Investor Spotlight: Greer Tessler and Luke Goldstein of Simple Food Ventures

22:06Hannah Dittman:How much work happens diligencing a brand or reviewing materials before that first meeting versus after that first meeting? So we typically truthfully go into our first meeting pretty blind. My favorite part about this whole thing is falling in love with the founder's story and like hearing the passion and why they're doing what they're doing. and why their brand is the brand that we should be investing in the same way that we pitch our fund versus every other fund out there. It's the passion you bring behind your job and what you've built. And so we go into that first meeting blind. We like to hear the story of what they're building, how they got there, why they're doing it.

22:43Obviously, if it's not pre-revenue, it's like their progress, what their financial profile looks like, distribution, all of that. After we have that first meeting, we ask for samples so that we can try the product. We also asked for data access to the data room. And then we've developed our own diligence top sheet that we send the founder to fill out. That is just an overview of the brand, their numbers to date, some of their like most prominent investors, what the market looks like. And then we use that throughout our outreach then to Albertsons, where within the next six weeks, we try and have a conversation with the buyer at Albertsons just to understand what they think about the business.

23:20At the same time, we've gotten access to their data room and we're looking at their financials. We're putting together our model and our return potential for the business where we see holes in what they're trying to build. And then we fill out our own investment memo justifying the investment to our investment committee. And then we typically invest. So our whole process takes around, I used to say six to eight weeks. I'd say now probably like eight to ten. And it is we talk to the founder throughout it. It's not so intensive where it's like we're on the phone with the founder every single day.

23:55But I think we try and get a good understanding really what the company is about and what the inner organs look like.

24:00Hannah Dittman:That's really helpful to and thank you for being so transparent with kind of the milestones to break down of what you guys are really looking for. A lot of weight is typically put on that first meeting. And I think that's where a lot of founders feel the pressure because technically that's where the diligence process is either going to start or not start. So, you know, what should founders expect in terms of dynamics of the first time they're meeting with you? For instance, what should the tone of the conversation be? Who should be leading it, you or them? And specifically, what are you hoping they will say or what will be covered in that first probably 30-minute meeting?

24:37I think that they should be leading it. They're the ones that reached out, asked for the meeting. I think that I love doing a quick overview of Simple Food Ventures so that they just have context in who we are and what we're about. And then really just diving into their story, understanding their background, what brought them to this point in their career to do this. Clearly defining what the company is and then what the market opportunity is. And yeah, and then what the performance looks like to date. Then obviously how much capital they're raising. I do like when they tell us what the valuation is or what the cap looks like just to get an understanding of where we're at.

25:12And then I don't think it's as important in this specific meeting to understand exactly where the use of funds are. But just overall, where they're thinking and then how long, what the runway would be from this non-capital. I think going back to what you said earlier about the fear of fundraising, I think it helps. And it's for context, like we're raising the second fund, as we've said. We've probably spoken to 50 or 60 family offices or fund-to-funds over the past three months. And, you know, I think there's a chance that maybe six or eight of them invest in fund two. And that's not for lack of effort.

25:50It's not because we have a bad system. Like the feedback we're getting on what we're doing is spectacular, but it's a numbers game. And like people, you're going to talk to a firm who doesn't do beverage. You're going to talk to a firm who doesn't touch Frozen. And it's, I think the more you can disassociate the fundraising process from your own sort of like self-worth and Edo, the better off you are. Because it's a tough process. There's a lot of rejection. But the fact is, it's not for everybody. And there are certain, everything comes together, right? It's no different than when you're on a first date or you're like meeting somebody for the first time.

26:23And it's what they're, not saying this about a founder, but what they're wearing and how they speak and how they act. Like it all comes together to create like a vibe. And it's certain things like that where investors are going to resonate with the founder and feel familiar with the founder. There's certain buzzwords. There's certain margin profiles. There's certain categories that people are interested in. Try not to take the whole thing so personal. And also, we are pretty good. And the fun is just Luke and I. We're young. We're friendly. We're pretty open and accessible. We are who we are. Very business forward-facing.

26:56We're professional, but we're easy to going. to be around and so we want to invest in founders that we can have a conversation with and i think creating that repertoire in the beginning of just shooting the shit for a minute or just saying what's going like who you are just to get an understanding of your vibe and your energy because again like we are trusting you with our money and so that's a big part of it too is the character of the person and so feel relaxed like we're not going to ask you a billion questions and you don't know the answer to your business you know your story you don't need to think about it Just let it flow.

