Second Chances, And The Investor Obsessed With Outliers

26:51All right, it's time to get to our featured interview for this episode, as we once again welcome Carlton Fowler back to the show. A managing partner with San Francisco-based investment firm Goat Rodeo Capital, Carlton oversees a portfolio that includes stakes in several fast-growing food and beverage brands, including Lemon Perfect, The Good Crisp, Hoplark, Beatbox Beverages, and Nectar Hard Seltzer. This conversation is the second installment of our regular series with Carlton, which includes his strategy for identifying and investing in outlier brands, how and why investors can get it wrong, and his advice on what to leave out of a pitch deck.

27:37Hey folks, it's Ray with Taste Radio. Right now I'm back on the mics with Carlton Fowler for another edition of the Goat Pen. Carlton, great to see you. Good to see you too, Ray. That name's going to crack me up every time. Oh, that's a great name. You know, you are a partner with Goat Rodeo Capital, so I think it's appropriate. it? Yeah, yeah, it is a zoo over here. So yeah, I haven't seen you a bit. How are things going? They're good. They're very busy, which I feel like I'm always saying, but we're hopefully kind of coming to the end of a number of deals that we're in. And I've missed you and everyone else at Fancy and at Kehi and in a lot of the conferences have been going on.

28:18And we really hope to remedy that in the second half of the year. And you'll see our shining faces meant for radio or podcast and not television, but see our rather identifiable silhouettes walking around the halls. Maybe we should just come out to San Francisco. I haven't been out to the Bay Area in some time, and I know that's where you're based. So I'm due for a visit for sure. We'd love to have you. We love it when anything CPG comes out here. This might be breaking news. hopefully doesn't mind me saying it, but Kiva of Selva is going to move from San Francisco to LA. So he'll definitely be missed.

28:52It's a big hit to the San Francisco CPG ecosystem because he's one of the greats. And now all that's left will be VMG and Amberstone and us. It is maybe unfortunate when a member of the investment community moves out of a particular region, but LA is a pretty hot market for food and beverage and CPG in general. Yeah, it's a great market. You know, he'll be able to spend a lot more time in Erewhon, I'm sure. And, you know, they have a really interesting beauty practice that I think probably is, you know, LA is a much bigger hub for that. But regardless, we'll miss them because I just very much enjoy Kiva as a person.

29:29Yeah, well, you know, you could, if you're interested, move out to New York. I mean, New York is a pretty hot market for, well, everything. New York is where the Summer Fancy Food Show was based. since also where Magnolia Bakery is based. And we've had some good banter on Twitter with our founder, John Craven, about their new line of packaged cookies. This is their foray into CPG. You're a fan. I am. And I kind of, you know, had the unique opportunity. So Cameron from Weestock mentioned them to me. And I wasn't like fully read in on like just how cult, like the OG Magnolia Bakery is. but my grandmother is Southern and she has multiple published cookbooks and like banana pudding is one of her things.

30:15Like she is, and we're talking like, like Paula Deen style cooking, like lots of butter, lots of cream cheese, just like your typical like Southern way of making things. So I'm just a huge banana pudding guy. And to this day, I haven't tasted the OG. So I was able to sample their packaged cookie without any context, or if you might put it in any preconceived notions of how good it could be. Now, I've got some pudding on the way after this cookie because I loved them. I thought from a package cookie standpoint, they were phenomenal. I thought the moisture was on point. I thought the flavor was overwhelmingly delicious.

30:49You know, I thought the crumb was great. And there's things like Last Crumb and some of these other cookie brands. Like, I get it. It's a big business. But, like, I think these are good cookies as far as cookies that are individually wrapped in packages go. So I'm psyched to try the big bucket of pudding they're going to send me. Yeah, Magnolia is very well known for their banana pudding. And I understand that you're qualifying the cookies because you haven't had them from the bakery. But I love that you did rank the product attributes. And there were a couple 10 out of 10s. And I think in there.

