Investor Spotlight: Alex Borschow, Rocana Ventures

0:02A 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. Our 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.

0:32They'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 startup cpg.

0:59You don't have to be perfect because no startup is perfect and no mentors are perfect. Going back to what we talked about earlier, accountability, self-awareness, humility. Okay, look, I'm really strong here. I know I got really strong metrics here, but our ROAS on Amazon or other outside of meta for DTC is not strong, or our velocities weren't strong with this retailer. We recognize that. We're addressing it this way. Hey, everyone. I'm Hannah Dittman, operations and finance host of the Startup CPG podcast. And today I'm joined by Alex Borsho, a general partner at Rocana Ventures. Rocana brings a deeply mission-driven approach to early-stage investing in consumer, backing brands that genuinely make people's lives better, what we eat, what we put on our bodies, and what supports our mental and emotional well-being.

1:47Alex blends operational empathy with disciplined investing and a belief that great products, great founders, and great impact go hand in hand. In this episode, we talk about what real product market fit looks like, how to recognize traction and why it matters so much, and a general approach to diligence. Alex shares fundraising advice, traits he consistently sees in the best founders, and why adopting a post-mortem mindset early can change the entire trajectory of a business. We dig into why not every metric has to be perfect to raise capital, and how founders can prepare for the next chapter with both clarity and confidence.

2:21It's tactical, honest, and packed with insight from someone who's helping shape the next generation of high-impact consumer brands. Enjoy!

2:33Hey, everybody. Welcome back to the Startup CPG Podcast. This is Hannah, and today I'm here with Alex Borsho, an investor from Rakana Ventures. Alex, welcome to the show. Hey, Hannah. Thanks for having me on. We're so excited for you to be here today. I'd love to start out with you introducing yourself, your title, and giving a little bit of a background from where you started and what led you to investing. Absolutely. So as you mentioned, I'm one of the general partners, three managing partners at Rakana Ventures. We are an early stage VC focused on consumer brands in three verticals, food and beverage, personal care, beauty, and mind and body wellness.

3:06I've been investing in the Better For You consumer space for the last 13 years. I started out more in food and beverage, ag, ag tech. And before that, I grew up in Puerto Rico. I went to MIT, studied chemical biological engineering, spent six years on Wall Street at a French investment bank, BNP Paribas, on the sales and trading side. And then went and did my MBA at MIT Sloan. And that's really where I transitioned my career into investing. I was president of the Food and Ag Club there, organized hackathons, and started investing as an angel alongside other VCs. Realized I really needed some experience actually in operating business in this sector.

3:43So I was the first director of finance for Italy for the US. That was a seminal experience understanding retail, food service, e-commerce. and it really opened my eyes up to the power of consumers and brands. I really saw that was where there was more potential to drive change in the system. Consumers were looking for healthy, better-for-you products and they were voting with their dollar with brands whose values resonated with theirs. That was back in 2014, 2015 and been investing since now moving up into a fund and Urkana and I were investing out of our third fund. I have two great partners in Sumesh and Gardeep.

4:15We have a great senior investment associate in Lisa and yeah, excited to be on the show. What an awesome background and a lot of different cool experiences. I'm sure there's a lot of Italy fans out there that are happy with your work. And Puerto Rico, how cool. I see that you got a surfboard in the background. So I imagine that's probably where you pick that up. I'd love to also take a second to formally introduce your investment firm. I'd love to go over stage focus, check size, AUM, your mandate, how you differentiate, and really provide some good context for the rest of our conversation. Yeah.

4:49So at Verkana, we really focus on companies that are raising their Series A and what that means for us, because I know that definition has changed or it's different for different firms and people. We look at companies that are ideally north of$7 to$25 million in revenue. We want products, first of all, consumer brands. We're very focused on consumer brands. We're not looking to take tech or regulatory risk. And we also look for brands that have ideally omni-channel traction in terms of revenue, especially in the food and beverage industry. We understand that personal care beauty is a little different in terms of number of doors in retail, the retail partners.

5:23So it's not one size fit all. But I would say our sweet spot,$725 million in revenue, raising your kind of first real institutional round of capital. And we're looking for companies that have healthy gross margins. Gross margins can vary depending on category. Beverages are very different from frozen, for example. but overarching kind of screen or filter or North Star for us is our mission, which Rokana actually comes from a Sanskrit, Ayurvedic concept of better living. And Rokana's mission is to help consumers live better lives. And our metric, or I guess our way we think about that is three ways you do that, what you put in your body and what you put in your mind.

