Investor Spotlight: Deborah Benton of Willow Growth Partners

25:30We just want founders to feel safe and comfortable with us to come back to us and say, look, this work, this is a disaster, like, because we can't help if we don't know. And the onus is on us to create that environment that is supportive and understanding and focus on problem solving and not blame. Debra, so well said and such an empathetic and understanding lens that you have, which I think really sets you apart as an investor. I think a lot of investors you'll hear, especially when they have founded their own funds, that I think as a way to relate, they kind of think of themselves as entrepreneurs a little bit as well.

26:01But I would say I think it's just a different animal and operating because the world of problems that you're trying to tackle is so varied and so much more broad and so much more ambiguous. Not that investing is not hard and not that starting a fund is not hard. Of course, all of that is incredibly difficult. Very few people succeed as well, but it's a little bit more easier to wrap your head around and understand what the things you need to do are to go through them. I agree. We can feel second order stress from what's going on, you know, with our portfolio companies, and we do feel it and that can be stressful.

26:38But we're not in the direct line, if that makes sense. So you're absolutely right. Like what we're all doing is hard and there is ambiguity. But I'd be the first to say this is not what we do is not nearly as hard as founding and scaling a brand. It's just not. We know the path. It doesn't always go the right way. Our job is not that complex, right? We spend a lot of time trying to meet as many founders as we can, sourcing new opportunities, doing deals, supporting them as much as we can, and then helping them get to an exit and return, and then eventually going out and raising a new fund. That's the path.

27:14Now, there's a lot that can go wrong with each of those aspects. Of course. But that's kind of, we know how we're going to allocate our time. Launching a brand is just the wild, wild west. Anything that can go wrong does. Everything goes wrong. There's innovation happening. There's new competitors popping up all the time. You're dealing with retail partners. You're dealing with suppliers. You're dealing with a consumer base that is subject to macroeconomic forces, a social zeitgeist that is changing, cultural influences that are changing, technology that's changing. It's really hard. It's very exciting.

27:52I don't want to put people off for lunch. You know, we have such a wide founder audience, and I think most of them will probably appreciate. To your point on psychological as well, you know, as a founder, it's not like you have a boss telling you you did a good job that day. You're kicking yourself 24-7 anytime something goes wrong. And if it's going right, you're like, thank God it's not on fire. So I think in a way, at least what I've seen in my journey of my career as well is I think a non-driving factor but a nice halo benefit of working with an investor sometimes is finally feeling like some external validation from someone you respect and trust telling you you're doing a good job, giving you a gut check on what you're doing, feeling like you're not psychologically fully in it alone and having a little bit more of that emotional support in a way.

28:39It's like I often think, especially for solo founders, for all founders, it's incredibly lonely. Like people really don't talk. We don't talk about this enough. We don't talk about the mental strain of the loneliness that founders feel. And, you know, we don't help ourselves with social media and LinkedIn posts. And I'm guilty of this as well, where we're celebrating all of like, oh, it's so great. And they did this raise. Well, doing the raise, is that really something to celebrate? I mean, it's exciting because it's the next stage. But my goodness, you know, you're at step one of now you've really got to go execute on that.

29:15There's a tremendous amount of mental strain that I don't think we talk enough about. I don't think we, there's enough support out there and there's enough understanding. The media, and believe me, I understand my part in this as well, we glorify these, you know, big number exits and these meteoric rises. And we don't talk enough about the behind the scenes ups and downs and even the brands that, you know, are supposedly overnight successes. First of all, there's no overnight success. None. None. But even those, we don't spend enough time talking about the heartache and the tears and the frustration and the anger and the sadness and the despair.

29:54I think we should talk a lot more about that and just normalize having that discussion because I don't care how successful of a brand you are, you have been through all of those. we're one of the earliest stage investors out there but by the time we're ready to do an investment usually the brand has been around for at least two or three years sometimes more sometimes not but usually you know there's an r &d there's getting off the ground they may have raised a little bit of angel money or friends and family and they've already struggled for two or three years before and we're the earliest institutional fund right our rounds are usually three to four million when you think about that and you think about somebody has already dedicated two or three years of their lives sometimes longer with so much ambiguity and so little feedback mechanism as to am i on the right path is what i'm doing correct am i am i thinking about this the right way i have so much admiration for founders i really do yes i will say going back to an earlier question, you know, kind of giving advice to founders.

