful perspective and I appreciate you breaking that down so cleanly. I think clarity is so helpful for founders and operators that are trying to understand what their targets are and where their business sits in the ecosystem.

13:37
Hannah Dittman
So I think that's really helpful wanting to go off of that into a little bit of a different direction. Luke, what do you think makes your firm a strong fit for a founder? We've covered a couple of your differentiation points, but how do you think founders should be evaluating you in return? And what do you want founders to know about choosing the right investment partner?

13:55
Luke
Yeah, I think all too often we talk about this all the time. All too often the founder like investor relationship can be complicated. And I think having been a Founder myself and obviously having interacted with tons through Simple Foods, like you really want someone who's going to be collaborative. You don't really want someone that you're going to be like beholden to and reporting to, which can be the dynamic that emerges for certain relationships. But you want founders who like really understand the pain points of building one of these businesses and can get into the weeds with you and actually make change. And not toot our own horn, but I think Simple Foods does a really good job of that in a couple of different ways.

14:31
Luke
Like on the retail front, we're actually bringing doors to the table that add to your top line, that add to your bottom line. But we do take it a step further because sell in is just one aspect and there's a real sort of rhyme and reason and strategy to growing in retail and there's real cost implications to growing in retail. You're facing slotting fees, you have to dedicate a TPR strategy. You need trade, spend and demos to help promote strong sell through. And I think we're able to really understand like where a company is and what the roadmap could and should be and how Albertsons obviously fits into that picture.

15:08
Luke
But a lot of the brands that we interact with will invest and we'll know mass grocery isn't the right path forward for the next two or even three years, but can help them navigate the smaller sort of natural specialty channel and then matriculate to some of the bigger retailers later on. And yeah, I just think it's super important to get some people around the table who aren't just saying we need better margins or we need stronger top line growth year over year but like really understanding where the business is and how that relates to Runway and cash flow management. And another initiative that started in fund one, we more so not mandated but pushed really hard in fund two is that a lot of these founders come from like the CPG industry or everyone interacts with brands, everyone interacts with consumer products.

15:51
Luke
You can get a pretty wide array of backgrounds from a lot of these consumer founders. A lot of them don't have finance backgrounds. And there's a very specific set of understandings that allow you to be able to do things like forecast cash flow. And we'll interact with some brands that are doing obviously 1 but even 5 or 10 million in top line. And the founders can show you a forecasted income statement. But then when you ask about Runway and Cash flow and shifting dynamics around AR and ap, they're like, what if we see an amazing idea and a really strong founder who we think can push things forward, but they don't have a fully baked FPA infrastructure, we'll actually mandate that they work with us as fractional CFOs for six months. And that helps in a million different ways.

16:34
Luke
It helps us get more acquainted with the company, it helps us understand our investment better post transaction. But it's also like this mini boot camp where we're sort of like teaching the founder. We're building them an operating model, we're actualizing it on an ongoing basis, we're helping them understand their cashflow dynamics and that's been a really great tool for us and for a lot of our portfolio companies. But yeah, overarching statement. Get people around the table who matter and care.

17:00
Greer
I'll also like you're going to be you need to trust your investors as much as they're trusting you. By giving you money, you trust them in terms of believing in your business and making sure that like you all have the same end goal in mind. Which can be a little bit difficult sometimes because sometimes maybe they want you to exit sooner because they just want to have a distribution but maybe that's not the best thing for the company.

17:22
Hannah Dittman
Yeah, all great points and I clearly you guys have thought this through extensively and really bring a lot to the table in terms of tactical partnership which I think makes a big difference. You're alluding to kind of board meeting advice which doesn't always translate to the office chair. I think having that ability to hold hands at a more nuanced level I think is a great testament to your guys backgrounds and the way you approach investing. Greer, if a founder is currently in this process and really thinking about what options they have in front of them, what are three to five tangible questions that they should be thinking about asking potential investment partners as they're evaluating firms when they get the end of the meeting back after their pitch what should their questions to someone like you.

18:03
Greer
Guys be who else you've invested in? What do you define as success for my brand? Like what do you see in my as what would make you happy in this situation?