6:04And those kind of inform our three verticals. So within that, we are very much focused on better health. And that means democratizing access to better-fueled products. They have to be accessible to the mass. Can't just be a niche, ultra-premium luxury product. And I would say what differentiates, aside from our very strong mission focus, is also that we are pretty active partners with our brands. We don't invest in 30, 40 brands. We invest in just 15 companies, typically per fund. And we look for entrepreneurs and founding teams that really see the value of Rokana's community and Rokana's shareholder and LP network.

6:45We have over 60 % of our capital from strategic value-added LPs. And that is a real differentiator when it comes to understanding how we can bring value to procurement, supply chain, distribution, brokering, marketing, packaging. And that's part of our due diligence process is understanding what are the potential areas for Rokana to leverage its community to bring value to this brand? And is there a genuine interest of this founding team, this entrepreneur to partner with Arukana? Is it a two-way interest or is it kind of pushing on a string? So that's really critical for us. We love working with founders and entrepreneurs.

7:25We don't have as much interest in just kind of being a silent partner on the capital sack. If they're just looking for a check and say, write me a check and we'll talk to you in five years or send you maybe an annual report, That's just not really the type of relationship we're looking for. What a great overview of your fund. And you said a lot of interesting things there. I want to just highlight first the first institutional capital point. I think sometimes founders might have a little hesitancy of understanding fully what that means and especially what it means for you. For instance, a lot of founders that have angel investors or friends and family around or some prior fundraising that maybe even some debt.

8:04Do you consider that as part of first institutional capital? And can you explain that a little bit more? Yeah, that's a great question and point. And I recognize a company's, the nomenclature of financing rounds. You could have raised a seed round actually from a fund, and that might be actually your first institutional partner. And there are some very active seed stage investors in our industries and our categories in terms of food and beverage, personal care. So we're not opposed to that, but we many times find that the round we invest in might be the first one where category or industry specific VC firm is looking to lead that round and partner.

8:43Whereas in the past, it might have been industry agnostic firm, or also you talk about friends and family. And it goes back to like, what do you call that friends and family round? Is it a friends and family round? Is it was actually your seed round? Was it a safe note? Was it a convertible note? So I guess we really look, that Series A, it should be somewhere in a$5 to$10 million raise. And we're looking to write initial check of a million to a million and a half. We can go higher, but typically what we like to do, our strategy is to put an initial million dollar check, really build that relationship and have experience on execution with the founder.

9:18See them hit those inflection points, see them hopefully exceed budgets. and then with more confidence, double down with prorata or more than our prorata in a follow-around or a bridge round. And that's a follow-on investment of anywhere from$2 million to$4 million. We also have very active co-investors among our LP base. So we've brought a lot of follow-on capital in that Series B, that Series C with companies like Gollipop. And that's proven to be a pretty positive strategy in terms of de-risking growth and bringing more capital to our winners and our fund returners. Yeah, it sounds like you guys have put a lot of work into a really strong LP base, which is the partners that are helping you gather funds to then deploy in your fund.

9:57And yeah, what a differentiator to have such strategically focused and conscious LPs as well that can help on both some potentially operating sides and also investment side as well. And for context, I think a lot of investment firms have a very broad base of LPs. It can be very random pension funds. people you never hear from or have nothing to do with your industry or your business, really. So I think, as you mentioned, that is a cool differentiation point. I'd love to kind of dive in a little bit to diligence process and start out with a little bit more of a leading the witness pointed question.

10:32A lot of times when we're talking about investing and fundraising, investors want to see what they will call proof of traction, product market fit. Those terms come up quite a lot. What does that mean in practical terms for a founder listening to this, if they're thinking about what they actually need to get done and show, how is product market fit being evaluated? How do they know when they have it? What is traction? How do they know when they have that also? Great questions. And again, I think it's not one size fits all depending on the category or industry. But in general, I mentioned we like to see omni-channel traction.

11:08And what does traction mean in retail versus D2C? And how do you break out D2C between Amazon and your own website? And then how do you think about Club as a separate kind of channel from retail? So I'll start with D2C. D2C had its kind of peak moment, I would say, pre-2022, and that was iOS 14. And when Apple changed the privacy settings, there you could really see strong ROI on digital marketing spend attribution in terms of you knew you were spending marketing dollars, it was acquiring customers, and it was because of your spend. That changed very much after 2022, and it's changed the metrics and dynamics in that direction to my channel.

11:46Meta still is the dominant platform and it used to be that we looked at LTV to CAC, right? So LTV, lifetime value of a customer versus CAC, your customer acquisition cost. That has evolved into looking more at payback, right? So if you're spending$100, let's say, to acquire a customer and the average order volume is 100 and your contribution margin, your gross margin is 50%, well, it takes you two orders roughly to break even on that customer. That's become more interesting in terms of evaluating how valuable your customer is and how effective your marketing is in terms of acquisition of customers.

