The “Better-For-You” Food Lie No One Talks About ft. Tyler Mayoras

28:08Like a good culture made its crossover. You know, And when we first invested in that, they were$40 million in revenue and only in natural. And eventually they made that crossover and now they've become a big$200 million brand. But you have to make that to get to the size we want to see companies get there. Yeah, I know. That's a great... Thanks so much for mentioning Good Culture. I was just going to add, what types of products do you think or what do kind of company need to have that are performing really well in natural in order to, you think, have a chance? when it comes to going to conventional or going to mass?

28:44Like, what do you see? For example, have you ever been like really, really interested in a product by thinking, hey, this product actually, I can't invest because I just don't think it's performing really well in the natural channel, but I just don't think it will actually perform in mass and conventional. We have walked away from a few where the price point we just thought was too high to ever get to mass, and that can happen for sure. We do a fair amount of work. And really what the difference when you go to Mass, the real key is top of funnel brand advertising. You're going to have to build brand awareness.

29:22And so you're going to have to find ways to do what, especially if you're used to e-commerce and it's really e-commerce advertising can be very ROA, return on ad spend oriented, ROAS. And then all of a sudden to make that switch to top of funnel brand advertising is hard because it's really inefficient and it's going to be inefficient because you're just trying to mass market to a whole lot of people. But you've got to be able to do that. What we would really look at from a natural perspective is how strong are the velocities. If their velocities are dramatically better than the category or dramatically better than other alternative foods that are similar, then we have a pretty good feeling that we'll be able to find a format and price point that'll work in mass.

30:17And so we focus a lot on that for sure. But ultimately, you just need to do a lot more advertising to make that transition to conventional. Do you find that the shopper that would shop at natural grocery stores, do you find that it's blending when it comes to natural, like a shopper that would shop at natural versus a shopper that would shop at conventional? Or do you still think that it's quite different? No, I definitely think there's overlap. And it's a lot more overlap now than it was 10 years ago. If I just think of our household, and we're not by any means representative, but every weekend I go to Juul and Whole Foods and my wife does shopping at Costco, usually for home delivery.

31:02So we're definitely hitting both. And most of the people that I know would have shopped in both over the last year. So that's helpful. Yeah, that's really, I mean, I've been thinking about my own considerate habits and yeah, for sure. I shop at Trader Joe's, Whole Foods and Costco predominantly right those are the those are my three um try to do the majority trader joe's is an interesting where do you put that right not right not natural but they're somewhere in between natural and conventional it's a unique animal 100 100 i feel um yeah traders is very unique because i do think in terms of their positioning they're more natural but at the same time you don't have, you obviously don't have brands.

31:52I mean, brands in there besides, you know, Trader Joe's, but it's very, very hard to, hard to kind of. Yeah. I wish they did more brands because there's a lot of our brands that would love to be in them, but yeah, it's not, it's not really a great retailer to sell brands to. Totally. Todd, I know that you mentioned this, how you invested in Boca. It scaled, it was profitable. I think what it was like 8 million in top line and then 2 million EBITDA. Is that right? Yeah, I was around that. Maybe a little more profitable than that even. Unbelievable. That's incredible. And then, of course, you invested and - Wiped out all the Avidot.

32:28And you wiped out all the Avidot and pumped it. And then you got to 50 million revenue, right? And then you sold out to Kraft for still 2X revenue. So that's an incredible return. Incredible return. Obviously, as you pointed out, the markets changed. changed very much so in terms of strategics that doesn't really happen you have to be profitable these days we have to be spinning out ebda what do you think sparked this this very dramatic change and is there a transaction or two that you could point to and you say because this deal maybe didn't work out for strategics right that it was it the company wasn't um a profitable strategic bought it at a very high price, it didn't work out, that this maybe changed the thinking when it came to strategist.

33:18Is there a deal or two that kind of sticks out that you think that changed the market? There's a bunch of them. But I think the real factor is if you're a brand with 50 million or even 70 million of revenue and you're not profitable or you're break-even and you go into$4 billion ABC CBG company, you have to ask for resources every year for more marketing so that you can double in sales. And for you to double in sales, you've added 70 million of revenue. But let's say you needed$10 million of marketing to do it and you didn't generate that marketing. So you had to go ask corporate for that marketing dollars.