18:12
Luke
To Greer's first point, there's a balance. Obviously you have to be respectful but don't be afraid to like talk to other founders of their portfolio companies. Like when we you're we ask for equity in exchange on top of our investment in exchange for like our retail services mostly linked to actually materializing door count. But we'll like gladly connect prospective founder to one of our portfolio companies because we've been, we're confident in what we're able to do and we've been successful in it. And so it's more like they're singing our praises. But as a founder, I think you're entitled to do your homework too and understand from some of the other founders, like, what exactly the process has been, what that firm has done. There are a bunch of passive investors.

18:54
Luke
So there are people who have money and aren't claiming to be more of a value add than a check in. And sometimes that's a good thing, right? Like you need money.

19:02
Greer
I think also, like, you can ask them too, like, what do they want your relationship to be? Like, how do they want to interact? Do they want to be more involved? Do they want to be a passive investor? Do they, how much do they value their quarterly updates? Like, really just to understand what your expectations are up front.

19:17
Luke
I think also like to Greer's point earlier about trusting your investors, like, and look, I don't know how other firms handle it, but at least for us, like, we're all in it together. If you lose, we lose. If you win, we win. And like I've seen founders who maybe inadvertently are not quite as transparent with their information and their performance because they want to keep everyone happy and they want to impress the cap table. And I think that ends up hurting you in the long run because if there's an issue or there's like a goal that we're all trying to hit, like you want as many people around the table who have different networks and different thought processes to be tackling those issues and hiding it and saving it is like not, it's not efficient for anybody.

20:00
Luke
So we have one portfolio company that is just super transparent. They send out like all of their financial information on a monthly basis to every investor, not just the board. And it's been, I think she would say that it's been instrumental in helping her problem solve because immediately people trust her, they like working with her, they want to help her, they have access to the information in real time and everyone's materialized the best outcome.

20:23
Hannah Dittman
That makes a lot of sense to some. All those great nuggets up it sounds focusing on relationship building questions that help you evaluate maybe the character and the collaborative approach of the firm, maybe case studies on ways that they have worked with other portfolio companies or what the trajectory of those portfolio companies were and maybe some understanding of the future perspective on your company of how it could grow or what the expectation would be like or another company that Maybe they think the growth trajectory could compare to.

20:55
Greer
Ask the last question, like on the first pitch meeting. But as you get a little bit deeper into the diligence process, I think that's a completely fair question to ask.

21:04
Hannah Dittman
Awesome. And that perfectly ties into kind of the next place I wanted to go, which is early innings of the diligence process and especially the first meeting. I think we've alluded to or it's no surprise for many people that one of the worst parts of being a founder is fundraising, which is so unnecessary for that to be the case. And it doesn't really make sense. Founders love talking about their products and their brands. They're used to having a lot of meetings. They're used to doing all the things that they're doing in that meeting. So I'm trying to understand for found that's such a big pain point.

21:35
Hannah Dittman
And I think one of the reasons that I've come to is that it's the ambiguity of the process and not really knowing where to put their energy or what it should really look like that might be a bit of a struggle for founders. I think they are fearless people that are high achievers and like to get that gold star. So I think they want to make sure they do the process right. So I'd love to try to demystify that a little bit with you guys. So to kick things off, what does your diligence process typically look like? For instance, how often are you meeting with a founder before an investment decision? How much work happens, diligencing a brand or reviewing materials before that first meeting versus after that first meeting.

22:15
Greer
So we typically truthfully go into our first meeting pretty blind. My favorite part about this whole thing is falling in love with the founder story and like hearing the passion and why they're doing what they're doing and why their brand is the brand that we should be investing in, the same way that we pitch our fund versus every other fund out there. Like, it's the passion you bring behind your job and your and what you've built. And so we go into that first meeting blind. We like to hear the story of what they're building, how they got there, why they're doing it. Obviously, if it's not pre revenue, it's like their progress, what their financial profile looks like, distribution, all of that. After we have that first meeting, they ask for samples so that we can try the product.

22:56
Greer
We also asked for data access to the data room. And then we've developed our own diligence top sheet that we Send the founder to fill out. That is just an overview of the brand, their numbers to date, some of their like most prominent investors, what the market looks like. And then we use that throughout our outreach then to Albertsons where within the next six weeks we try and have a conversation with the buyer at Albertsons just to understand what they think about the business. At the same time gotten access to their data room and we're looking at their financials, we're putting together our model and of like our return potential for the business where we see holes in what they're trying to build. And then we fill out our own investment memo justifying the investment to our investment committee and then we typically invest.