31:19The flavor was like, just spot on, man. Like, funny fact, the flavor that we all consider as fake banana flavor, like the flavor in Jell-O banana pudding, or the figure like Jell-O or or like banana, Laffy Taffy, that kind of stuff, actually is the way that bananas used to taste. Like if you went back, an entire species of bananas that was very prevalent in Central and South America was just completely wiped out by a fungus. The bananas you're eating are not the bananas that like Jell-O banana pudding flavor is modeled on. Everybody refers to it as like fake banana flavor. It's not fake. It's what bananas used to fucking taste like.

31:57And they just were, they were sweeter. They were way higher in flavor, lower in starch and delicious. So I think Magnolia Bakery is onto something. I love that we're talking about this. You're blowing my mind over here, Carlton. It's crazy. Look it up, dude. It's not like a banana conspiracy. Like this happened. It's a disease not that dissimilar from phylloxera, which can wipe out entire vineyards. You know, I wonder if Goat Road to Capital had been around when Magnolia Bakery was launched, I believe in 1996. I wonder if you guys would have ever invested in that bakery because they do have a cult following and people wait in long, long lines, especially at the location in New York City.

32:37One might call Magnolia Bakery an outlier, given that it is a very special and unique kind of establishment and brand. And I know outliers are something that you have been, I wouldn't say focused on, but very interested in when it comes to investing. Yeah, I mean, obsessed might be one way to describe it. Okay, obsessed. We've gotten to know each other well enough now that like obsessed is not like an abnormal thing for my personality. I seem to have my own personal obsession about being obsessed with people who are obsessed with products, product success. So we care a lot about it. I'll tell you a really funny story.

33:16So we recently led around for Nectar Hard Seltzer. And I, by the way, I absolutely think that they fit in this kind of like outlier category. And we can kind of dive into that a little bit. Yeah, and just for context, tell our audience what Nectar Hard Seltzer is all about. Asian-inspired flavors within a hard seltzer. They do have a proprietary brew method, but that's as much marketing as it is part of the true method. What attracted me to them is the founding team, I think, is very unique. I would characterize one of them as like a marketing savant. And I don't use that term lightly. You know, he has a level of empathy, both on an individual level and a mass psychology level that you come across very infrequently.

34:02I don't care if he was marketing adult diapers, I probably would have invested. And then you have another founder who I think is extremely gifted from a process standpoint and a management standpoint. And importantly to me, the two founders, I think, very much recognize the lanes that they are very good on and respect each other for the qualities they bring. and they have a very equal partnership. But what it does, and we can kind of get into it after the story, it turns into some things that I believe are outliers. But the reason I'm using that phrase is we actually invited the Nectar founders out to meet with one of our largest LPs.

34:37And he'll remain nameless on this. But basically, this guy's one of the most renowned public market investors of all time. And he's also tremendously active in the private markets. but more importantly this guy is just cool and i got i don't know how i don't know any other way to describe it like cool in the way that like icons are cool like cool in the way like steve mckean's cool like he he dominates the room but not in a necessarily like abrasive way knows everybody anything you can tell him he'll have some angle on the story but like it never comes across as like name dropping because again he's cool like you know if if he wasn't cool it would come across as, oh, I know everyone, but it just comes across as this guy's the coolest person in this room.

35:22So let's all just sit and wrap detention for what he has to say. So we're in the room and one of the founders at Nectar talks about having read Outliers recently and the impact that it had on his philosophy and how he's trying to build Nectar. And the book you're talking about is written by Malcolm Gladwell. And of course, this investor who still remains nameless says, I completely get what you're trying to say. I completely understand the way you're building your business. By the way, I know Malcolm Gladwell and, you know, blah, blah, blah, blah, blah. Essentially Malcolm Gladwell doesn't think his own shit stinks and is not the greatest person in the world.

35:58But it was just like a perfect, of course, this guy knows Malcolm Gladwell. But he also, you know, if you were talking about Martha Stewart, he probably had dinner with her last week. And again, he's one of the coolest guys I know. But it was perfect because someone who's basically made an entire extremely successful living on immediately being able to grasp what is unique about a company, whether it's a public market stock or a private market stock, kind of grasps the same thing that we do about Nectar, which is, you know, of course, the early stage. So not everything can be polished and ready to go.