27:29Hannah Dittman:That's really helpful. And to your point, it's not every job you interview for when you're first out of college is going to be the right culture fit. I think similar kind of dynamics with fun fit. It sounds, and Luke, to double click maybe and give a little bit more guidance to founders. In your experience, you know, what are the key pillars of a strong pitch? Are there standout elements that consistently grab your attention that you're kind of looking to hear? It's a good question. I'm going to start with what I don't like to hear. But I think the worst situation that you can come across is when the mentality is like, we're going to get$2 or$3 or$4 million and we're going to figure it out.

28:09You know what I mean? We don't ever want to invest in someone who's figuring it out as they go. We need somebody who understands retail, understands cash flow, understands how to build a CPG business, understands supply chain. And I guess my caution to founders is if you don't know those things, you should put yourself in a position where you can learn them and have an opinion on them and really understand them before starting whatever it is that you're trying to start. So I really like when a founder has a product, it's innovative within the category, there's a particular point of view on margin, there's a particular point of view on retail roadmap and direct-to-consumer and their growth trajectory and can really speak to where this money is going to take them and why that's beneficial to us.

28:52So much of investing is understanding, especially in the early stages where you're not raising money to break even. You need future fundraising activity. How far is this round going to get us? What are the performance metrics going to look like when you run out of money? Are you going to be able to recapitalize? and we talk about this a lot, Greer and I, but it's one unique skill and definitely a necessary and impressive skill to have an idea and formulate a product and bring it to market and do one or two or five million in top line. And it's a different skill set entirely to get that to something that has staying power and can really scale through multiple channels of revenue and distribution and exit to a company, to IPO, which obviously doesn't happen that often in the consumer.

29:35But so I just think like really nailing like what you're doing and why.

29:40Hannah Dittman:Yeah, that's really helpful. And I think a nice way of laying out the business fundamentals. If I was to sum up everything we've said so far, it sounds like you guys are really looking for getting a general sense and a vibe of the person themselves, understanding the story of the brand and the product and the person's desire to be pursuing whatever they're pursuing. and then a very strategic and linear viewpoint on business fundamentals, checking the box to show that they're going to be able to take it, take the money and be able to execute to a level that you guys feel confident in. Which can change.

30:15We're not asking you to have the insight that you'd have 20 years down the road if you're running the same business. But I think a successful founder understands the roadmap and takes the real information in real time and adjusts accordingly, but has that one month, six month, one year, two year, five year vision. And it's constantly moving, but like you need to understand what you're doing and why. You need to be realistic about it too, because there's some founders out there that just give these outlandish numbers because they think that's what we want to hear. But in actuality, we're really trying to understand what you really think your business is going to do and how you're going to get there.

30:53Because if you say you're going to do$8 million your first year in business, but you only are distributed in a thousand stores, how's that going to happen? So making sure that your expectations and strategy for your brand really lines up with what could happen.

31:12Hannah Dittman:Let the common sense impress you instead of the big number. Yeah. And to kind of ask another more tangible question to follow up with, Luke, a lot of times investors will ask things like, oh, what makes your brand different? Or what's your marketing strategy? What kind of answers to these questions make you lean in? Or could you give an example of what you think a strong answer to one of that questions would be? Yeah, I, when we ask those follow up questions, like we're never, it's never let me stump the founder. It's never like I won one over the founder. This is information that's going to help me make the decision to invest in your company.

31:47And so I would never be afraid to like, follow up with information. You don't have to know everything off the bat. Obviously, we want you to know everything about your company and all of your ideas, but we're all human, right? It's a 30 minute pitch. And so if you don't have the information or it's not top of mind or for whatever reason, it's not available, follow up, send a detailed email, like express that you have a point of view on the question and give as much information as you can. Because like at the end of the day, we're just using that to try and make an informed decision. We're not it's not necessarily like a big sort of a judgmental aspect.

32:20It's really just trying to help us make the decision.

32:23Hannah Dittman:Yeah, that's really helpful. Wonderful. And pivoting a little bit, and I know we touched on this a little bit earlier with you, Greer, but how do you like founders to approach valuation and dilution? Do you prefer them to focus on one or the other when they're communicating about that kind of stuff with you? And should they come in with a number or what's the right time to bring it into the conversation? I personally like to just hear it in the first conversation, just so that we can level set our expectations, understanding what their revenue multiples would look like. If it's out of the wheelhouse of what we're comfortable doing.