30:59When you do choose your partner, when you go out to raise capital and you're talking to funds, as much as you possibly can, you are diligencing them as a partner as much as they are diligencing you. It is in your best interest to really back channel reference, spend time with them, go break bread with them, figure out what makes them tick. In that dating process, everything looks golden. Everything's always great until you hit challenging times. As much as you can get to know the kind of people that are going to be around the table when you do face challenging times, because you will. So selecting your partner and figuring out who the right partner for you is, number one advice I would give people.

31:42And such great advice. I think that is a long-term relationship and you're often very tired fundraising and very eager to get money and very eager to be doing all the other things that you want to get back to doing. And you've got a team that you're managing on the side and you've got your real life going on. So it may not be the number one thing that's top of mind, but boy, will you be happy at the end of the day, a couple of years down the road when you've got the right person in your corner versus the wrong one. I'd love to kind of get your perspective. You know, you've probably seen, I don't even know how many deals or how many conversations you have with founders throughout the year.

32:15I'm sure it's hundreds, it's not up north of a thousand. What are some of the common mistakes or missteps you see founders or companies making when they're going through the fundraise process that you wish maybe you could just be like, if they just understood how to position this differently, this would be stronger for them or some common pitfalls that people fall into? Yeah, I mean, going back earlier on our conversation of how different funds are positioned, look, your greatest resource is your time. So the more preparation you can do in advance of understanding, is this fund, are we even in the sweet spot of this fund?

32:49So you can Google, you can talk to people, You know, there's a two by two matrix of stage of fund, check size, who plays where, will they lead, are they just participating, like getting a market map of who your target, narrowing your target down to the ones that are reasonably could participate, I think will save you so much time. And that's a few hours of research. Hop on to chat GPT. They can tell you exactly kind of who your target funds are. That I would really recommend. The second is know the funds. just spend a little bit of time of understanding. Take a look at their portfolio. Where is their sweet spot?

33:27We look at probably one to two thousand deals a year and we might do four or five maybe. So it's hard to break through the nose. The more you can facilitate that conversation and provide to the fund manager a reason why this opportunity fits within their scope and their sweet spot and their portfolio, the better if you do a little bit of the lifting up front. So there's that prep work that I would really encourage people to do. The second is when you're putting together your deck, the goal of the deck is not to get an investment. The goal of that initial deck is to get a second meeting. So don't put too much into that.

34:07I think on average, I actually researched this at one point, I think it's between two minutes and 45 seconds and three minutes is the average amount of time that is spent on a DocScent or that original investment deck. You have to get to the point pretty quickly. It should not be a long deck. I don't know, maybe 10 pages, really. At this stage, again, know who your audience is and what your goal is. Your goal is simply to get either a Zoom or in-person meeting. So you're sending off your deck, who you are, why you should exist, what's your point of differentiation, what is your moat, your initial projections of where you are, where are you going to be in the next couple of years, the competitive field, how you're competing within that, like there's standard things that you just need to really get across to pull yourself away from everything else that is vying for that fund manager's attention.

35:00I would say once you get that meeting, for us, the storytelling is incredibly compelling. So the more you can share about your background, the reason why you're doing it. You know, I often correlate how strongly I believe the origin story is to what can I expect in terms of like future tenacity or perseverance of how that founder is going to get through really difficult times. So don't underestimate the power of the storytelling. I rarely, unless the founder insists on it, on that first meeting, I don't want to go through a deck. I've read it and I've said yes to a meeting. I now want to focus on you as a founder.

35:40Who are you? What drives you? Where did you come from? Why are you doing this? What does it mean to you? What does success mean to you? Who are you doing it with? What are you hoping to solve? Powerfully, are you motivated to solve this problem? That's far more compelling to me. Once I've ticked the boxes that I'm interested in this category, it's an interesting brand, they've got some early traction, I understand the positioning, I understand how they can compete, they've got a chance, that kind of stuff. I don't really need to go into at that first meeting. I don't need to go more into that.