36:28And if everything was working, you know, this would be a different stage company. But they do one or two things just phenomenally well. For them, it happens to manifest in a customer acquisition machine via their marketing programs that are actually a profit center instead of a cost center. They don't pay for marketing. Marketing pays them and acquires customers. It's something you very rarely come across. And normally when you come across it, it's because it's a Kardashian or a Paulson or a Mr. Beast. And in all those situations, you certainly do not own as a function of the corporation around the product, any piece of said engine that is actually lowering the customer acquisition cost.

37:10You're just hoping that incentive structures keep them interested. In this case, the incentive structures are perfectly aligned because the media piece, which is the marketing engine, is part of said corporation. They are one and the same. And that's really kind of what I talk about from an outlier standpoint. Like, are their margins perfect? No, they're early stage, but they can get there. You know, is their distribution perfect? No, but it's early stage, and we can help them get there. And where they are, their velocities are two or three X what I see any other product on their competing thing.

37:42But what they do have is like actual true uniqueness on a customer acquisition engine. And more and more, that's what we're trying to define ourselves at GootRodeo is how do we find true outliers, if you want to use the Malcolm Gladwell phrase, but just true uniqueness at an early stage and invest in it over time as that uniqueness hopefully matures into a successful company. I'll play devil's advocate here. Yes, they do some things phenomenally well, but it seems like a risky investment given that they have a relatively short track record. They don't have a lot of time on the market. But I mean, how does that factor into your decision to go big on this brand early on?

38:28Well, I mean, seed investing is inherently risky, right? Like you could turn that question on its head and say, well, what about just waiting until everything else is proven, including the thing that you think is an outlier? And I would argue you've just defined growth investing. You wait until many things are working in the company. And then you hope that a combination of relationships and your ability to value and potentially affect exits get you into good companies. we tend to like to go earlier and continue to invest over time, right? So if you're going to be very active in a seed round, I would argue that in CPG specifically, because of the way that returns typically accrue to even winners, you better be prepared to invest in the A and the B if the success continues.

39:18It's a similar thing to like Lemon Perfect, right? We invest in the seed and the A and the A extension and the AB bridge and the B, and we'll continue to do whatever else comes along the path. So if you find them early, you need to continue to, you know, I would not just invest pro rata. I would argue you continue to need to heavy up as additional proof points get proven along a path that you kind of predetermined. Like, you know, I want to see certain velocities continue. I want to see distribution continue. I want to see the marketing costs continue to be sub any other type of competitive organization because of the unique skill they have in digital marketing.

39:57If all those things continue, of course, it's worth a continued investment. It seems like you're defining outliers in a sort of holistic way. You're talking about the founder. You're talking about some aspects of the company, whether it's branding or sales metrics. but would you ever invest in one specific part of a business that you would describe as an outlier? For example, the entrepreneur themselves. I mean, yes, but I think that is probably a lot more a function of relationships and track record. Like we're just about to do a fairly large, at least for us, first check into a company, but it's been an entrepreneur that I've known for a decade and he has three exits wow and you know this one is you know going to be in you know most of we'll just say there is no walmart or target or costco or longs or cvs and i think even a i'm pretty comfortable saying olive kroger that doesn't have a product this person's created so in that case i would argue that that's gentleman's entire life is an outlier right Like if we're trying to fit the entire thing into an overall framework.

41:11But I think for us, pre-seed is very tough. I think all the way by seed, we think we can start to identify if there's something truly unique about a company. And by the way, unique doesn't always turn into value. There are seed companies that we have not followed on it. But ideally, that thing continues and you can follow on bigger. Last time we spoke, we talked a bit about celebrities and creators or creator-led brands and what impact they have on a brand's potential. And it's interesting talking about outliers because I think you could talk about celebrities in that way and define them in that way.

41:52But it feels like there's so much out there that is attached to a particular celebrity that they don't really move the needle as much as maybe they had in the past. So I guess how would you assess and how would you evaluate a celebrity's potential in being able to be that significant difference, be that difference maker in an early stage brand? Well, I don't mean to dehumanize them, but it is very effective to think of a celebrity essentially as a customer acquisition cost discount machine, right? And if we're going to make the assumption that like, okay, all marketing is awareness and then trial and then hopefully repeat and then hopefully evangelism, well, the celebrity's got a built-in advantage on awareness that you hope on some level converts to trial.

