Editor’s note: This story is the first installment in a monthly series looking at individuals and organizations that invest in food and beverages. Previous articles sponsored by BMO Harris Bank can be found here.
Just a decade ago, investors clamored for pieces of the newest technology startups. Today, a growing number of them are looking for riches by acquiring stakes in food companies working on trendy products popular with consumers.
The path that prompted investors to shift their money from technology to food was built on failure. Food, it turns out, has always been valuable. People have to eat and tend to choose food they love — which can make an investment in the space a lucrative one. For many investors still hurting from the financial sting of earlier deals, the segment was seen as a less risky place to invest.
“By producing consumables that someone likes, you’re able to sell that consumable to them again and again, you get to build long-standing relationships, as opposed to only engaging with them for one-off purchases,” Giles Cadman, the chairman of Cadman Capital Group, told Food Dive.

In the last several years, consumer consciousness has started to shift. People are more discerning about what ingredients are in the food they eat and what products they want to see from CPG manufacturers. As a result, the market has opened up for innovation, said Lisa Feria, CEO of Stray Dog Capital, an early stage venture capital fund that focuses on plant-based products.
“I saw this huge opportunity that was connected by consumer demand,” she said.
That demand stemmed from doctors telling older Americans to be more conscientious about what they consumed. In addition, improvements in food technology allowed for faster product innovation. Americans also increasingly valued issues such as environmental stewardship and sustainability in many of the things they purchased.
But consumer demand didn’t start there.
“Honestly, I think this goes back probably to right around ... 2009 or 2010 where I think a lot of the venture capitalists’ VC funds were looking for alternatives to technology,” Greg Wank, a partner with Anchin, Block & Anchin, told Food Dive.
Investors pivoted to consumer packaged goods because the technology bubble had burst, he said. Suddenly, tangible goods became appealing to invest in. Interest in the category began to gain momentum when large manufacturers started acquiring upstart brands in an effort to rework their image and appeal to the modern consumer.
“If Kellogg is going to pay that kind of money and that kind of multiple, this could be a place we should be investing,” Wank said, referencing conversations he had with investors around the time of the company's acquisition of Bare Naked natural breakfast and snack foods in 2007.
While natural foods catalyzed the flood of investments into food, it is now innovative upstarts and novel ideas that drive growth.
How to measure success
Filipp Chebotarev, CEO and managing partner of Cambridge Companies SPG, told Food Dive the venture capital firm has generated strong returns through several of its investments including Tosi, Once Upon a Farm and Vive Organics. The companies, he said, have benefited from increased consumer interest in free-from trends and holistic nutrition.
However, he acknowledged that the same trends will not go on forever. To mitigate some of that risk, Chebotarev looks to invest in companies that are part of multi-billion dollar categories such as plant-based proteins or better-for-you snacks where there is a greater chance to grab market share. Seventy percent of his investments are in companies that have $20 million or more in revenue, he said.
“(Consumers) want to know as much detail as they can about what they’re eating and drinking. That’s a hugely important factor to remember when investing in the food and beverage markets these days.”
Giles Cadman
Chairman, Cadman Capital Group
This approach requires Cambridge to pay more money to invest, which Chebotarev said requires vetting each investment thoroughly. That process can take anywhere from four months to several years as it did with Fourth & Heart, which is now growing at 100% annually.
Chebotarev said he met the founder of Fourth & Heart, which makes a line of grass-fed ghee, two years prior to investing in the category. Due to the niche nature of the product, he did a significant amount of research. The scales tipped, he said, when he saw other investment firms such as Boulder Food Group investing in the company.
At Stray Dog Capital, Feria said she moves at a faster pace because of her knowledge of the category. The fund chose to focus exclusively on plant-based products because there already was an existing market among millennials and Gen Zers that was unlikely to dissipate. In addition, the space was supported by older generations focused on food-based health to combat chronic diseases and live longer. This gave Feria confidence that plant-based food is not a passing trend.
“If you're really resting on the fact that the largest cohort ever on earth (Millennials and Gen Zers) already is driving changes in this direction, it can only get larger,” she said.