34:05Right. They could have taken that$10 million of marketing and put it on whatever their hero product is and probably generated 200 or$100 million of revenue. And so they can't get resources. If you're too small, the way it works to be a benefit, you need to go into a company with 250, 300 million of revenue and your own EBITDA, 15 % EBITDA margins or whatever. And then you have plenty of your own marketing dollars. You can continue to grow at a 40%, 35 % rate. and you don't have to talk to corporate and ask them for marketing dollars. That's what I think the CPGs realized, that these companies just get orphaned within them.

34:47And I mean, you could point to a million of them, Epic Bar, Justin's, Crave Jerky. They all, they just got orphaned because they went in too small and they didn't have the marketing dollars to continue to grow themselves. And so they just got shut off. Oka Burger is a great example too, by the way. They were 50. They probably went to$100 million right out of the box because they extended the SKUs and everything and got a lot more shelf space at Kraft. But I was talking to somebody about three or four years ago at Kraft, and I said that I did this Boca Burger transaction. I told her the size when we sold it.

35:25She goes, oh, it's nowhere near that now. It's like$10 million in revenue. So it had done a complete round trip. and that's all because it got starved for re because it didn't make money didn't have its own marketing dollars and it's going to get starved so i guess that's the thing is it doesn't work to sell until you get big enough and you're profitable what's interesting about what you're saying i think is it seems like what then the goal for strategic or what strategists want when they buy the brand is essentially have the brand be independent right in that in that they're spinning out their own EBITDA, they're recycling and reinvesting their own brand, but they don't actually use to use then, they bought the company, but then they don't have to use any of their own capital again to keep the brand going.

36:13The brand can actually run independently themselves. Just like all their other products, because that's how they operate as CPG. They're all independent little business units, and they all make their own decisions. And so, if you look at all the transactions that have happened in the last 15 months. Siete,$400 million in revenue. Simple Mills,$240 million in revenue. Alani New was over$200 million. Poppy. Poppy,$500 million in revenue. All of them were profitable and basically standalone. And it made sense to go in and they can continue to build those businesses with some of the resources of Pepsi or Flowers Industry or whoever, but they've got their own marketing dollars to generate their own growth.

37:00Is that helpful for you in the position that you're sick, that they use it as a investor? It actually is. So I consider us kind of a middle tier private equity. So we're not early stage. We're later stage. And there's a whole bunch of people that help grow companies from pre-seed, seed, series A, up to where we sit. And we invest 20 to 40 million in the middle. And we basically, when we're investing, it's usually some money into the company primary and some money secondary to early investors and maybe the founders taking some chips off the table so they can go buy a house or whatever it is. Now what's emerging is a whole nother set of private equity groups that used to be middling, and now they've moved up market.

37:47And they're basically an exit potential for us. So they want to invest$100 to$150 million, maybe even bring debt in, to profitable brands that are in that$100 to$200 million range. And then they'll take them up to$400 or$500 and sell them to big CPG. So we've got this kind of bifurcated market that's emerging and we're playing in the middle of it, but our exits are going to be oftentimes, we might sell 80 % to one of the big guys, TSG, Catterton, BMG, and then they'll take it up to the next level. We'll still be riding, but ultimately it'll go to a CPG when it's much bigger and much stronger to fight for resources internally.

38:33And when you all invest, that's minority positions. Is that right? It could be both. We do large minority. We don't do anything probably less than 20%. We want to have large majority or majority. And so you're investing 20, 40 million in a company. What typically needs to be, and I'm sure it all changes. And that would be our investment. We all sometimes have co-investors that make it bigger. All right, got it. So like - From our up to size. Yeah. Could be bigger. Okay. So the overall round size is typically 20 to 40 million. And it could be like a call, like a series C, series B, series C maybe.

39:15Yeah. You don't really earn a series. Yeah. It's kind of like, it's almost like a recap transaction where some early investors want to take some chips off the table. Okay. Yeah. Because that's the other thing that people need to understand about these things. They take a long time. I mean, if you think about, I invested in Simple Mills as an angel. I invested in 2016. She had already been started for three years before that. So she was in it since 2013. They just sold this year, 2025. So I was in it nine years. She's been in it 12 years. All along the way, there's opportunities for liquidity in there because people generally have, anybody that's investing out of a fund has a five to seven year time horizon that they're trying to invest.

