#206 - Exit Interview: The Sale of Aura Bora

22:35They now realize we want these companies to be more mature. $100 million is now the minimum you can expect for any sort of acquisition. And$100 million means we'll read your pitch deck. It doesn't actually mean we'll buy you. We just want to know the name of your company. As a result, these investors realized we need to wait longer to make less money. That is like not a good equation. They need to, rather than us making 10 times our money in three years, if we're lucky, we'll three times our money in 10 years. And even that might be a stretch with all of the deletion coming, particularly in a cash intensive business like beverage.

23:09So that's how it was from conglomerates down to investors. And now the next people in this chain are, of course, the brands. The brands have this problem where in order to scale to that hundred plus million dollars of sales, we need to raise a lot of money. And we can only raise a lot of money if we are above X million dollars of sales, which surprise, surprise, is the reason why you're seeing so many celebrity backed beverage companies is how many people do you know that can have access to 25 or 30 million dollars without any real traction? The only thing you could say is they don't have traction in the beverage world, but they have this huge advantage in marketing and they're generally wealthier people from wealthier agencies.

23:51And as a result, you see way more celebrity backed beverage brands than you do other sorts of things. So anyway, that is the way it trickles down the supply chain. The reason I give all that by way of background is I think your question was is basically just. Yeah. OK, so I mean, you kind of answered it, I think, is what were the big CPGs saying? And like for, and you basically, yeah. Big CPGs are saying, hey, this used to work. This used to make sense. There were times. And there were still a few large CPG businesses, a couple of which were publicly traded. Yes, I took a look, kicked the tires.

24:25We took three or four meetings and they said, hey, we think we, you know, there's things about this brand we find compelling. We could have made this work in X year. But right now it just, it doesn't work for us. Like if they're publicly traded. Too small for them to take a bet on at this point. Yeah, to take a flyer doesn't really make sense. to have to report it doesn't make sense. Kind of the same premise as the investors where they're saying, hey, because this is now a big game, we need to write huge checks, not small checks. Same thing for the large CPG companies, whether they're private or public.

24:53Hey, we need to take big bets. And seven small bets is not equal to one big bet. It takes the same amount of time, same number of people. There's just less of a chance of a huge outcome. Okay, I got it. We'll be right back. A few years back when I ran a beverage company, we had to launch using those plastic sleeves to put our designs on the cans. but they looked bad. The sleeves get stretched out. They don't cover the full can and overall, they just look and feel low quality. Lucky for you, digital can printing technology has come so far over the last few years that now you can launch your beverage brand or new SKUs with a fully printed look and it's at similar pricing to those plastic sleeves.

25:28Our friends at CanWorks, which is the largest US-based digital can printer, are happy to work with our community at very low minimums, even one pallet. They've got locations in the East Coast, the West Coast, Texas. Get in touch with them through our contact form. It's at canworksprinting.com slash startupcpg.

25:50So now let's talk a little bit about the actual acquirers. So can you tell me a little bit more about what was that dance like? You know, who made the first move? And how did those initial discussions go? And, you know, maybe as much as you can talk about the actual negotiation, deal terms, that kind of stuff. I can't talk much about deal terms, but I can give you generalities. I think it's true. And it's been true of the, you know, as you can imagine, when I was in this process, I was talking to any connection, acquaintance or friend that had done anything similar. And I think everyone has a pretty similar experience with this of, if I had to say this in like a pithy way, the offers you'll get, the terms you'll get is like people will always offer the thing that they find least valuable, which makes sense.

26:34Of course, you know, like, I get it. If I could pay with cans of sparkling water, I would, because that's just like the thing that's easiest for me to procure. So same premise of some of the folks we were talking to, you know, they're running privately owned brands that spit off a lot of cash flow. So to them, cash is the, ironically, the least valuable thing they have. Equity in that extremely fast growing brand is more valuable. So their offers are cash. For publicly traded companies, say that are holding a lot of stock, hey, all of a sudden stock is the cheapest thing that they can offer. For some of these folks that are doing a roll-up, it's stock in a combined entity and you'd get, you know, exports in that combined entity.