36:11I really need to understand, is this somebody that I believe has the tenacity, the perseverance to take it through to the end that really wants that, that is aligned to how we think about this brand should scale? So, you know, I think people sometimes want to delve right into the deck and the metrics. We're early stage investors. There's not really a lot to go through. I want to get to know the founder. I want to get to know the story. I want to get to know why you think this brand should exist in this world and how you're going to ensure that it does. And then I'd say the next meeting, you know, if we get into diligence, you don't need to be an economics or finance major, but you have to understand the financial metrics of how the business operates and how it is going to operate.

36:56If you want to bring in somebody else that supports you on that, I'm totally fine with that. But for me, I don't understand how a founder can make decisions if they don't understand the very basic principles of things like gross margin, product margin, your unit economics. I don't know how you make decisions to deploy capital if you don't understand how it's going to return or how it's going to fit into your model. So I need to believe that you don't need to be that person. You could have a fractional CFO. You may have somebody supporting you when you have P &A that can get into more of the details.

37:29But I need to believe that you fundamentally understand, you know, what the financial mechanics of this business are and how it's going to scale and eventually become big and profitable. That would probably be my suggestions. Yeah, no, that is so helpful. And I think it really pulls back the veil. And every firm and fund manager has a different priority set to some extent in a different style. But I think especially for working with you, it is so helpful to just understand, especially if someone's never seen it before or they've maybe never done it, quote, unquote, the right way or something. It's really helpful to just understand what is best in class look like and what am I supposed to be doing?

38:03And I think that's a great example to share. I'd also love to take a couple of minutes to talk through. You're such a sophisticated investor who's playing around a few different sectors in consumer and has obviously had some awesome success. I'd love to now focus a little bit on future looking. What are you excited about in the market, either in terms of the CPG landscape in general, consumer behavior shifts, any trends that you're excited about, or just the investing industry in general? What are some things that get you excited for your job and keep you thinking? Yeah, we think about this a lot.

38:35I would say we have to stay on top of the macro, what's going on in the macro, because the consumer doesn't make decisions in a vacuum. So things like inflation, geopolitical risk, as crazy as that sounds, tariffs, AI, the job market, these all play into, you know, what we monitor as consumer sentiment and how the different groups within the consumer world, how they are reacting. So, you know, we came out of the post-pandemic exuberance of spend, spend, spend, and we were hit with some pretty nasty years of inflation. And while inflation has moderated somewhat, We're still not at the target rate.

39:15The Fed is responding. We saw a 25 bits cut earlier in the fall. And I think the market has certainly absorbed the anticipation that there's going to be future cuts. But that's not because we're at the target inflation rate. It's still elevated. It's because the jobs reports are pretty scary. And I think Powell is responding more to we got to get this economy going because we're really facing some scary stuff. You layer that with kind of this existential angst around AI and the impact that that's going to have on jobs. And, you know, the consumer is kind of scared. Sentiment has definitely dropped.

39:50Certainly, I'd say the middle segment of the consumer world, those buyers are probably exhibiting the highest shift in how that they're buying. It's a much more considered spend. So, you know, this backdrop is really important to us as we're thinking about how the consumer is going to respond and that affects things like channels and which channels should we focus on and where should we not. We really do focus mostly on what we would consider more on the essential side. So whether it's health and wellness or food and beverage, most people would even consider their beauty or personal care routine pretty essential.

40:25Feeding your family, essential. Feeding your pets, essential. We really do focus on that area. So we have certainly been somewhat protected, but there are changes that are going on in the consumer world. That being said, I'm excited because I think we're in a much more rational environment where, again, we had years and years of basically free capital that was fueling unsustainable growth. When you have a zero cost of capital, you could just go raise capital and nobody's, you know, that zero cost is not playing into how we're valuing businesses and how we're underwriting exits. And importantly, on the exit side, the sponsors or the strategics, they're also playing with zero cost of capital.