42:48And then the assumption has to be that the product is good enough to drive repeat. And, you know, again, I think that celebrities can help on repeat and evangelism. But for the most part, think of them as a giant discounting mechanism on awareness. You get the awareness, provided the incentives are well aligned, right? And I think that's kind of always the worry, that what you're really investing in is a company that has a permanently discounted customer acquisition cost, or at least you hope that it does. you know celebrities can get bored we just saw mr beast walk away from mr beast burger right and a lot of people are making a lot of hay on that like you know there there are some reasons that i think that's a tremendously hard business for a single celebrity to act as the influencer for but we don't need to get into that it can go wrong if your enduring customer acquisition discount mechanism outlier is not reliant on a celebrity that's better it's better because you know now now the thing that's making your company unique is intrinsic to the company itself that you can invest in.

43:50So I don't really have a problem one way or the other about celebrities. It doesn't excite me, you know, one way or the other, unless I can, in digging through it, say, okay, here's why I believe in this particular case, this celebrity is particularly motivated, these understructures are right, and they're going to still be here going strong in seven years. But all things equal, if company A has a customer acquisition cost 50 % lower than its peer set and has no celebrity, and company B has a customer acquisition cost 50 % lower than its peer set and has a celebrity, I'll pick the one without a celebrity all the time.

44:25It's just that rarely happens. Well, and there has to be some sort of authentic connection between the audience that the brand or the celebrity is associated with and their products. And I'm going to call out a name here, and I probably shouldn't. But, you know, Betty Buzz, which is a company that was founded by Blake Lively, started out with cocktail mixers. And now they just got into RTD cocktails. And it's interesting because Blake Lively is known for not drinking. She doesn't drink alcohol. And so when they announced these RTD cocktails, there was some backlash from her community and her fans about why she was doing this.

45:04It felt very inauthentic to them. So in that case, it feels like the interest you're driving for your brand is not necessarily the interest you were looking for. I agree. I think that in this particular case, Betty Buzz is going to be just fine because there is a need for cocktail mixers. And I think she sideswips that particular issue by saying, hey, you can drink these by yourselves. I do because I don't drink. But she likes to host and she likes to make drinks for folks, et cetera. So, yes, I mean, that's kind of why I say all things being equal. I'd like a number of, you know, things intrinsic to the branded company to be the discounting mechanism and customer acquisition cost rather than a celebrity.

45:46Celebrity just happens to be one of the most classic and simplest ways to do it. Simple does not mean easy. Simple does not mean without issues. It just means for the most part, you know, some level of awareness will jump if you apply a celebrity to a brand. Whether or not everything else goes right is a future state and can be discounted by each individual cap or allocator. But I don't think anybody's going to argue with the statement. Taking someone with a lot of awareness and adding them to the product will have some kind of bump on said product's awareness. Yeah, I mean, there's a lot of things that have to go right for any CPG brand to make it.

46:24And we often hear about brands that didn't make it for one reason or another. They got something wrong. And investors, though, we don't necessarily often hear from investors about what they got wrong and why. And earlier you had mentioned, you know, sometimes we get things wrong as in Rodeo Capital. What do you learn from things that went wrong? What do you learn from your experience in something that just didn't work out? Well, I think that, I mean, first of all, you have to approach this from a place of humility, right? Like, because so much of the time you're attempting to focus on what goes right, because no one invests in something thinking, gosh, I wish I wouldn't have done that.

47:05Like everything you invest in, you think is going to go right. But it doesn't. And, you know, if you're being brutally honest and introspective, I think a lot of the places where we've made mistakes is kind of directly related to this outlier thing. You know, when my partner James and I are in violent agreement and violent agreement quickly. As in you get in a fistfight about how excited you are about something? Violent disagreements happen that sometimes lead to physical altercations. But violent agreement in this case typically is a lot of vigorous head nodding. And a lot of people are like, right?