23:39
Greer
So our whole process takes around, I used to say six to eight weeks. I'd say now probably like eight to 10. And it is, we talk to the founder throughout it. It's not so intensive where it's like we're on a phone with the founder every single day. But I think we try and get a good understanding really what the company's about and what the inner workings look like.

24:01
Hannah Dittman
That's really helpful to and thank you for being so transparent with kind of the milestones, the breakdown of what you guys are really looking for. A lot of weight is typically put on that first meeting and I think that's where a lot of founders feel the pressure because technically that's where the diligence process is either going to start or not start. So you know, what should founders expect in terms of dynamics of the first time they're meeting with you? For instance, what should the tone of the conversation be? Who should be leading it, you or them? And specifically what are you hoping they will say or what will be covered in that first probably 30 minute meeting.

24:38
Greer
I think that they should be leading it like they're the ones that reached out ask for the meeting. I think that I love doing an a quick overview of simple Food ventures so that they just have context on who we are and what we're about and then really just diving into their story, understanding their background, what brought them to this point in their career to do this, clearly defining what the company is and then what the market opportunity is and yeah, and then what their performance looks like to date then obviously how much capital they're raising. I do like when they tell us what like the valuation is or what the cap looks like just to get an understanding of where we're at.

25:13
Greer
And then I don't think it's as important in this specific meeting to understand exactly where the use of funds are, but just the overall like where they're thinking and then how long this, what the Runway would be from this amount of capital.

25:27
Luke
I think going back to what you said earlier about like the fear of fundraising, I think it helps and it's for context. Like we're raising the second fund, as we've said, we've probably spoken to 50 or 60 family offices or fund of funds over the past three months. And you know, I think there's a chance that maybe six or eight of them invest in fund two. So and that's not for lack of effort. It's not because we have a bad system. Like the feedback we're getting on what we're doing is spectacular. But it's a numbers game and like people there's, you're going to talk to a firm who doesn't do beverage, you're going to talk to a firm who doesn't touch Frozen.

26:02
Luke
And it's, I think the more you can disassociate the fundraising process from your own sort of like self worth and ego, but the better off you are because it's a tough process, there's a lot of rejection. But the fact is it's not for everybody. And there are certain everything comes together, right. It's no different than when you're on a first date or you're like meeting somebody for the first time. And it's what they're not saying this about a founder, but what they're wearing and how they speak and how they act. Like it all comes together to create like a vibe. When it's certain things like that where investors are going to resonate with the founder and feel familiar with the founder. There's certain buzzwords, there's certain margin profiles, there are certain categories that people are interested in.

26:42
Luke
Try not to take the whole thing so personal.

26:44
Greer
And also like we are pretty good. I mean the fun is just Luke and I, we're young, we're friendly, we're pretty open and accessible. We are who we are very business forward facing. We're professional but we're easy to going to be around. And so we want to invest in founders that we can have a conversation with. And I think creating that repertoire in the beginning of just shooting the shit for a minute or just saying what's going like who you are just to get an understanding of your vibe and your energy because again like we are trusting you with our money. And so that's a big part of it too is the character of the person and so feel relaxed. Like we're not going to ask you a billion questions and you don't know the answer to your business.

27:26
Greer
You know your story, you don't need to think about it, just let it flow.

27:30
Hannah Dittman
That's really helpful. And to your point, it's not every job you interview for when you're first out of college is going to be the right culture fit I think similar kind of dynamics with fun fit it sounds. And Luke to double click maybe and give a little bit more guidance to founders. In your experience, you know, what are the key pillars of a strong pitch? Are there standout elements that consistently grab your attention that you're kind of looking to hear?

27:55
Luke
Good question. I'm going to start with what I don't like to hear. But I think like the worst situation that you can come across is when like the mentality is like, we're going to get, you know, two or three or $4 million and we're going to figure it out. You know what I mean? We don't ever want to invest in someone who's figuring it out as they go. We need somebody who understands retail, understands cash flow, understands how to build a CPG business, understands supply chain. And my, I guess my caution to founders is if you don't like know those things, you should put yourself in a position where you can learn them and have an opinion on them and really understand them before starting whatever it is that you're trying to start.