27:14So all of these deals ended up looking very different. I think just like the general rule of thumb is, hey, if you get to know an acquirer, this is probably true of an investor. If you're kind of doing a specific large investment deal is the side of the table they're on. This is like my favorite political science phrase of you stand where you sit. The idea of it is, you know, if you ask the secretary of defense, if he needs more troops, he's going to say yes. The reason being like, you just stand where you sit. The thing that you represent is probably what you think. So if you ask someone, we were speaking to a woman who works at a large publicly traded beverage company.

27:51And she, I think her exact comment was, well, we could only do this if we were able to offer you X, Y, Z. And the X, Y, Z was the thing in her mind that she had in surplus, you know, just sitting in the medicine cabinet. Sure. I'll give you a six ad bill for XYZ. Cause it's no big deal to me. Like it's something we just can offer you. So that's me speaking in a lot of generalities for obvious reasons. I did find that part pretty fascinating. You know, obviously never sold a beverage business before or sold any CPG business before. And like I said, this was not, you know, just full disclosure, not the deal we were expecting, not the time we were expecting to sell, not, not the size of business that we were expecting to sell, et cetera.

28:25There's so many things that were just kind of a surprise between one year ago today and January. But I definitely learned a lot in that process of, wow, this is how the world works. And then maybe the biggest thing I'll say, and I've referenced this a bunch of implicit ways via the timeline, is so much of this is timing. Almost, this is like an insane thing to say, but just running CPG brands in general. There was a time where I thought the idea was worth X percent. Let's say the idea is worth 50 % and the execution of that idea is worth 40 % and the timing is worth 10%. I would now say timing is like 80 to 90 % and idea is probably like 0.01 % and execution is whatever the delta is between those two.

29:11And can you just tell me more exactly what you mean about that, about the timing? What are the key parts of the timing that you think are so impactful just in terms of like the fundraising environment you find yourself in and when you meet people or where your brand is at that stage? Or what do you mean? People think about timing in terms of meeting consumer needs all the time. For example, if you were a beef jerky company in the last five years, you are feeling like a genius. Oh my gosh, we sell this high protein, low fat snack and the world only wants high protein, low fat. Obviously, anyone can start a beef jerky company today.

29:44It would be better to have the price flexibility, the vertical integration and$100 million of sales across five channels before the trend starts. You know, when it starts raining, you can run out of your apartment in New York City and start selling umbrellas. Wouldn't you rather have 10 guys selling umbrellas ready and then the rain comes down? Like some of these things, timing is just luck. And I guess in my example, you could just be a meteorologist. In the same way with protein, you could have been a trendsetter or, you know, just follow Snackshot and Andrea will tell you what's coming next.

30:13But I'll say there is that's the timing we talk about. The truth is there's so many other timing aspects of, you know, I remember we started or more people say all the time, like, oh, another another sparkling water company. We don't need more sparkling water, which could be true. The truth is, in the years since sparkling water has grown net net like 60 percent. So like what felt like a lot of sparkling water in 2019 in the United States. Hey, we continue to drink more sparkling water. We continue to have more brands. We continue to just, people are trading soda, et cetera. So it turns out, hey, yes, this was an enduringly fast moving trend, but it was also going to continue to grow.

30:50That said, the timing we don't often talk about is what I was just referencing of a deal can get done between used a much larger, you know, real cash rich acquisition. You're drinking a poppy right now. Obviously, poppy sold for years. That company could have sold. They were of scale, of gross margin, et cetera. the timing happens only when it makes sense for both parties. Only when the larger party is like, okay, now this is something we can deliver to our shareholders. Same thing with Celsius and Alani Mu. I think Celsius looked at 30 different beverages over the last 16 quarters that they might buy.

31:26They've had an extremely fast-growing stock. What's funny, when you have a fast-growing stock, you can look at these deals, but you have to realize, ah, the stock we're going to offer for this might double in the next two years. Would we pay twice as much two years from now or not? And all of a sudden, it just becomes a crazy mass equation. Anyway, I'm saying all that to say all of these timing things need to work out. You need to have the right trend at the right time, have the right thing set up. You need the category managers to be interested in your category at the time that you have a product ready.