32:55I think about it more in terms of valuation versus dilution because it's going to depend on what stage they're in, how many times they're going to need to raise after the fact, how the dilutions are going to affect us versus how the founders are two very different things. And so I think it's important to think from an investor's perspective what they would want to hear, which is really what their capital is going to come in at and so how much of the business they're going to own. And then they can then work backwards to understand if it fits into the return model. We've also gotten into the situation, and this is like a very real thing, where founders don't have enough equity to be incentivized after like too much.

33:30If it's too low of a valuation, if they've taken on a lot of capital and burned money excessively. And so that's a real issue. I will say on the other hand, like obviously everyone knows this, but 100 % of zero is zero, right? So like you want, and Greer mentioned this earlier, but it's true, like it's a buyer's market right now. A lot of players have exited the space. consumer is not the most popular sector of venture. Venture is not the most popular sector of finance and returns right now. With that scarcity in capital comes a greater ability for investors to command lower valuations. And I think the companies that we've seen, there's a tipping point, right?

34:05You need the investor more than the investor needs you until you're the hottest company and you've broken even or you're doing super well. And then all of a sudden the investor needs you more than you need them. But I think the most successful early stage companies that we've seen in terms of fundraising are realistic about valuations. And they get a number that is digestible and attractive for most investors. And they try and build the strongest cohort possible because I think that, again, 100 % of zero is zero. You want the best team and everyone to be pushing for it and happy. And if your investors own more of the business, they're more incentivized.

34:41We've invested in 27 companies. We don't split our time into one 27th and allocate equal amounts to everyone. We focus on the companies that we think are going to do best for our portfolio. And you want to be in a position where you're one of those companies for the investors who invest in. You also need to be realistic too. If you raise a too high of a valuation from the beginning or from your most recent round, depending on where you are, and then you keep going, but you're not performing significantly better to justify that next valuation, you might have a down round and that hurts the investor the most.

35:16And so that's a big part for us is if you start from the jump at a 15 pre-revenue, how are you going to go? What does the next round look like? Rather than being realistic in the beginning, maybe not taking in as much capital, going a little bit slower than you initially had wanted and then justifying that higher price.

35:34Hannah Dittman:Yeah, the long term view. I always say fundraising is a little bit like when people start having kids, they don't realize you like pop the seal. And once you did one, you're probably going to do all that you're going to do right after another. Could you, again, sorry for all the tangible questions, but I find as concrete examples as possible, the most helpful for founders. Could you model what the structure of a quick one minute or 30 second ideal ask conversation looks like? For instance, I'm looking for X dollars for X, Y, Z, or how you would like to hear that phrased for you guys. I think it's more than that.

36:08I hate to say it. I really do think it's why are you different? What is your product? What are the specific metrics that we're interested in? Revenue, margin, runway? How does all of that play in? And then having, again, an educated understanding of why you're raising what you're raising and how much it is. And we've gotten into the situation plenty of times where it's not enough. The company thinks that, again, there's so many changing dynamics to cash flow and consumer, right? If you have three-month lead times, you're putting down money three months before you're receiving finished goods. And if you're selling them to retail, you have net 60 AR and you're not receiving revenue on that for two months.

36:47And that's a five-month spread. If you're not factoring forecasted demand and mapping inventory to it, if you're not incorporating financing or some sort of institutional debt, there's all these levers that change runway. And we need to know that and that you are incorporating that into your thought process and that the number that you're bringing to the table makes sense. Because if it's too little, then we're all screwed, right? You get even like 12 months of runway. Where are you going to be in 12 months? What is trailing 12-month revenue look like? and what is the fair market valuation associated with that?

37:19Because it takes 12 months to fundraise. So like, yeah, how long it actually takes to get the capital in is really important. And what Luke's saying is maybe you don't have that information, but your team does. So you have a CSO or you have somebody, you have an interim CFO. Like you have somebody who's partnering with you from an operations and a finance standpoint to make sure that you're in a place that you can sustain growth. And again, like if you don't, and it's more of a pre-revenue, like early seed thing, and you don't understand that information. And I know it sounds harsh, but maybe it's not the right time to start a company.

37:51Like maybe it's time to put yourself, go work for a startup, go work for a strategic, go ask ChatGPT and go listen to YouTube videos. But like really inform yourself about these things because they're serious and you need to know them in order to be successful. Especially when you're taking institutional capital. Like you're taking, you're not just taking angel's money, you're taking funds money who has to pay back investors. So like it's all a cycle of needing to make sure that we're making tomorrow decisions because we're fiduciarily responsible for these decisions.