12:19And that's all to say in direct-to-consumer, customer retention and profitability of your customers is kind of the key metrics you want to understand. That is different now for Amazon. Amazon is becoming a more and more important channel for brands. Looking at your rankings on Amazon, looking at your consumer reviews, we want to see at least 4.3, ideally 4.5 stars average reviews. That shows really strong consumer feedback. We want to see you moving up the rankings over time. That means that there's stickiness and new adoption from customers. And then Amazon has own marketing channel and metrics in terms of spend.

12:59So then we move on outside of the e-commerce channels to retail. And this is where it's really important for us. When we say omnichannel, this means you have to have kind of e-commerce and retail. And the main reason for that is that Strategics, which are the primary exit partners for our brands, they're really not going to be acquiring brands that are just D2C or just e-com. They depend on seeing retail traction. And retail traction, it also depends on what channel within retail. Like, is it in your natural organic channel? Is it in your mass channel, grocery, or is it in club? Now, each of those has its own kind of metrics.

13:34And we want to see a brand generating strong velocities for its category. So we'll pull benchmark data from spins and other sources to evaluate their velocity, which is number of units per SKU, per store, per week. That's our kind of gold standard. I know a lot of brands like to highlight their dollars per TDP, like total distribution points. breaking you really down. We want to understand, okay, how many units are you moving in a store per skew per week? And how does that change over time? Now, it's really valuable to see when you have a product at full price, and then you have a product on promo.

14:13Promo being$2 off, buy one, get one free. Every retail has its own flavor of this. And those promos, which a lot of retails require, will bump up your velocities for a short time, whatever that's a week, two weeks, three weeks. What's really insightful for us, and it kind of validates is if you see post that promotional period, the baseline velocity for your products have now increased. So they might have been here before. They jumped up here on promo. They fell back down, but not all the way to where they were before. So that is for us a good sign of consumer adoption, not just trial. Promo helps drive trial.

14:50The customer tries it because it's on discount. I really like getting a good deal. Now, when they come back and buy it again at full price and that full price, that velocity is kind of maintained and then trend upwards from there, that to us indicates strong product market fit and traction in retail. And that's become much more important because on e-commerce, it's become easier to at least appeal to the low hanging fruit, the early adopters that would have bought your product anyway. And they're probably going to subscribe and keep on buying because they're your earliest target core customer willing to try new things.

15:24In retail, when you start a natural organic channel, you look into mass, your Target, Walmart, Kroger, you want to see traction there as well. Velocities tend to be lower in mass, but you really want to have real traction in mass if you want to eventually build a scalable company that can exit. And then last, I'll mention Club. Club, the two biggest players are you have Costco, you have Sam's Club and you have BJ's. Those are kind of three club players that really, I say Costco and Sam's are the dominant players there. That's changed dramatically. Costco used to have options for bringing in products full-time and just kind of buying nationally.

15:59Now it's really driven through roadshows where they help you let you go on a weekend in certain clubs. They have very explicit dollars that they expect you to sell per day or per weekend. Then they might do a rotation where they'll buy for a couple of clubs or region. It'll be one buy, It'll go through the inventory in a month or two, maybe three. And you need to have several successful rotations, typically three or more, before you got to start getting like a more wider distribution. Having a really strong broker partner who can tell you what these benchmarks are, what these metrics are for your category in terms of dollars that you need to move is really important because you typically don't get a second chance.

16:38And if the rotation doesn't hit those benchmark, it's unlikely to get you another call or another PO. and cost-co-orders tend to be really chunky. You're talking about quarter million, half a million dollar POs for rotation. That's really helpful. And I think looking at it by channel and understanding the nuance and the complexity that those metrics and analyses will be different depending on what the consumer journey is and also what the business operations dynamics are is really thoughtful and shows what a strong investor in the space you are and how much understanding you have of it. I'd love to kind of double click a little bit more on the high level as well of just big picture.

17:14Why does this matter so much? Why does understanding and what are we understanding really work? Is it about understanding that consumers are not only purchasing once, but they're repurchasing and they really have a high affinity for your product? And if that's what we're really trying to answer with looking at all these metrics, why is that so important for you as an investor? That is a deep fundamental opinion or, I guess, an outlook on what makes a company valuable, right? And I'm sure you've heard about the toothbrush test. It's like what products, platforms, services, apps become such a part of your daily routine, like most people who brush their teeth, usually at least twice a day.

17:54They become so part of your habits and your behaviors that it's like your toothbrush. That's kind of the gold standard for us in terms of value for a brand. And once a brand or product becomes such a part of your ingrained daily habit, that really creates huge value and not just for us, but also an exit for an acquirer. And going back to why the traction that I talked about is important, because those are the early indicators for us that a brand or a product is on the right growth path to becoming potentially that kind of ubiquitous product in your daily routine. There are other metrics we look at once you kind of get later stage, once companies are beyond 50 to 100 million revenue, you start talking about household penetration, right?