31:53And you need investors and macroeconomic cycles to work in your favor. Just to give one more CPG-specific example, there was an awful supply chain disruption as a result of COVID. I know 25, 30 entrepreneurs that had amazing traction and overnight gone, unplugged. Oh, you're importing coconuts for your product? Which coconuts? The ones that are worth nine times as much? That's not really going to work as it works its way up to your supply chain. So all of these things, timing, I'm mentioning because you inherently just have no control over it. All right. Very interesting. And yeah, I can imagine a lot of that stuff that you could not even anticipate, like the trend toward non-alc, which I think a lot of that does actually come into sparkling water.

32:33Like if I have a party at my house, a lot of people aren't drinking and they're really happy to have a flavorful sparkling water. You know, something kind of fun, but hydrating. Total luck. To your point, I didn't know the word mocktail when we started. Yeah. All right. So, Paul, looking back at all of this stuff, where are some things you probably would have gone in a different direction if you could do it over again? whether it was your, you know, how you did the fundraising all along or some decisions you made about investments for the business, marketing decisions, or, you know, how you kind of focused on different channels as you were growing the business.

33:07Is there anything that you could have done that would have potentially changed how much cash you needed to get to where you needed to go, or you could have just been operating much more efficiently to like even let you scale to a much higher revenue over time with the amount that you were raising? Good question. I think, man, hindsight is 20-20 for sure. So I've been effectively out of the beverage world for a few months. Obviously I still read things, but not actively calling distributors or transportation people. So I'm going to say I've definitely had some time to think. There's so many ways I can answer the question.

33:40I answer it from a big way of like, hey, do I think sparkling water is a compelling category? No. I don't think it's a compelling category to build a business like this in. And that's coming from a guy that's, Yeah, we sold 30-something million cans of sparkling water. And I just think it's not a great category for a lot of the reasons we already talked about. It is far too discount-heavy. There's very little brand loyalty, which the benefit when you're a$0 of revenue brand of lack of brand loyalty is, whoa, there's no brand loyalty. People buy my stuff. The negative is when you're a$10 million brand, whoa, there's no brand loyalty.

34:13People buy the next guy's new stuff. So I think all of those things combined takes a lot of cash, super gross margin-heavy, super discounted. Um, the fact that I'll name one specific thing about sparkling water that I think makes it so not compelling. I could name you 10 sparkling water companies that are each giants. I mean, I think sometimes you're just competing against one giant. If you are making a sandwich cream cookie, you are competing against Oreo. That is the one giant you're competing against. If I do that same thing for sparkling water at the risk of getting too specific, I could name a bunch of independent brands, Spindrift, Waterloo, LaCroix.

34:51I can name a bunch of Nestle-owned brands, San Pellegrino, Perrier, Pepsi-owned brands, Bubbly, Coke-owned brands, Topo Chico, Aja. It's just kind of crazy that it's unusual in a category that there are more than 10 brands, each doing more than$200 million of scanned sales. That's very unusual. If Tuna Fish, there are two brands doing$100 million of sales. Chocolate chip cookies, there are three brands doing$100 million of sales. So it's very usual to have a double-digit number of giants. So long as saying, if I could do anything differently, the honest truth, and I don't mean like no one needs to play a violin for me, but like, yeah, certainly would not have picked this category to build in.

35:28Of course, it was a category that was very close to me. Like I said, at the beginning of the podcast, I drink like a gallon of this product a day. I don't drink a gallon of anything else, but that's like not, not really a compelling reason to build a business because it's something you enjoy. If it's something that you happen to enjoy that you feel passionate enough about to do every day for 20 years, because that's kind of what it takes to build up one of these businesses. Maybe that's enough, but for me, probably not. That's super interesting. And I think about that a lot because obviously there are a lot of emerging companies in the sparkling water and regular water space.

36:00And I think, yeah, I mean, challenge number one by the price point, right? There is a price ceiling, especially if there isn't a really strong functional story about it. And that's always going to haunt you. It's just really hard to get a buyer on board with you being way more expensive than what's out there. And there are, yeah, I mean, you're talking about, like the market's very fragmented and there are also a lot of strong regional players. There are strong private label offerings that really keep that price ceiling intact. Yes, I should add that too. Hey, there's 10, 15 companies that do$200 million in skin sales in sparkling water.