47:44Right? Right? Right? I'm not crazy. You see this too, right? those are the ones that have that have gone on to at least on paper do well if there's any situation where james and i are talking i'm talking him into it or he's talking me into it and it's almost always comes as a function of well we love the founder but we're unsure about like x y and z and then because james and i are from industry a lot of times there'll be well, here's the couple of things wrong with this, but like, you know, if we were, if we were running it, this is the three things we'd do to fix it as if that's some kind of like, you know, prescription from heaven, a, probably those things are wrong and B, you know, when are we going to find time to go be free executives for the company?

48:28Like, especially as GoRodeo grows and, and we, you know, we, we try and be as helpful as we possibly can, but, you know, managing the overall infrastructure becomes more and more taxing in our time. So the thing that I've, I've come to is, was just assuming that James and I together are somewhat better than a monkey throwing darts at a board. And that's a large assumption. Let's just pretend we're going to hold that assumption true, that James and I are some percentage better than a monkey throwing darts at a board. What I've found upon a lot of postmortems is if James and I both completely agree that it's absolutely obvious that there are very special things about this company at an early stage and that it has the potential to grow into cool things.

49:13That does not mean it's still not obvious to like 90 % of the population. And we need to just stick to doing those things because if there's a long period of talking ourselves into it, those are the ones that have a much higher index of not being as successful. Now, even within that set, though, there are exceptions that prove the rule. There are ones, there are companies in our portfolio that, you know, a year and a half ago, if you would have asked me if I thought there was a snowball's chance in hell they would be successful, I would have probably said no. And all of a sudden, they're on an absolute tear.

49:46So even within that, all kinds of crazy things happen. That's the beauty of venture capital specifically. It's a lot more like fantasy football, like especially if fantasy football didn't have a waiver wire. Like you draft your team and your team is your team. And you don't know if like, you know, after, you know, multiple seasons or multiple games of underperformance, all of a sudden it's going to click and a player is going to take off. The beauty of it is you can't really, you can do as much research as you can, you can pick, but then you're pretty much in it until an outcome occurs. You can't cut your losses in places.

50:20You can not add to it, but you can't cut your losses. And I think that's actually a feature and not a bug. What might you see in, say, a pitch deck that would indicate that a brand has some significant potential to be that outlier without having maybe seen or tasted the brand or met the entrepreneur? Because a lot of times, I'm sure you get sent a lot of stuff and you're like, you know, what is it about this deck that's special? What is in here that makes me actually want to pick up the phone and call this person? It's funny that you mentioned that, and it's why pitch decks are both incredibly useful as a sifting mechanism, but ultimately not that useful as far as the eventual decision to invest.

51:04The only thing that I can see in a pitch deck that will get me excited in an earlier stage is abnormal velocities. And here's the thing is, like, there isn't a single investor that you can interview that wouldn't also be excited by abnormal velocities, right? And I've found very quickly that if I'm reading something, I may go, ooh, that's so on trend. Like, oh, I think brain health is going to be a thing. Therefore, I'm definitely going to dig deep into this pre-seed, pre-revenue brain health company. Because the thing that excites me the least is the inevitable two slides that bug me the most.

51:40Advisor slides. And here's how we're different from our competitor slides that has all green check marks for the company that's there. And then like some combination of red X's and green check marks for other things. Followed closely by the quadrant, completely subjective quadrant of where a brand sends the expenditures. If I could just eliminate those three slides from all decks, I would probably save myself an hour to two hours a week, mostly in rants. The time suck isn't so much reading the slide as much as it is the ranting about said slide. But I think that on a quick numbers basis, the thing that you can do that'll instigate the most questions in my head is, here are velocities, even if it's in a small geography, and they are double the category or 50 % higher than the category.

52:27Because then I have to start to ask the question of why, you know, is it something that's regional that can't be recreated? Is it something that's specific to a certain channel, usually natural specialty for dealing with food and beverage? And then you have to start to make some suppositions if it can move into more conventional channels like mass and grocery and convenience. But like, that's one of the few things in a deck without talking to anybody or anything about the company, they can be like, wow, because something must be driving that. And it's either complete differentiation within the category, or it's a very repeatable customer acquisition strategy that hopefully is like, it's one of five things, sometimes many of those five things.