28:35
Luke
So I really like when a founder has a product, it's innovative within the category. There's a particular point of view on margin. There's a particular point of view on retail roadmap and direct to consumer and their growth trajectory and can really speak to like where this money's gonna take them and why that's beneficial to us. So much of investing is understanding, especially in the early stages where you're not raising money to break even. You need future fundraising activity. Like how far is this round gonna get us? What are the, what are the performance metrics gonna look like when you run out of money? Are you gonna be able to recapitalize?

29:09
Luke
And we talk about this a lot, Greer and I, but it's one unique skill and definitely a necessary and impressive skill to have an idea and formulate a product and bring it to or 2 or 5 million in top line. And it's a different skill set entirely to get that to something that has staying power and can really scale through multiple channels of distributing of revenue and distribution and exit to, to a company to IPO which obviously doesn't happen often to consumer but so I just think like really nailing like what you're doing and why.

29:41
Hannah Dittman
Yeah, that's really helpful and I think a nice way of laying out the business fundamentals. If I was to sum up everything we've said so far, it sounds like you guys are really looking for getting a general sense and a vibe of the person themselves, understanding the story of the brand and the product and the person's desire to be pursuing whatever they're pursuing and then a very strategic and linear viewpoint on business fundamentals. Checking the box to show that they're going to be able to take it, take the money and be able to execute to a level that you guys feel confident in which can change.

30:16
Luke
We're not asking you to have the insight that you'd have 20 years down the road if you're running the same business. But I think a successful founder understands the roadmap and takes the real information in real time and adjusts accordingly, but has that one month, six month, one year, two year, five year vision and it's constantly moving. But like you need to understand what you're doing and why you need to.

30:40
Greer
Be realistic about it too. Because there's some founders out there that just give these outlandish numbers because they think that's what we want to hear. But in actuality we're really trying to understand what you really think your business is going to do and how you're going to get there. Because if you assume you say you're going to do $8 million your first year in business but you only earn distributed in a thousand stores, how's that going to happen? So it just unders making sure that your expectations and strategy for your brand really lines up with what happened.

31:13
Hannah Dittman
Let the common sense impress you instead of the big number. Yeah. And to kind of ask another more tangible question to follow up with. Lou, a lot of times investors will ask things like, oh, what makes your brand different? Or what's your marketing strategy? What kind of answers to these questions make you lean in? Or could you give an example of what you think a strong answer to one of that questions would be?

31:34
Luke
Yeah, I when we ask those follow up questions like we're never, it's never let me stump the founder. It's never like I won one over the founder. It's this is information that's going to help me make the decision to invest in your company. And so I would never be afraid to like follow up with information. You don't have to Know everything off the bat. Obviously we want you to know everything about your company and all of your ideas, but we're all human. Right? It's a 30 minute pitch and so if you don't have the information or it's not top of mind or for whatever reason it's not available, follow up, send a detailed email and like express that you have a point of view on, on the question and give as much information as you can.

32:13
Luke
Cause like at the end of the day we're just using that to try and make an informed decision. We're not, it's not necessarily like a big sort of like judgmental aspect. It's really just trying to help us.

32:22
Greer
Make the right decision.

32:23
Hannah Dittman
Yeah, that's really helpful and pivoting a little bit. And we, I know we touched on this a little bit earlier with you Greer, but how do you like founders to approach valuation? And d do you prefer them to focus one or the other when they're communicating about that kind of stuff with you? And should they come in with a number or what's the right time to bring it into the conversation?

32:42
Greer
I personally like to just hear it in the first conversation just so that we can level set our expectations, understanding what their revenue multiples would look like if it's out of the wheelhouse of what we're comfortable doing. I think about it more in terms of valuation versus dilution because I mean it's going to depend on what stage they're in, how many times they're going to need to raise after the fact. How the dilution is going to affect us versus how it affects the founders are two very different things. And so I think it's important to think from an investor's perspective what they would want to hear, which is really what their capital is going to come in at and so how much of the business they're going to own.

33:17
Greer
And then they can then work backwards to understand if it fits into the return model.

33:21
Luke
We've also, we've gotten into the situation and this is like a very real thing where founders don't have enough equity to be incentivized after like too much, if it's too low of a valuation, if they've taken on a lot of capital and burned money excessively. And so that's a real issue. I will say on the other hand, like obviously everyone knows this but a hundred percent of zero is zero, right? So like you want and Grew mentioned this earlier, but it's true, like it's a buyer's market right now. A lot of players have exited. The space consumer's not the most popular sector of venture. Venture is not the most popular sector of finance and returns right now. With that scarcity in capital comes a greater ability for investors to command lower valuations.