39:58So there's opportunities for liquidity along the way. So you investing in, well, what's at mandatory in your mandate, what's typically your fund cycle? Is it seven years? Yeah. I mean, it's a 10-year fund and we generally look at each new investment as being, our whole period would be four to seven years, depending on what happens with the company. Got it. And so the round size,$20,$40 million,$20 to$40 million into a company. What typically is the revenue threshold? What typically is the revenue of that company when you all, because again, I know you're not looking at the early stages, certainly with those amounts.

40:44What typical revenue ranges are you looking at for your? Yeah, we don't want to be overly prescriptive with our revenue size. So if something's just killing it and really, really doing well with great velocities, great unit economics, we might look at something even smaller. But generally, companies are going to be at least$20 million of revenue. And probably on the upper end for growth-oriented deals would be up to maybe$100 million, so we can still get a large enough ownership percentage. If it's a buyout deal, we could go even higher than that. And we do some buyout deals, generally in things like co-manufacturing.

41:27So we have a co-manufacturing company called Tandem Foods that makes bars for all the natural industry, the people like Clif Bar, I mean, Kind Bar and RX Bar and Perfect Bar, etc. But generally, it's kind of in that$20 to$80 to$100 million range. Got it. And when I know that there's, again, no one right answer to this, but in your mind, I know we actually talked about this before in our last conversation, but when should a company be EBITDA positive or start start actually producing profits when it comes to revenue in your mind? I know that that beverage, for example, it's a lot different. Yeah.

42:11Beverage is more expensive, takes longer. Yeah. I think it depends on the category for sure. But I would say that if the company started e-commerce only first, they might get the profitability as early as$20 million, maybe even earlier. But generally, I would say it's very possible to be profitable at$20 million if you're e-commerce only. If you're going into retail, it's really hard to get the profitability before$50 million, to be perfectly honest. I mean, there are some categories where people can get 60, 70 % gross margins and they can do it, but they're pretty rare. Most of the time, if you're going into retail stores, I would say you probably need to crest a$40 to$50 million threshold to get the profitability.

42:57You could be break even earlier, but to get any meaningful profit. And how about beverage? Beverage is a little bit higher. I would say it's a little bit higher. Beverage is a little more expensive overall just because of the promotion involved and whatnot. So maybe, you know, maybe it's 60, 70 million. And, you know, Frozen's in that same boat. I think Frozen, you probably need to be up that high too, just because it's hard. It's harder. Let's say you're 50, 50 million and you're in retail or 50, 60 million. You're not yet profitable. What are good reasons in terms of why you might not be profitable and maybe bad reasons why you might not be profitable?

43:38Well, certainly unit economics, it matters a lot to us. So your gross margin, your contribution margin are really important. If you can't price your product to make at least a 40 % margin, that's structurally difficult. That's going to extend when you can get the profitability. And it really questions whether your product is really that defensible because if you can't price in that 40%, then, you know, maybe you, you don't have a much of a moat as a product. So that's certainly a factor. Then it's, then it comes down to GNA spending too, you know, people, sometimes you get three or four founders and they're all taking out too much money.

44:19That can be a factor. You might have beautiful offices and things that just, you know, a scrappy CPG trying to grow wouldn't do. How do you think about category creation? And what is a new category in your mind versus maybe just a very innovative product? Because, yeah. What if, for example, someone like a founder comes to you and says, Hey, Tyler, the reason why I'm not profitable at 50, 60 million is because we are building this new category. We spend so much on marketing just educating people about this category, right? So that's the reason why we're not there, because we have to spend a lot more marketing spend than other categories.

44:55What do you think about, you know, what is true category creation in your mind when it comes to in food and beverage versus maybe a trade up where it's an improvement to the product, but it's a product that people still know? Those are hard investments. And I really admire the people that can make them. But it's not us. To be honest with you, we don't really. To go into new categories, you mean? We don't. Well, we just don't like to take a lot of venture risk. So we tend to, companies are either profitable already or really, really close to profitability. And so we looked at Olipop, I think three times.

45:30And we never got there because they, you know, until their last two years, they weren't making money. They were losing a lot of money. And I get it. They were making, building a category. And kudos to them. They're going to make a lot of money when they sell now. And kudos to everybody that invested in that. But that would not have been us. We could never get over the hurdle. Farmer's Fridge is another example. I mean, these are businesses that are structurally changing something in a very, very big way. And so it is more expensive. But you need venture investors for that because that is, you know, concept change that we don't, that's not really our fit.