38:19Hannah Dittman:Yeah, I think that all is great and real advice. In that first meeting when they're bringing up a valuation to you, it's probably at the end of the conversation once they've done the razzle dazzle of all why they're so great and where the roadmap is. How much do you want them to break down how they got to that valuation or what that use of funds is going to be used for in that, I assume, kind of one slide or the end of the conversation in the first 30 minute meeting? like what depth should they be going into at that point with you guys? I think understanding where they got the valuation and if the answer is that they just looked at the market and companies in their same category and that's what they're valued at.

38:57Sometimes those companies have done a lot more revenue and have just gotten a lot farther. That's important. So understanding their thought process of where they're coming out with that price. The use of funds is definitely important, but I think it's more so how long that capital is going to take you is important too. And then as we go deeper into our diligence, we'll look at really what you're spending it on once we look at your numbers. I also think like you obviously, no one has access to this information aside from the people running the firm that you're raising from, but we are evaluating the opportunity against all the other opportunities that we're seeing in that moment.

39:33And there are times, like the valuation thing is super important. There are times where we'll see a deal that feels stronger and the founder feels a little bit stronger and probably carries a little bit less risk for whatever reason. But the valuation is substantially higher than another deal where it might be more risky. And we like the category, but maybe the founder's not perfect. But if the valuation is really compelling, we might go with that second deal. So it really is, it can be make or break.

40:00Hannah Dittman:Right. Of course, it's like investing in real estate or anything else. You're thinking about the return from your guys' end of the perspective and how you're going to make the multiple work for you guys the best way possible. For founders that maybe don't have as much finance background or don't really know where to start with a valuation, do you think it's acceptable to coffee chat to other investors and ask what valuation guidance they might have or how should they go about that? I think you can ask what revenue multiples they look for. At this stage, it's not going to be like e-gram multiples.

40:29So like really just what they see realistically for a business at that stage, at that size, in that category, and what they'd be comfortable investing in. We're not going to like stiff companies. We're not going to try and get the cheapest price we can. We want them to be incentivized to grow their businesses and everything. So I think it's really important. Be as collaborative as possible with your cap table. And like even with potential investors, just as open, we're giving you the time. And so use it and take it, even if we're not interested, getting feedback in terms of what you think your company's priced at or where you like what you think about the business or why you wouldn't be interested in it or things like that.

41:08Hannah Dittman:That's very helpful. Going to the founder side a little bit more, I know you guys are obviously weighting founder as part of your decision criteria very heavily given their kind of the business at that point. When you're evaluating a founder, what traits matter most to you and what signals are you looking for in terms of leadership, communication, or experience? Luke, you already touched on that they have a very firm understanding of business fundamentals and how to operate in a CPG environment. But Greer, is there anything else that's top of mind for you guys? It's definitely like an art and science.

41:40And from an art perspective, it's being open and collaborative with your investors. Like we had said, it is being passionate about the business that you're building. That's an important thing for us. And then obviously we look at founders, the strong operational background. So whether they're coming from being an operator in a former business, being consulting, like are some of our best founders have those backgrounds? And it's because they've had the experience to understand know what it takes to move a company from concept to scale. And that's where we've seen most of our companies fail is that the founders who have a great idea but don't really know how to bring it forward from there.

42:18Hannah Dittman:That's really helpful. And you mentioned an experience with founders that have had strong operational backgrounds. What stood out to you when you first met with them or what kind of caught your eye of a founder that you were really impressed with that's in your portfolio? Yeah, I think definitely experience like what they've done in their past careers can definitely help. And one of one of our founders, what works in consulting in the category that he's now a founder in. So like he's well equipped to understand that category inside and out. And from a consulting standpoint, understand how a business needs to be structured in order to succeed and win and the issues that typical businesses have.

42:57So I think that's really important. If you are just moving into a consumer business because you love the product so much, like why, again, why you started the company, I think is also a really important thing. And then admitting where you don't, where your education gaps are. Maybe it isn't, you aren't the strongest in ops or finance. And so you're either seeking out help with that, or you're asking your investors, like, this is something, I have this amazing concept. I want to bring it to market. I know I can do this, but maybe I need to do this with you. And you justify a lower valuation, obviously, for something like that, but you bring them along in the ride.

43:36Hannah Dittman:Awesome. Thank you so much for sharing that. I think that's really helpful to provide some additional color and ways that people can really showcase all the awesome work and backgrounds that they've done. And I know many founders fit the bill. Hopefully a good impetus for them to want to flex that muscle a little bit for you guys. We're almost coming up on time here, so I just wanted to pivot into a little bit of our kind of case study and then outros if that works with you guys. As a startup, CPG has the largest Slack community in the industry with over 25 ,000 members. I'd love to pull a question directly from our channel and have you guys answer it as a case study in case any other founders have a similar question out there.