36:31And then if you're running a grocery store chain of 15 stores and you don't have a private label sparkling water, you are missing out on, I think Wegmans, just to name one regional example, Wegmans is not a huge grocery store chain. They are just in the mid Atlantic in Northeast and their private label sparkling water is the size of Spindrift only sold in their stores. All right. Pretty interesting. I mean, I hope even if you had known all of that at the beginning, you would have followed this dream of yours because I mean, it did lead to a good outcome for you. And it may not have been the billion dollar brand outcome that I think a lot of us hope for, especially as we get into that early growth stage.

37:08Like what could go wrong? This is going to be amazing. It's always going to be this amazing and it'll be everything. But yeah, I mean, I guess I think it's true for you and I hope that it is true that you worked very hard for a long time and just had probably so many highs and lows and hopefully the highs were a lot higher than lows. And that kind of even looking at this at the very beginning, you would have been like, yes, I do want to do that. And it's going to be worth it's like, you know, better than the opportunity cost that I have of doing something else. I hope that for you anyways, I hope that's how you look at it.

37:36I know. I don't know how I look at it. I think one, it depends on the day and two, it's very kind for you to say yes. No matter what, it is certainly the six years I ran Ourobora is certainly like the only way I know anything about how the world works. Like I just, I was 24 years old when I started this business. I effectively knew nothing relative to how I feel of what I know now. Not just about CPG, in general. About life, about the way humans work. About what is good work. What's a meaningful day. What feels like a fulfilling way to spend one's time. What actually makes a difference. What's moral.

38:10What's immoral. What's the sort of thing you'd be proud of as an 80 year old? What's the sort of thing that you'd kind of cringe at? All of those sorts of questions. Those were not like yearly things. That was like a weekly normal onslaught of things to think about. And sometimes I look back at like the kinds of stressful things I felt at the job I had before this job. And it feels like a joke. And that's like maybe a nasty thing to say to someone that, of course, has like a totally respectable job. But the truth is you learn a ton about the world and maybe selfishly, you learn a ton about yourself.

38:42I used to joke like therapists are awesome, but if you want to learn a lot about yourself fast, like put most of your savings on a product that you sell out of your car. And it's like amazing what you learn about yourself. So I'm really grateful for that. I am sure if I am lucky one day enough to have children, they will be so tired of hearing about that time that dad sold sparkling water. And I think part of it's like, of course, yeah, there's a million sparkling waters. We don't have to talk about sparkling water, but it did become the way that I learned anything that I feel any sort of passion or conviction about, which I'm grateful for.

39:16And that's the sort of thing that needs to happen in your 20s, one way or the other. And it'll either happen to you or you get to kind of be in the driver's seat. Let me ask you one follow-up on that. What did you learn about yourself that you're really proud of during that time? Because I feel the same way of the times that I've worked really hard and the things that went well. And not everything does always go well, but I mean, just we're competitive, we're ambitious, we're doing this stuff. And there are probably a lot of things that you were able to accomplish that you didn't know you would be able to do.

39:42So what are some of those things that you're really proud of that you learned about yourself during that journey? Gosh, this won't be true for everyone. Most people just smarter than me and will have more experience than me as I did when I started this business. But I'd never managed anyone, period. I had zero employees my whole life. And then at its peak, I had 17. I'd never like managed a team or a profit and loss statement or any sort of enterprise of any scale. I used to sell Christmas trees in the winter or t-shirts in college, but like nothing of any sort of meaningful scale. So sometimes folks will call and ask like, hey, should I do X, Y, Z?

40:15And I'm like, look, I did X, Y, Z because I had literally nothing to lose. I was like stupid with no good ideas and nothing to lose. For a lot of people, it's a different equation, almost in a negative way. Like where they have a family and a high paying job. No one is paying me a lot of money in general. So that said, the things I felt I learned about myself at the beginning, I think there's a lot of questions you can ask in your life. How, what, where, when. And I think always why questions end up being the most meaningful and honestly might be the only things you remember. Like the only thing I will remember in an Alzheimer's ward someday is like, why did I do this?