46:07Yeah. Can we talk about that a little bit more in terms of how venture is different to what you all do at Manitree? Yeah. Yeah. Well, and it's all about concentration. We, in our fund two, we had six investments. So very concentrated, but they were all profitable companies. I think all of them, I'm hopeful all of them will generate a return and none of them will, we're not going to take a zero on any of them. So it's not venture investing. This is pretty stable growth slash buyout type investing. A venture investor would probably have 25 to 30 investments, maybe more. And if you listen to Marc Andreessen talk about it, he wants to take more.

46:50He would like to see 100 investments in his fund because he knows that the one or two that hit, and he doesn't want to miss any of them because the one or two that hit will be 1 ,000 times his money. That's not what we're looking at. We're looking at three times our money would be a great return for us. So it's just a different kind of animal. No, that makes sense. I mean, it still feels like within CPG, it seems I what it's what it appears like is I don't think that maybe if you are in CPG, you might be in the earlier stages. Even you might not be looking at companies on the what venture might mean on the tech side, I think still means a little bit maybe differently on the CPG side where because.

47:35Yeah, but maybe I'm wrong. I don't know. No, it's true. But there's still similar elements to it. So I think that's why 25 to 30 versus maybe 50 on the tech side, different investments. Because, you know, a very good early stage investor is Nate Cooper at Barrel. And he's outstanding and he invested in Olipop. He invested in Nowadays and I've invested in that. That's one of those THC beverages. But I know as an angel investor in that, that's a very binary investment. That's going to be a great return, you know, similar to like my Simple Mills return, or it's going to be a zero. Right. That, in our world, we can't take zeros.

48:16We, you know, we're focused on later stage investing and those don't, we're trying not to get zeros. But in an earlier stage investment, you need to take, make 30 bets so that you get some that are 10 times your money and some zeros. That makes a lot of sense. That makes a lot of sense. What categories in food and beverage do you feel like are oversaturated today? Well, I guess the easy answer would be protein. I think I'm a big believer in protein. And I believe that we're probably still in the early innings, primarily just because if you think about how Gen Z thinks, a great example, just go to a cafeteria line and stand behind a bunch of young people that are 25 or 30, or 25 to 27 years old.

49:02They'll all be talking about macros and protein. And the fact that they're talking about that so much and they care about it so much, my daughters are talking about it all the time, I know that we're probably still in early innings on protein. What I don't really agree with is there's a bunch of categories where we're putting protein that don't really make a lot of sense to me, such as water and popcorn and things like that. Maybe they'll pan out, but it feels like a bridge too far to me. So that's why I would say maybe that's a little bit oversaturated as related to the categories that people are trying to put it into.

49:36Are there categories that have emerged within protein that maybe weren't there before that you actually think actually could be interesting? Or is everything that's kind of new on the new protein side, is that just all doesn't kind of make sense to you? No. No, there are definitely some that make sense. I think, you know, I think that the drinks where they've, Core Power is a good example, Koya, where they've kind of upped the protein to 30 grams, 40 grams. Those kind of make sense because one of the things, like as a plant-based eater, I'm trying to get to 100 grams a day in protein. That's hard.

50:16That's a lot of protein. It's really hard. And if somebody can help me jumpstart it with something and get 30 grams, that's a big plus, big win. So I think there are some things like that. Am I going to eat crackers that have protein? Probably not. I mean, that's probably not going to be where I go to get extra. You know, I saw somebody put protein in seasoning. Okay, I can add one or two grams of protein by pouring it on my food. I don't think that's going to make a difference. I don't think I'm going to do that. So I think the sum are just too far gone. I know it's not plant-based, but do you think protein ice cream is interesting?

50:55Yeah. Yeah, for sure. For sure. I think, you know, if you can supplant, if you could create some kind of benefits. Now, like what I like about what Alex's doing is he's also got probiotic benefit in there. I think that's really interesting. It's very similar to what Good Culture did. They brought, you know, cottage cheese always had for it was fermented. So it always had probiotic benefit. But most of the big players killed it because they didn't want bacteria growing on the shelf. And so they go through a kill step. Good Culture stopped that, didn't do a kill step. And they had probiotic benefit.