53:08And if you can then dig in and identify what those are and convince yourself that they're enduring and scalable, then you have something. I thought when you were going to say it was, or it is complete, I thought you're going to say it is possibly complete BS. And the entrepreneur just didn't know how to calculate their numbers correctly. And well, that happens sometimes. Yeah. And, you know, never ascribe to maliciousness, which you can just ascribe to incompetence or indifference is my caveat to that. A lot of people say the former indifference is also a really good way to get numbers wrong. Yeah.

53:40I'm curious about advisors. Why don't you like advisor pages? I mean, if I saw your name in a deck as an advisor for a company, I'd be like, oh, okay, this makes a lot of sense. And yeah. It's just like people collect them like they're Pokemon trainer cards. I'm way more likely to stop and be like, hey, you've only got one advisor on your page and you spent time explaining to me what they help on. Like, oh, okay. Like I want to talk to them. But when you're like, yeah, you're the ex-CEO of Whole Foods as an advisor. and also like, you know, Ari, you know, Ari Emanuel at WME is an advisor. I'm like, what?

54:15Like, no, this person lets you put them on their deck for 2%. To me, that's evidence of you not being a good negotiator, not that you have this wide and far ranging network. This is good stuff, Carlson. This is very helpful, valuable. I'm sure the people who are listening to our audience. One other quick question, you know, I'm sure you talk to a lot of early stage entrepreneurs. In fact, I know you do. and obviously you're not investing in every brand that you come across. I want to get a sense of whether or not you feel comfortable sort of just being friendly with entrepreneurs and maybe them picking your brain, whether it's on LinkedIn or Twitter or a quick phone call.

54:52Yeah. I do. It is difficult to set up the natural, and by the way, the system-wide design of the desperation for capital from friendship, you know, within this space. Like, for example, I don't know if he would agree, but I consider Paul Vogue a friend. Paul Vogue's a founder and CEO, a co-founder and CEO of Ouroboros. I think he is one of the coolest, nicest, most genuine, interesting people in CPG. Would I go to dinner with him? In a heartbeat. You know, ultimately, we couldn't get there from an investment into Ouroboros. And like, I'm very comfortable saying that had absolutely nothing to do with Paul Vogt.

55:33It had to do with the category. But I imagine that from his perspective, the affectionate nature of our talks were very confusing because I liked him. And I'm not gonna pretend like I don't like someone on the phone. And I think people can genuinely think that that's on the path to investment when that's frankly the underlying goal that instigated all of our interactions. Paul, if you're listening and you wanna hang out, I know you live in San Francisco, man, let's hang out. We were just on a podcast together. But like, like if the founder is able to separate the nature of my job and his job, and then just sit down and talk about the business and ask for advice, like, of course, and in fact, I think, you know, Paul, Paul called me recently and actually asked me some advice on something.

56:16And I think he was genuine in his desire for advice. And it wasn't like a coded and hidden call asking for investment. Who knows? Only he can answer that. But I'm very open to that because I am both in awe of and adore founders in general. And some within that even more than others. And we're not necessarily invested in all the ones that I think are the best. And I'm happy to hang with them. There you go. So Carlton, just always a pleasure speaking with you. And, you know, this flew by and I feel like we could speak for another two hours, but you are a busy person and we'll do another edition of the Goat Pen soon, I'm sure.

56:56Sounds great. That brings us to the end of this episode of Taste Radio. Thank you so much for listening. Taste Radio is a production of BevNet.com Incorporated. Our audio engineer for Taste Radio is Joe Cratchy. Our technical director is Joshua Pratt, and our video editor is Ryan Galang. Our social marketing manager is Amanda Smirlinski, and our designer is Amanda Huang. Just a reminder, if you like what you hear on Taste Radio, please share the podcast with friends and colleagues. And of course, we would love it if you could review us on the Apple Podcasts app or your listening platform of choice.

57:32Check us out on Instagram. Our handle is BevNetTasteRadio. as always for questions comments ideas for future podcasts please send us an email to ask at taste radio.com on behalf of the entire taste radio team thank you for listening and we'll talk to you next time