44:12Hannah Dittman:A recent question that came in was how much capital is typically already invested personally or through friends and family in a company before officially fundraising or before an investor like you all get involved? It varies by stage, but when it comes to starting a company, like the pre-revenue activity, and I think it is like a really important thing to understand. Like you need, if we're investing in a company pre-revenue, it's always a great example where like the CEO, David McCormick, he was the, worked at Whole Foods for like years on the strategy team and he was the COO of Citi Capital.

44:45and he was very impressive and he partnered with Molly Baas. She's this amazing influencer and thought leader in the food space for younger generations. And we had the right go-to-market strategy. It all really made sense, but it needs to line up that way in order for us to make a pre-revenue investment. And usually we're looking for demonstrated traction and it doesn't have to be a crazy amount of demonstrated traction, but I think most institutional investors want to see some proof of concept in market. And so I think there's a real sort of like analysis that needs to be done by the founder of like, how am I going to bridge the gap in that initial sort of friends and family round?

45:23What is my capacity for raising a hundred grand or 500 ,000 or a million from my friends and family? Is it realistic? Is that how much I need to get to this point? What is that? What is the point that I can successfully say for this amount of time I've accomplished these things and these are the proof points that I'm going to institutional investors with. And it really depends. I hate to be a broken record, but it depends on what you're doing and why, like what the product is. And is it a direct to consumer focused product? Is it going to be more retail focused? And how do we begin to demonstrate that traction and how much does it cost?

45:58That's like the first kind of analysis. And then you say, oh, I need to raise $250 ,000. I need to raise half a million. I need to raise whatever. I think when it comes to friends and family, we're really not seeing rounds bigger than like a million dollars, I would say. I think that's like how it shakes out if your network has more than a million dollars and it's awesome but can I be part of that network exactly but I would be really deliberate about what you're raising and why and what you want to accomplish and how you're going to accomplish it I think it's also really category specific so it depends on what product you're creating do you have IP on your product has it taken you years to get to this point so it's hard to give a number of like how much a friends and family round would look I don't think you should raise like five million dollars from your friends and family.

46:42If you have a product that's going to take that much to get off the ground, then it's probably like a pretty significant product that you might have already gotten institutional backing from. So I think it really depends on the category. And then also there's other ways to raise too, which is important to know. If you've broken 100K in revenue, you can look at Republic or Crowdfunders, other crowdsourcing ways to raise capital, where you make sure that when you're going to an institution, basically, that you're ready for it. Like you're ready to take in the amount of money that they're asking for.

47:16You demonstrated attraction and you can fill their diligence process. You can stand up to an institution really asking you these questions and digging into your brand. Because again, like that capital has a lot more strings attached to it. I personally, from my operating days, although I was a long time ago, but and I know this is like a tangent, but I think it's important. is like the more that you can separate your own personal financial well-being from your company early on, like the better off you are. I think when you are relying on income at early stages from your company and you're running out of money, you then have two stressors, right?

47:55You have the stress of losing your business and you have the stress of losing your income. And I think there's appropriate times to start companies, whether it's based on how much you have or what have you. And I think you need to be really strategic about what your resources are around you and try and not be dependent on what you're starting initially.

48:12Hannah Dittman:Yeah, great advice. I feel like that is the founder's phase one worst nightmare is figuring out the financials and scrapping it by to make it work. Before we wrap up, I just wanted to take a second to make sure our audience can have an actionable next step to apply all this amazing knowledge to. 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 into contact with you? and then for operators that might be looking to transition or other people that might be interested in a role working directly with simple food ventures or in investing is there a way for them to get in touch as well i think the best way to get to us both is just through email so my my email is career at simplefoodventures.com luke's is luke at simplefoodventures.com you can also connect with us on linkedin contact us on our website but to be completely honest it's really hard to go through it because it gets a lot of spam.

49:04So just email us and we're happy to talk. Sometimes it might take a little bit longer to respond. If that's the case, don't be discouraged. We'll get back to you. And we love hearing new ideas and we really are here to help too. So feel free to reach out.

49:19Hannah Dittman:Awesome. Thank you so much for your time today, guys. This was awesome. Yeah, thank you. Thanks so much for tuning in, everyone. If you liked 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.

49:57Hannah Dittman:And 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.