40:52And why was it impactful? And why did I care? And I think at the beginning, the why was like, man, you're trying to prove something to people. You're trying to prove something to your family. You're trying to prove something to your investors. You're trying to prove something to an industry. And the truth is like at the end of the day, as painful as it sounds, like unless you're born a twin, you come into this world alone and you go out of this world alone. So you get 100 years to live. I used to ask folks the first interview question, so many ways to spend one's time. Why do this? And I think sometimes like long-time CPG people will tilt their head and be like, why are you asking that question?

41:23And the truth is I'm actually just interested. There's so many ways to spend one's time. If you have an abundance mindset about life, why specifically this? And I think my answer, and I didn't know this until a few years in, is of all the ways to spend one's time, I find this like pretty delightful. Something you made with your hands. Like I just like creating things. I didn't really know that about myself. Yes, I was a creative person for sure. But I didn't know the fulfillment I would get from creating anything. And of course, a bit of like selfish satisfaction of watching people enjoy it and watching it scale and getting pictures from airports and grocery stores and sports games where people were enjoying our sparkling waters was meaningful, not because it represented a sale or because it was good in a quarterly report or it proved some teacher in high school that thought I was a miscreant that I could do something impactful.

42:10It was more so of just very simple. I created something and it exists. And I think anyone that's listening to this, whether you would call yourself a creative person because you sing acapella or you're in the play or not, all of us are creative in that we were made to create. I actually think that humans were made to create whatever that thing is that brings you joy. Like that is kind of our core purpose between zero and 100. I think what you look back is what did I enjoy and why did I do it? And I think the answers will be almost always something that you created if you were so fortunate that gave you some perspective and some gratitude for being on the planet.

42:49So as silly as it sounds to have a big macro thought like that, when, you know, at the end of the day, I was selling lavender flavored sparkling water is what I think of kind of just made to create. And I don't think I necessarily knew that six years ago. I love it, Paul. I think that was really beautiful. And I hope everybody listening maybe did a little bit of reflecting while you were talking about that, about like, why do I do this? And maybe not all of them are in the same position that you were in of getting, just having the right conditions and ambition and hustle to actually go out and start something on their own.

43:19But maybe even if you're just like, you're a salesperson at one of these companies, but I think, you know, for probably all of us, I think there's just something that we love about the industry. I mean, I always just say CPG is fun and that's why I do it. Everything about it is fun, But, you know, it's sort of like it's just the arena that I want to be playing in to do all of the things that I like doing. But anyways, I hope everybody takes that as an opportunity just to remind themselves why they do this. And maybe it'll make them think of doing it in a different way or maybe starting their own company.

43:49Or maybe they won't because they've also just heard about a lot of speed bumps along the way. So just one kind of more tactical then question about specifically the fundraising journey. Sure. How you raised money and, you know, you talked about having done even like a family round or friends and family round in the early stages. And like you did Shark Tank and then, you know, all of the six different rounds or whatever that you did. Is there anything that you think you probably would have preferred to do a little bit differently or that you would just tell brands now? Like, yeah, maybe think about doing this way if you want to get a good outcome more profitably or, you know, more capital efficiently.

44:28I'll say for those brands that are listening to this that don't need to raise outside capital because their gross margins are good and they've found a way to grow at an acceptable speed relative to that gross margin, or maybe they've been able to get a lot of debt. As a result of that same cash supply chain I referenced earlier from conglomerates to investment firms to brands, one of the things that's filled that gap is really efficient debt capital at a much lower interest rate than people are probably expecting. So if you're one of those brands that can leverage all of those things, great gross margin and great debt and not raise money?

44:58Of course. That's like my, no offense to our capital providers. That's the best. I had this silly Christmas tree farm that I used to do for three weeks every December. And it was awesome that it was three weeks long. It was just in December. So I could just max out my credit cards, buy hundreds of Christmas trees and know that I can pay them off three weeks if I worked hard. Like as silly and simplistic as that is, that is the best version of business of like your expenses. You own 100 % of it and you can find a way by hook or by crook to like sell something for more than the cost of goods in it.