41:07So, you know, the algorithm changes once capital starts to become a little bit more expensive. So we're in more of a rational environment, I would say, which generally excites me because it becomes more logical. You have to be a lot more thoughtful. In terms of categories, because we're always trying to think about wellness for today's families, better for you, better ingredients, we're really interested in innovation on the beauty and personal care side, behind science-backed, new ingredients that are coming in, clinical testing, things that have proven efficacy, not just white labeling, kind of creating another pretty brand and white labeling it.

41:46There is real frontier innovation that's, I think, happening there. And then, you know, I love the food and beverage side. There's a lot happening in food and beverage, again, supporting wellness. You know, we have two investments in the food space, one an amazing no seed oils, frozen french fry brand called Jesse and Ben's, and then another and a healthy mac and cheese called Goodles. And what they have done to very sleepy categories and very sleepy aisles is truly innovative. They're not asking consumers to even change their buying decision or their eating decisions or behavior. They're just providing healthier alternatives.

42:24That's a really exciting opportunity for me. You know, when you're going and you ask consumers to fundamentally shift how they're behaving, that's a little bit harder, not impossible, but a little bit harder. But these amazing brands are just being so thoughtful about taking all the nasty ingredients out, replacing it with a higher macro, better nutrient profile, and saying, look, consumers, we've done the heavy lifting for you. You can still enjoy your delicious, amazing fries and mac and cheese, but it's a healthier option. Those opportunities actually really excite me. That's so well said. And I'm a huge Jesse and Ben's and Goudl's consumer.

43:00So I totally agree. It's like relieving for a customer when you're like, oh my gosh, I can eat this stuff again. I know. Or feed it to my kids and not feel guilty. I can actually feel pretty good about, you know, feeding french fries to my kids. Yeah, the better for you shelf flip is finally coming to the ancillary aisles, which is awesome. As you know, Startup CPG has the largest Slack community in the industry with now over 30 ,000 members. I'd love to pull a question directly from our channel and have you answer as a case study for any founders with a similar question. The recent question was, how do I know what valuation to ask for?

43:39Oh my goodness, what a great question. This is art and science. So I'm going to start by saying at Willow, we are disciplined around this. And we're not disciplined because we're cheap. We're disciplined because we want to pave a path that will have the highest chance of success for everybody. So if you approach capital raising with a mindset of I'm trying to optimize for valuation, you will get yourself into a lot of trouble. We saw kind of in those exuberant days of 2021, even the early part of 22, lots of deals that came around that we were really interested in, but the valuations were insane.

44:19And they're insane because we can't see the next step. And we try to take founders through, okay, here's where you are. Here's the stage of business. this is roughly where we think you should be coming in at with this size of check and this you know according to your model this is how long we think the cash is going to take and where it will take you to and at that point you will hit the thresholds for that next stage of investor and this is how they're going to think about it because we know we know how that next stage of investor that has a lot more data a lot more numbers and historical financials to base their their valuations on, which by the way, are completely correlated to the expectation of what they're underwriting to for exits.

45:02You know, there's no hidden kind of game here. It's everybody's thinking about what is the path. And we are even at the earliest stage are thinking, okay, this capital that you raise right now, let's say you're raising three or $4 million. Now, let's take a look at your model. How are we going to apply it? And how is that going to scale the business? And where is it going to take you? Let's say it takes you 24 months, Where do you expect to be in 24 months? Are you at a stage that is going to attract that next stage of capital and hopefully never raise again? Because if you're there and that next stage of capital, this is how they're going to think about it.

45:37This is how they're going to value. So how do we value the risk and the time value of money in those two years that the early investors came in at? What kind of return is a reasonable return for the risk and that time value of capital for when that next investor comes in? Like, what makes sense? And if they come in at that stage, I can tell you they're going to be underwriting to X after three or four years, say. Your ownership is going to be here. Are you comfortable with that? Because that's how we're seeing the path. That's a conversation that every founder should have with any investor that they're serious about getting involved with.

