Dive Brief:
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Private equity group VMG has closed a new $550 million fund to invest in innovative CPG companies, Project NOSH reports.
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This is its fourth fund, and the group intends to invest in brands with between $5 million and $100 million in revenue. Compared to its earlier funds, VMG said the timing of its investments now tend to fall earlier in the life of a company, as the group has become better at assessing whether a brand is a good fit.
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VMG says the ways in which it can help emerging brands include guidance with recruiting, branding, marketing, field teams, distribution strategies, influencers, exit strategies, supply chains, operations and legal affairs. The group’s portfolio already includes some major emerging food and drink firms, including Humm Kombucha, and natural nut butter and snack maker Justin’s. VMG once held a small stake in KIND, but the snack bar maker has since purchased it back.
Dive Insight:
VMG has invested in more than 20 consumer packaged goods companies over more than a decade, and with some considerable successes. The group's approach is to focus on promising brands rather than industry trends — but the most interesting companies tend to tap into wider trends, too.
The change in timing for VMG reflects a broader trend in private equity investment in the industry. According to a recent AgFunder report, private equity in the food sector during the past couple years has moved toward smaller amounts of seed funding, with less money going into larger investments further down the line. Last year, for instance, the number of deals in the food and ag tech sector hit 580 — a record high — while funding fell to $3.2 billion from $4.6 billion in 2015. Meanwhile, seed stage deals increased 77% from 2015 to 2016.
Early-stage investment is transforming the food and beverage industry, as startups have multiplied and challenged the dominance of the sector’s biggest brands. It can also be a lower risk move for private equity investors, with the potential for gain much bigger than the potential for loss.
However, VMG may buck the trend as it has retained the capacity for larger investments if it sees fit. On top of the $550 million in this current fund, it also has an extra $150 million “flex-up vehicle,” which the firm says it will use if the opportunity arises.