18:44You start talking about metrics from brand recognition, unaided brand recognition and awareness. You start getting companies to invest more in top of funnel marketing, not just performance marketing. And that's really critical to taking that next step from being, okay, you had strong initial traction, you build a brand to 10, 20 million revenue. Awesome, right? But to go from 20 to 50 to 100, it's a whole nother level of, okay, consumers that we have to expand into. And if you don't have the early indicators that consumers love the product, that are buying it consistently, that are using it consistently, right?

19:17That's not going to bode well to once you scale outside of your home base or your dominant channel. Once you get into mass, it's not going to set you up for success if you don't have the right product market fit and validation. to then investing in top of funnel marketing and PR to drive brand awareness so that when those other consumers start seeing it on the shelf in a Walmart, in a Target, right? In a Kroger, in a Publix, they start grabbing. Oh, I heard that brand. Oh yeah, that's a better one. That's supposed to be better for me, right? Oh yeah, I'll try that. And they try and like, oh wow, that's pretty good.

19:47I got to get this again. Okay. And maybe they sign up on Amazon for subscribe and save, right? Or next time they're in the grocery store, they pick up two cases instead of one. And that's kind of what we learn from our experience with somebody who break out brands like Ollie Pop I mentioned again, we're part of the journey from early to growth to then breakout. And really it's about value creation, right? So if we want to maximize value creation for our investors and the brands themselves, we know the kind of the roadmap that needs to be followed. And that's kind of why we think about the commercial traction then leading to breakout and becoming a daily habit, part of your everyday use.

20:23Super helpful. And by value creation, I think you're meaning essentially increasing the nominal value valuation of a company to potentially have a liquidity event mean more or be worth more over time. Yeah, that is definitely value for our investors, our LPs, as well as the founders. But I think there's also another level of value creation, which is our North Star is better living, better free products. And if you think about brands that are bringing consumers things like fiber, like gut fiber, like Olipop, right? For every can of olive oil that people consume versus a can of, let's say, regular soda, you're adding three to five grams of fiber to their diet that they wouldn't have otherwise consumed.

21:06They would be reducing the amount of sugar they're consuming, right? And the health impacts that that has on our society. We really believe that you need to have healthy people to have a healthy society, and healthy societies care about their environments and their planet. So it's really driving a whole other level of impact and change in terms of health in our society and our planet. I love the mission, mostly brand people here. So we're all on board with that. And I think it's a really unique focus as an investor to really have a conviction and belief in not just the money you're making, but also the work that you're doing with through brands and with brands.

21:38Kind of going back to some of this traction conversation that we've been having from the founder perspective, I'm thinking as founders are listening to this, they're immediately going to want to go check, well, do I have this? And I think a lot of metrics are, as you mentioned, different by channel, but also different by product, especially if we're talking about frequency of use, for instance, or repurchase rate and things like that. I sell shampoo and conditioner, the repurchase rate for that versus a soda is going to be wildly different. But one thing that I think is a little bit more universal and can be a little bit more universally looked at in consumer is repeat purchase rates.

22:16That's something I look at at Amazon all the time. I'm downspending that very frequently and checking my cohorts and repeat rates of each buyer. And when I'm looking at that kind of information, and this is going to be a broad, hard to answer question too, but what's my target benchmark? What should my North Star be? What is a place where I or range where I can feel like, all right, I'm doing pretty good. An investor is going to think pretty favorably about this amount. Yeah. Repeat purchases mean that your customer is not only satisfied, they're happy with the product and they want to keep on buying it.

22:54Amazon has made it incredibly easy to have repeat purchases because you subscribe and save and that 5 % or 10 % savings on a product, Like, it's just that small oomph to get you like, yeah, I'll sign up for it. And you might even get an extra order or two that you wouldn't have ordered otherwise because, oh, I had enough. But you know what? Maybe I'll skip the next one, but I still have it. It's easier to skip than cancel. And to your question, it depends, right? Again, we saw, and this has changed, but we saw in 2021, 22, 23, D to C metrics in terms of retention and stickiness for customers. the benchmark was if you had north of 10-12 % retention after 12 months, that was a good retention metric.

23:38Now, you put that in perspective and you're losing 88-90 % of your customers after a year, and that just seems really unsustainable. That seems like a poor retention metric. So we've seen now a much healthier retention metrics for brands that not just in D2C from their own website, but also Amazon, you see metrics more in 30 to 60 % retention and reorder rate. And you got to get kind of granular to understand as your brand evolves, how different cohorts behave, right? So if you require these customers, they put their first order in November, right? Did they reorder in December? Did they reorder by January?