34:02
Luke
And I think the companies that we've seen, there's a tipping point, right? Like you're, you need the investor more than the investor needs you until you're the hottest company and you've broken even or you're doing super well and then all of a sudden the investor needs you more than you need them. But I think the most successful early stage companies that we've seen in terms of fundraising are realistic about valuation and they get a number that is digestible and attractive for most investors and they try and build the strongest cohort possible because I think that again, 100% is 00. You want the best team and everyone to be pushing forward and have even if your investors own more of the business, they're more incentivized. You've invested in 27 companies.

34:44
Luke
Like we don't split our time into 1:27 and allocate equal amounts to everyone like me. Focus on the companies that we think are going to do best for our portfolio and you're in a, we want to be in a position where like you're one of those companies for the investors who invest in.

34:59
Greer
You also need to be realistic too of if you raise a too high of a valuation from the beginning or from your most recent round, depending on where you are and then you keep going but you're not performing significantly better to justify that next valuation, you might have a down round and that hurts the investor the most. And so that's a big part for us is if you start from the jump at a 15 per year revenue, how are you going to go? What does the next round look like? Rather than being realistic in the beginning, maybe not taking in as much capital, going a little bit slower than you initially had wanted and then justifying that higher price.

35:34
Hannah Dittman
Yeah, the long term view. You always say fundraising is a little bit like when people start having kids, they don't realize you like pop the seal and once you did one, you're probably going to do all that you're going to do right up after another. Could you again, sorry for all the tangible questions, but I find as concrete examples as possible the most helpful for founders. Could you model what the structure of a quick 1 minute or 30 second ideal ask conversation looks like? For instance, I'm looking for X dollars for X, Y, Z or how you would like to hear that phrased for you guys.

36:07
Luke
I think it's more than that. I hate to say it, I really do think it's. Why are you different? What is your product like, what are the specific metrics that we're interested in? Revenue margin, Runway, like how does all of that play in and then having again an educated understanding of like why you're raising what you're raising and how much it is. And we've gotten into the situation plenty of times where it's not enough a company thinks that Again, there's so many changing dynamics to cash flow in consumer right? If you have three month lead times, you're putting down money three months before you're receiving finished goods and if you're selling them to retail, you have net 60 AR and you're not receiving revenue on that for two months. That's a five month spread.

36:49
Luke
If you're not factoring forecasted demand and mapping inventory to it, if you're not incorporating financing or some sort of like institutional debt, like there's all these levers that change Runway and we need to know that and that you are incorporating that into your thought process and that the number that you're bringing to the table makes sense because if it's too little then we're all screwed, right? You get even like 12 months of Runway. Like where are you going to be in 12 months? What does trailing 12 month revenue look like and what is the fair market valuation associated with that?

37:20
Greer
Plus it takes 12 months to fundraise. So like how long it actually takes to get the capital in is really important. And what Luke's saying is maybe you don't have that information but your team does it. So you have a CFO or you have somebody, you have an interim cfo. Like you have somebody who's partnering with you from an operations and a finance standpoint to make sure that you're in a place that you can sustain growth.

37:41
Luke
And again like if you don't and it's more of a pre revenue like early seed thing and you don't understand that information and I know it sounds harsh but like maybe it's not the right time to start a company. Like maybe it's time to put yourself, go work for a startup, go work for a strategic, go ask Chad GPT and go listen to YouTube videos. But like really inform yourself about these things because they're serious and you need to know them in order to.

38:04
Greer
Be serious, successful especially when you're taking institutional capital like you're taking, you're not just taking angels money, you're taking funds money, who has to pay back investors. So like it's all the cycle of needing to make sure that we're making smart decisions because we're fiduciary responsible for these decisions.

38:20
Hannah Dittman
Yeah, I think that all is great and real advice in that first meeting when they're bringing up evaluation to you, it's probably at the end of the conversation once they've done the razzle dazzle of all, why they're so great and where the roadmap is, how much do you want them to break down, how they got to that valuation or what that use of fund is going to be used for in that I assume kind of one slide or the end of the conversation in a first 30 meeting, 30 minute meeting, like what depth should they be going into at that point with you guys?