For Cadman, his firm also considers consumers' health concerns when it decides where to invest.
“(Consumers) want to know as much detail as they can about what they’re eating and drinking," Cadman said. "That’s a hugely important factor to remember when investing in the food and beverage markets these days.”
How firms develop investment strategies
Not all investment strategies are created equal. Some firms choose to invest in the early stages of a company before it’s valued at $1 million, while others wait until the size is larger before offering financial support. Each approach has its advantages and risks.
Stray Dog Capital, which invests in early stage companies, puts more weight in the upstart's team than its product when deciding where to make an investment. Feria said this strategy may seem counterintuitive.
“That was one of our most painful learnings: That you can invest in a great product but the team is critical, too,” she said.
In one case, Feria remembers investing in a company with an on-trend product whose founders were not in sync. The business struggled. She declined to provide more information on the company.
For other firms, investment formulas are more methodical and there is a clear direction on how funds should be used.
“Unless the company I’m investing in can show and demonstrate serious fiscal responsibility then I won’t allow them to choose what they invest in," Cadman said.
As an early stage investor, Cadman said one mistake young companies routinely make is underestimating their capital needs. This enables Cadman Capital to make multiple investments in the fledgling company. Chebotarev said benchmarks are more important than how the money is used.
“Unless the company I’m investing in can show and demonstrate serious fiscal responsibility then I won’t allow them to choose what they invest in."
Giles Cadman
Chairman, Cadman Capital Group
At Stray Dog Capital, when a company receives an initial investment it comes with requirements that specify how much growth it should generate within a certain period, not necessarily how the funds should be spent. Feria said after an initial investment, companies should be able to demonstrate that consumers are returning to purchase the product. This will dictate whether the firm receives a second round of funding.
Good Catch, a plant-based seafood manufacturer, was one of these investments. The three-year-old company quickly proved its worth by garnering enough growth in 2018 for Stray Dog Capital to invest more money earlier this year.

Daniel McCarthy, an assistant marketing professor at Emory University, told Food Dive that as products gain popularity with consumers, new and returning investors can pay the price.
“Once the firm starts realizing (returns) and that outcome is positive, then the price tag is going to be considerably higher” to invest, McCarthy said.
This can cause some firms to become more cautious in their investment strategy. Chebotarev said Cambridge Companies can invest in a new business after just three months of review, but sometimes it can take up to two years to perform the necessary financial due diligence before it moves forward.
The early bird gets the worm
Stray Dog Capital targets businesses that are environmentally conscious, cater to health concerns involving animal products or that shun added ingredients. Among the companies it has invested in include BlueNalu, Memphis Meats, Miyoko's Kitchen and Purple Carrot. It also was an early investor in Beyond Meat, a maker of plant-based hamburgers, sausages and the now discontinued chicken strips.
Feria recalled that Stray Dog Capital was not investing in Beyond Meat, but the ethos of the founders. The plant-based chicken strips were “not the best that I've had in my life, but when I met (co-founders) Ethan (Brown) and Brent (Taylor), we were like, 'Wow, these two are going to take it somewhere and they're going to figure it out,' ” she said.
The rest is history, but Feria said the payoff was unparalleled. Overall, Beyond Meat's stock has risen 560% since it went public at $25 a share in May, and today it trades at about $163 with a market capitalization of nearly $10 billion.
Other investors told Food Dive that the financial payoff is the pot of gold at the end of the rainbow. It doesn’t always happen, but when it does, firms are able to cash in their shares and collect a big payday that far exceeds the initial investment.
“The other big thing that's evolved in the last few years is that (firms’) value is not just in their check size. It's in their ability to help that investment grow.”
Greg Wank
Partner, Anchin, Block & Anchin
Wank with Anchin, Block & Anchin described investing like reading tea leaves. The meaning of trends and fads can change depending on who is analyzing them.
“I can tell you that there's still plenty of capital out there that wants to invest in consumer product brands," he said. "There's absolutely no shortage of high-net-worth individuals, family offices that wants to invest in this space.”
Wank predicts that the pace of investments will slow but that total check sizes might increase. Still, there is more to an investment in some cases than just the money, he said. Some investors are focusing on a key area like Stray Dog Capital with plant-based foods or Constellation Brands Ventures’ Focus on Female Founders program.
“The other big thing that's evolved in the last few years is that (firms’) value is not just in their check size," said Wank. "It's in their ability to help that investment grow.”
This series is brought to you by BMO Harris Bank, a leader in commercial banking. To learn more about their Food & Beverage expertise, visit their website here. BMO Harris Bank has no influence over Food Dive's coverage.