45:30So if you can pull that off and have a profitable business, absolutely. For those that can't because the industry they're in or the scale they need to grow, et cetera, et cetera, et cetera. I guess I would generally say if you are so fortunate to have one particularly adept capital provider that you can closely partner with, that is like certainly the best way. And I'm saying best in quotes because I think it's best in that you guys are equally aligned. Hopefully you really enjoy working with one another. So many examples of folks that raise money from capital partners that they really regretted.

46:01And ironically, it actually is easier to get divorced than it is to get rid of a capital provider. So my answer to those fundraising is, hey, it generally is better to have one well-funded firm that's interested in continuing to back you over the course of several years if the brand is working and you're working hard and you're hitting all your goals. If you can't do that, which will be the most people because there's not that many of those firms and they don't do that many of those deals. I would generally say I definitely spoken to a lot of brands that are a lot of questions about fundraising.

46:31I try to just golden rule everything of if it were me on the other side of the table, like what is the deal that feels fair to me as an investor? And for so many of these things, as I just referenced, like, yeah, the multiples come down at the top end of the spectrum. the revenue multiples need to come down in year round. And it might mean you own less of this business than you would have had you started it 10 years prior. And that's just true. My other fundraising advice is like, be reasonable, be odds anyone succeeds in CPG. And I will be specific when I say succeed. I'm using the word succeed to mean a tangible investment dollar is returned to investors.

47:08Forget the entrepreneur. If investors put a dollar in at some point and got a dollar and one cent out, we'll call that a successful CPG business. that is like one in 100 ,000. So just know that, hey, and you're raising money, 99 ,999 times, that dollar will become less than a dollar, whether it's zero or 99 cents in the future. And as a result, like, yeah, these things are priced accordingly. You know, that's just like the painful truth of it. So I'd say keep that in mind. If you're fundraising, it's so easy people to focus on their business and they need to be maniacally sure that it's going to work.

47:39And of course, that's true. Everyone that jumps into the pool at the Olympics thinks they're getting the gold medal. and I can name Michael Phelps and I don't know a single other person that was in the pool with him. And that's just like the painful truth of this business. All right. That's hard, sober truth of it, but it is the thing that so many of us love to do. So good luck to everybody, despite the long odds. I mean, I hope everybody enjoys the journey as well because it should be fun even when it's hard. And a lot of that is what makes it fun. Okay, cool. So Paul, just last question for you here.

48:12What's up next, Paul? What are you spending your time on now? How can people kind of still follow along with you, even though you're not actively working on Ourobor anymore? You know, what people will, I think, just be interested to keep tabs on Paul. Gosh, that's very kind. If they want to keep tabs on Paul, easy guy to find on LinkedIn for sure. And other social media sites. What's next in general is I just want to take some months and clear my head. So I'm actually about to leave the John Muir Trail here in a couple weeks. and do a big hike with some friends. Yeah, I've made this silly word game just for fun.

48:49To my point earlier, I really like creating things. So if you like word games, it's called Outlier. You can find it at outlier.land. I've been consulting for some businesses just to stay busy. So what's next right now is just, hey, I love the consumer world. I'm sure that the next thing, if I'm so fortunate to make, will be something consumers can interact with, either something they pour in a glass, like my former thing, or something they click on a screen or somewhere in between. but for right now I'm not really sure I definitely in retrospect my point earlier felt like I rushed into sparkling water because I was so excited about it and I was 24 and I'm trying not to rush into whatever that next thing is and like fortunately I have the benefit of both time and perspective and can afford to do this so that's what's next I love it and I have played the game I can tell everyone it is fun check it out outlier.land it's cool you basically go in and you're just trying to pick the thing that doesn't fit with the others and it's fun in that way that like you know angry birds is fun and like wordle and all that stuff so everybody check it out outlier.land paul thank you this is another instant classic i'm really excited for everybody gets to hear this and i will look forward to seeing what the next adventure is thank you sir good to see you good to see you all right everybody thank you so much for listening to our podcast if you loved it.

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50:44Thank you, everybody. See you next time.