38:48
Greer
I think understanding where they got the valuation and if the answer is that they just looked at the market and companies in their same category and that's what they're valued at, sometimes those companies have done a lot more revenue and have just gotten a lot farther, that's important. So understanding their thought process of where they're coming out with that price, the use of funds is definitely important, but I think it's more so how long that capital is going to take you is important too. And then what? As we go deeper into our diligence, we'll look at to really what you're spending it once we look at your numbers.

39:20
Luke
I also think like you, obviously no one has access to this information aside from the people running the firm that you're raising from. But we are evaluating the opportunity against all the other opportunities that we're seeing in that moment. And there are times like the valuation thing's super important. There are times where we'll see a deal that feels stronger and the founder feels a little bit stronger and probably carries a little bit less risk for whatever reason, but the valuation's substantially higher than another deal where it might be more risky. And we like the category. But maybe the founder's not perfect, but if the valuation's really compelling, we might go with that second deal. So it really is, it can be make or break.

40:01
Hannah Dittman
Right? Of course, it's like investing in real estate or anything else you want. You're thinking about the return from your guys perspective and how you're going to make the multiple work for you guys the best way possible for founders that maybe don't have as much finance background or don't really know where to start with evaluation. Do you think it's acceptable to coffee chat to other investors and ask what valuation guidance they might have or how should they go about that?

40:23
Greer
I think you can ask what revenues they revenue multiples they look for at this stage it's not going to be like E grab multiples. So like really just what they see realistically for a business at that stage, at that size in that category and what they'd be comfortable investing in. We're not going to like stiff companies. We're not going to try and get the cheapest price we can. We want them to be incentivized to grow their businesses and everything. So I think it's really important be as collaborative as possible with your cap table and like even with potential investors just as open.

40:55
Greer
We're giving you the time and so use it and take it like even if we're not interested getting a feedback in terms of what you think your company's price stat or where you like what you think about the business or why you wouldn't be interested in it or things like that.

41:08
Hannah Dittman
That's very helpful going to the founder side a little bit more. I know you guys are obviously waiting founder as part of your decision criteria very heavily given their kind of the business at that point. When you're evaluating a founder, what traits matter most to you and what signals are you looking for in terms of leadership, communication or experience? Luke, you already touched on that. They have a very firm understanding of business fundamentals and how to operate in a CPG environment. But Greer, is there anything else that's top of mind for you guys?

41:38
Greer
It's definitely like an art and science and from an art perspective it's being open and collaborative with your investors like we had said it is being passionate about the business that you're building. That's an important thing for us. And then obviously we look at founders the strong operational background. So whether they're coming from being an operator in a former business being consulting like are some of our best founders have those backgrounds and it's because they've had the experience to understand what it takes to move a company from concept to scale. And that's where we've seen most of our companies fail is that the founders who don't really who have a great idea but don't really know how to bring it forward from there.

42:19
Hannah Dittman
That's really helpful. And you mentioned a experience with founders that have had strong operational backgrounds. What stood out to you when you first met with them or what kind of caught your eye of a founder that you were really impressed with that's in your portfolio.

42:31
Greer
Yeah, I think definitely experience like what they've done in their past careers can definitely help. And one of our founders was working consulting in the category that he's now a founder in. So like he's well equipped to understand that category inside and out and from a consulting standpoint, understand how a business needs to be structured in order to succeed and win and the issues that typical businesses have. So I think that's really important if you are just moving into a consumer business because you love the product so much. Like the why again why you started the company I think is also a really important thing. And then admitting your where you don't. Where your education gaps are, maybe it isn't. You aren't the strongest in ops or finance.

43:18
Greer
And so you're either seeking out help with that or you're asking your investors like this is something I have this amazing concept. I want to bring it to market. I know I can do this, but maybe I need to do this with you. And you justify a lower valuation obviously for something like that, but you bring them along in the ride.

43:36
Hannah Dittman
Awesome. Thank you so much for sharing that. I think that's really helpful to provide some additional color and ways that people can really showcase all the awesome work and backgrounds that they've done. And I know many founders fit the bill. Hopefully a good impetus for them to want to flex that muscle a little bit for you guys. We're almost coming up on time here, so I just wanted to pivot into a little bit of our kind of case study and then outros if you that worked with you guys as 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 guys answer it at the case study in case any other founders have a similar question out there.

44:12
Hannah Dittman
A recent question that came in was how much capital is typically already invested personally or through friends and family in a company before officially fundraising or before an investor like you all get involved.