51:31And it's taken off and it's growing the industry again as a whole. I think, yeah, ice cream could be very interesting to that when they combine that benefit for sure. Is there a category that you think is, and I guess this would fall maybe under the mandatory mandate, but maybe more so your angel investing mandate. But is there a category that you think is totally wide open, blue ocean and unexplored? Unexplored, those are hard. That's hard to find, I think. I would say that things that I think are ripe for growth over the next 10 to 15 years, brain health is a big one. I think products that add in certain mushrooms, L-theanine, DHA, omega-3s, that's really interesting to us.

52:16Fiber is another category that's getting a lot of play. Belly Welly and Supergut are great examples there. They're both growing very fast, trying to create clean Metamucil alternatives. And for people that aren't plant-based, that's a real benefit because fiber is hard to come by if you're not plant-based. I get plenty of fiber being plant-based, but that's a really good place to play, I think. So those are a couple that we like, but we're also now broadening our mandate. So we used to be food and beverage. Now we're all of wellness. So we'll look at fitness. We'll look at clean beauty, healthy home, VMS, a lot of different categories.

52:54And so we're starting to map out all those categories and look at ones that we think are most interesting. That's helpful. That's helpful. What's the biggest thing that you feel like you've changed your mind about in the past year? Oh, wow. That's an interesting question. You know, that comment I made about nowadays, I think if you would have asked me a year ago, I would never invest in alcohol or cannabis brands. THC. And what really changed with this nowadays, because I'm actually sober myself. I've been sober for like eight years. And I just don't really like the societal effects of alcohol and all the abuse and domestic violence and things like that.

53:35But what these guys have done is they've taken a very low dose THC. And so it's not, they don't, and I've tried them actually, And they don't get you high and they don't get you drunk. It's like a muscle relaxer, really. But yet it's a social beverage. And I really, you know, I know they've been kind of banned in this reopening. And I think that's really just so that they can get regulation around it. But I think that if that replaced a whole lot of alcohol in this world, I think we'd be in a better place overall. And so that's something I've really changed my mind about, for sure. Yeah, totally, totally.

54:11I had one of the founders of, uh, of Canon on, on, on the show and they were, and they were talking about how beverage, I think it was 10 times. Like when you would go into a, if you were able to, if, if you went into bought like a THC beverage product, maybe 15, 20 years ago, it would be probably 10 times the time in terms of dosage. Yeah. It was, I think it's a hundred, it was a hundred milligrams versus five. Yeah. versus five now and it's crazy well would you be able to talk to people with that much it's crazy it's exactly and but it was what i thought and i think nowadays as well among other brands is if you think about like alcohol how much how we consume alcohol it's obviously the dosage isn't that much per you know wine uh a glass of wine fricking you could have yes yes you could have more throughout the evening and i thought that was like that was a really interesting insight i thought too.

55:11Um, just that you can have multiple of them. And I mean, I, I, I have can, and I agree with you. It actually just makes me relaxed. Um, and yeah, I, I actually, it's not going to ramp up your violence and all the other negative effects that happen. Now you still can't drive. I wouldn't advise any, you shouldn't be able to drive. There should be regulators just like alcohol. But I think it'll be societally better. I completely agree. I completely agree. Is there an investment that taught you the most? That's an interesting question. I did a series, I don't know if you read it, on LinkedIn about all my mistakes.

55:54And I think I did six of the mistakes that I've made in the past. I've probably made a lot more than that. But I've been doing this for over 30 years. So I've had plenty of time to make mistakes, but I would say that the one mistake that I see founders make most often, and I've made it a couple of times is going wide too early. So it's so alluring. You're a$2 million brand and Kroger comes calling and they say they want to put you in a thousand stores nationwide. You're like, Oh my God, you're so, I mean, first of all, it strokes your ego. You're like, Oh my God, that's unbelievable. boy, they want me.

56:30I got to go in there then. And it's such a huge mistake because unless you have 5 million plus on the balance sheet that you can use for marketing, that product's never going to turn. Nobody knows who you are. You're a tiny little brand. And then you're going to get kicked out in a year or two because you don't turn. So it's such a huge mistake. It's so hard to avoid because it strokes your ego and all the reasons why. And it's going to show huge revenue growth. And there's so many reasons why you want to do it, but it's such a bad mistake. And I made it many times. So, you know, I can't. It's tough.