46:14Everybody should understand. It doesn't mean it's exactly going to turn out that way because stuff happens, but that conversation needs to exist, how people are thinking about it. And then to the degree that it turns out that way, great. If not, at least you've had the conversation and you can kind of pivot together. So how should you think about valuations? It's a conversation. I can give you general guidelines, but there's so many nuances depending on category, margin profile, speed of growth, competitive environment, differentiation, brand resonance, who the founders are. There's a lot of different things that will actually play into that.

46:56But in general, I would say at our stage, it could range if you're looking at top line, not always, but often our businesses are EBITDA negative. So we're not going off of an EBITDA multiple. But keep in mind, by the time these businesses go to exit, it will probably be an EBITDA multiple. So there is a change that happens somewhere in there that has to be accounted for. But if we're looking at revenue and it's scaling pretty quickly, it could be anywhere from a two to three times top line up to maybe at the highest stage, a four to five times top line. But there's so many factors that go into that, like so many factors that founders don't ground yourself in that number.

47:41Meet partners that you think you can work with and then have a discussion. The best negotiations that I've ever had are open discussions around expectations and where do we want to be and ownership. Optimize for your ownership. Optimize for the partnership that's going to preserve your ownership and give you the best chance of success. Very sage advice. And I think an important mentality to approach things with where a much broader picture and a lot more variables going into things than just needing to kind of like slap a price sticker on something. And so I think that's a really helpful context to get people's minds spinning in the right direction.

48:20before we wrap up i want to take a second to make sure our audience can have an actionable next step to apply all of this amazing knowledge to deborah we've covered so many different topics and i appreciate you and thank you so much for sharing such amazing insights for founders that want to get in touch with you where can they find you or what is the best way for them to get in contact and for operators or anyone looking to transition or that might be interested in investing or working directly with you all what advice would you have for them yeah so first in getting in touch with us Again, check out our website.

48:51We're at willowgrowth.com. I think that there's a contact us button there. You can also reach directly out to me. I'm at Deborah at Willow Growth. LinkedIn, certainly link in with us. That's the best way. If you can get connected through another founder or a service provider or somebody that is in our ecosystem, even better, but not necessary. I truly do try to respond to all of the emails that I get. Sometimes it's a little harder than not. I operated for many years and then about 10 years ago moved into angel investing and did a lot of board work for about six years. I built up an angel portfolio, which was, you know, on the back of that angel portfolio allowed me to go out and raise the fund.

49:32So that was certainly helpful. I love bringing angel investors even into the rounds that we do because they can be so strategically helpful and they play a different role than a fund does as you're kind of piecing together a round. I think the best way to get involved is try to meet the fund managers, try to be helpful in deal flow. We get a lot of deal flow from folks like that that are in the operating realm that, you know, no founders. Here are people that are raising. They send us deals. Sometimes they get involved in those deals as a result of that. Being advisors, getting a little bit of equity for advisors.

50:06Maybe there's opportunities for some board roles. That's the best way. Like, immerse yourself in the ecosystem. The fund managers and the investors, we see a lot, but so do the founders. You know, there are founder circles, there are founder communities and ecosystems. There are really great events to go to. Just immersing yourself in the ecosystem is the best way to get involved. Thank you so much for your time today and all of the amazing wisdom and knowledge that you shared. I think it's going to be an awesome episode and I'm sure everyone is going to be really excited to reflect and listen to all of this advice, Deborah.

50:38Thank you. You are so welcome. Thank you so much for having me. Thanks so much for tuning in, everyone. If you like this episode, show us some love with a five-star review at ratethispodcast.com slash startupcpg. I'm Hannah Dittman, podcast host and correspondent here at Startup CPG. I hope you'll join me again as we dig into more juicy topics like ops, finance, and all the real talk founders actually need. Come say hi on LinkedIn or ping me on Slack. I'm always eager to hear your questions or brainstorm future episode ideas. If you're a potential sponsor and want to get in on the fun and appear on the podcast, shoot us an email at partnerships at startupcpg.com.

51:14And last but not least, if you haven't already, don't miss out on our free Slack community for emerging brands and CPG lovers alike. Join us at startupcpg.com. We'd love to have you. See you next time.

51:36Thank you.