44:24
Luke
It's a. It varies by stage but when it comes to starting a company like the pre revenue activity and I think it is like a really important thing to unders like you need. If we're investing in a company pre revenue it's always a great example where like the CEO David McCormick, he was the worked at Whole Foods for like years on the strategy team and he was The COO of Citicapital. And he was very impressive and he partnered with Molly Bash. He's this amazing influencer and thought leader in the food space for younger generations. And we had the right go to market strategy. It all really made sense, but it's, it needs to line up that way in order for us to make a pre revenue investment. And usually we're looking for demonstrated traction.

45:04
Luke
And it doesn't have to be a crazy amount of demonstrated traction, but I think most institutional investors want to see some proof of concept in market. And so I think there's a real sort of like analysis that needs to be done by the founder of like, how am I going to bridge the gap in that initial sort of friends and family roundup? What is my capacity for raising a hundred grand or five hundred thousand or a million from my friends and family? Is it realistic? Is that how much I need to get to this point? What is that? What is the point that I can successfully say for this amount of time I've accomplished these things? And these are the proof points that I'm going to institutional investors with. And it really depends.

45:47
Luke
I hate to be a broken record, but it depends on what you're doing and why, like what the product is and is it a direct to consumer focused product, Is it going to be more retail focused? And how do you begin to demonstrate that traction and how much does it cost? That's like the first kind of analysis. And then you say, oh, I need to raise 250,000, I need to raise half a million, I need to raise whatever. I think when it comes to friends and family, we're really not seeing rounds bigger than like a million dollars I would say. I think that's like how it shakes out. If your network has more than $1 million and that's awesome, but can I.

46:17
Hannah Dittman
Be part of that network?

46:19
Luke
Exactly. But I would be really deliberate about what you're raising and why and what you want to accomplish and how you're going to accomplish it.

46:25
Greer
I think it's also really category specific. So it depends on what product you've been creating. Do you have IP on your product? Has it taken you years to get to this point? So it's hard to give a number of like how much a friends and family round would look. I don't think you should raise like $5 million from your friends and family. If you have a product that's going to take that much to get to off the ground, then it's probably like a pretty significant product that you might have already gotten institutional backing from. So I think it really depends on the category. And then also there's other ways to raise too, which is important to know.

47:01
Greer
If you've broken 100k in revenue, you can look at Republic or crowdfunders, other crowdsourcing ways to raise capital where you make sure that when you're going to an institution basically that you're ready for it. Like you're ready to take in the amount of money that they're asking for. You demonstrated attraction and you can fill their diligence process. You can stand up to an institution really asking you these questions and digging into your brand because again, like that capital is, has a lot more strings attached to it.

47:30
Luke
I personally from my operating days, although I was, it was a long time ago, but, and I know this is like a tangent, but I think it's important is like the more that you can separate your own personal financial well being from your company early on, like the better you know, the better off you are. I think when you are relying on income at early stages from your company and you're running out of money, you then have two stressors, right? You have the stress of losing your business and you have the stress of losing your income. And I think there's appropriate times to start companies, whether it's based on how much you have or what have you.

48:06
Luke
And I think like you need to be really strategic about what your resources are around you and try and not be dependent on what you're starting initially.

48:13
Hannah Dittman
Yeah, great advice. I feel like that is the founders phase. One worst nightmare is figuring out the financials and scrapping a buy to make it work. 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 this amazing knowledge too. 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 with you? And then for operators that might be looking to transition or other people that might be interested in a role working directly with Simple Food Ventures or investing, is there a way for them to get in touch as well?

48:46
Greer
I think the best way to get to us both is just through email. So my email is career simplefoodventures.com Luke's is lukemblefoodventures.com you can also connect with us on LinkedIn, contact us on our website, but to be completely honest, it's really hard to go through it because it gets a lot of spam. So just email us and we're happy to talk. Sometimes it might take a little bit longer to respond. If that's the case, don't be discouraged. Like, we'll get back to you and we love hearing new ideas and we really are here to help too. So feel free to reach out.

49:20
Hannah Dittman
Awesome. Thank you so much for your time today guys. This was awesome.

49:23
Luke
Yeah, thank you.

49:26
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 startup cpg 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 brainstorming 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@startupcpg.com we'd love to have you. See you next time.