57:06Do you encounter conversations with founders where they say, hey, wait, the reason why we want you to invest or we're looking for investors is because we have this opportunity with Kroger. We have this opportunity with Costco to go in and to do it. And I'm sure it's very, very impressive. It's really hard to get these. There's only a limited amount of shelf space. It's really hard to kind of get retailers interested in your product, period. When do you know it's too early when you have these conversations with founders, even though they are getting this traction? Well, we probably wouldn't be looking at the company's words too early because it's not a fit for us because they're probably they're probably five million or less.

57:47You know, if you're 10 million dollars in revenue, you can definitely take on a Kroger. Now, you need to make sure you raise capital so that you can do the marketing to go along with that. Or you're going to, again, lose, you get kicked out. You don't want to do that. But it's really for those smaller brands that are under$5 million in revenue that are thinking about it where it's a real struggle. So that's in terms of revenue threshold. That's in your mind if you're kind of below$5 million. That's when you make it. It's a definite no. If you're between 5 and 10, you've got to really think a part about it.

58:22But if you're above 10, you should be able to do it, but you've got to make sure you have the marketing dollars to support it. That's helpful. What piece of advice would you give to the younger generation who is trying to break into food and beverage private equity? Oh, boy. It's not easy. There's not a lot of us, and the number has dwindled over the last kind of five years since about 2019. I think it's started to come back a little bit, but I think what I would probably do is really get knowledgeable on the industry, read a lot, read about every one of the emerging companies, start posting on LinkedIn.

59:00You could post articles and talk about the article, or you can just start posting insights and really build an expertise so that people see that you are an expert and see you as an expert. starting a podcast is a great example too then you get to interview a whole lot of people that are really smart and learn from them as well as position yourself as an expert and i think that's that's a good path as well but basically what you want to do is you want people to look at you as someone that really knows the industry well and that's a way to get a foot in the door i think it's great piece of advice i agree um whenever i whenever i encounter people i that want to break Again, usually my answer is release content in some form or fashion, whatever you're kind of comfortable with, whether it's whether it's videos, whether it's text, whatever it is, just start start kind of because also I find with releasing content, you then understand your thoughts a lot better.

59:53And you're a lot of able to and you're you need you're a lot of able to kind of think through what you're what you're trying to say. And so when you do maybe have that meeting and you do talk to someone like you, Tyler, an exceptional private equity investor, then you actually you really kind of thought it through in terms of your your opinions, your your ideas. Yeah. No, you said it much more eloquently than I did. That's exactly right. Content. Yeah. Never. No, no, no, no, no. That is not true. My final question for you. What's one book that's inspired you personally and one book that's inspired you professionally?

1:00:31So I knew you were going to ask this. So I went and looked. A book that I read personally that I think is really, really good and that everybody should read is called The Heat Will Kill You First by Jeff Goodall. I think he's a Wall Street Journal reporter that wrote a book. He first wrote one called The Water Will Come, which is all about rising sea levels and how it was going to affect seven cities around the world. This one's just about the effect of heat as the world gets hotter on people. And it's a really good book. And then the second book, professionally, it's called Generation We, The Power and Promise of Generation Z by Anne-Marie Hayek, H-A-Y-E-K.

1:01:10I first read this book to understand my daughters were both Gen Z. And when I read it, I basically, it was so mind blowing just how differently Gen Z thinks that I thought, wow, every business leader should read this book so they can understand the people that work for them, the people that they're selling to. It's a really, really good book. Tyler, thank you so much for telling me about these two books because you are so original. No one has mentioned either of these books. So really, really excited to add them to our list. And this is, yeah, no, that's me. What do you think is the most suggested book on this show?

1:01:54Maybe Shoe Dog. You're right. It's a good book, too. I mean, that's a great book for sure. I would guess. No, that's awesome. Thanks so much. This is a fun read too. Yeah, for sure. Tyler, thank you so much for coming on the show. This was great, Mike. I really enjoyed it for sure. Thank you so much for listening. I hope this was helpful. I hope you loved it. And if you do love it, then you'll subscribe at the consumer VC.com to the newsletter. Thanks for listening.