Kate Storey | SEMCAP Food & Nutrition
New food and nutrition PE on why it is seeking mid-market firms as investment is lacking in $20m to $70m revenue firms
New PE firm SEMCAP’s Food and Nutrition fund hit the headlines last month as an investor in challenger fermented cottage cheese brand Good Culture, which also secured capital from Hollywood actress Kristen Bell.
SEMCAP has outlined the three key sectors of health, education and food as critical building blocks for society and areas that it believes require mid-market investment. Its Food & Nutrition fund is targeting businesses reporting between $20 million and $70 million in annual revenue.
SEMCAP Food & Nutrition investor Kate Storey and her partners in the fund have accumulated many years of early-stage investment between them, including time building out General Mills’ corporate venture fund.
Kate sat down with NutritionInvestor to discuss the fund’s mandate and why it is exclusively seeking mid-cap food and nutrition start-ups to counteract a lack of investment in companies of this size.
She also touched on the value of celebrity endorsements for growing consumer brands and her shift from early-stage investing.
What does your investment background look like, particularly in the food space?
I have been a food and nutrition impact investor for the last 11 years. I started in investment banking with a big personal focus on the environment and social equity, while volunteering for non-profits on their boards. I then came across a great fund out of Vancouver, BC, that really pioneered investing in companies for social and environmental purposes as well as financial return. That fund was called Renewal.
Through my career with Renewal Fund, I invested in organic and natural food companies, plant-based businesses and green consumer products that were championing environmentalism . During my time at Renewal, I had a lot of overlap with my current partners John Haugen and Ryan Newcom and we invested in a few deals together and sat on boards together.
Seven months ago, we decided to come together to join SEMCAP to start the food revolution. SEMCAP is a global impact investor focused on seminal trends in three verticals that we feel will have the greatest impact on humanity and the planet over the next couple of decades. These are, food and nutrition, which John, Ryan and I run, and then education and healthcare.
What is your investment mandate at SEMCAP Food and Nutrition?
We invest in companies with at least $20 million in revenue and looking to scale and grow beyond that. Our typical company size is $20 million to $70 million in revenue. I’m focused on food and nutrition companies that have inspiring CEOs and founders, strong growth, strong missions and values, with really phenomenal products that are mostly focused around trends like nutrient dense and clean-label, organic, non-GMO and regenerative agriculture, and then plant-based and sustainable and low-waste. We’ll look at businesses that focus on retail as well as omni-channel and direct-to-consumer and are mostly focused on US and Canada. Some companies may have operations overseas in Europe or Asia, but for the most part are headquartered in North America.
What have you been working on since your launch seven months ago?
The food and nutrition strategy kicked off about seven months ago when John, Ryan and I formally agreed to join SEMCAP. As of today, we’ve launched two deals in the market and announced two further deals. And we have a third one we’re hoping to announce in April. The first deal was with Purely Elizabeth which is an organic breakfast and granola brands. It’s woman-led, organic, clean-label and low-sugar. On that deal we were joined by one of our strategic and limited partners Fresh Del Monte. They’ve been a really helpful investor for our companies.
The most recent announcement and transaction was Good Culture, a simple, clean ingredient, farm to pasture start-up with a really strong environmental mission. And, again, Fresh Del Monte was a partner there.
As a new fund, how did you determine which categories and revenue ranges you would seek to invest in?
While it’s the first time we’re working together as a team, the three of us have been in the space for collectively over 50 years. John, my partner, spent 30 years with General Mills where he was the marketing lead and also ran 301 Inc, which was General Mills’ venture arm. They were investors in lots of great, smaller brands.
At Renewal, myself and my partner were investing in these smaller brands making between $2 million and $10 million in revenue. We helped these companies grow to the size they are at now. What we’re finding is the depth of our relationships, with companies that we’ve known over the last 10 years, as well as our investor networks, and all the wonderful groups we’ve co-invested with along the way, are proving to be phenomenal sources for finding great opportunities to invest in.
I’m including some of the companies that we’ve recently announced, as they come from our previous lives at General Mills and other groups we were deeply involved in. The network we’ve developed has really spurred the deal opportunities and the types of partnerships that we’re solidifying now.
What differences are you seeing in moving from early-stage to more mid-market brands?
The smaller brands have smaller teams focused on a scrappy use of resources and really trying to establish a foothold in the marketplace. A lot of our organic, plant-based and natural blend brands start in health food stores like Whole Foods and Sprouts, then as they grow, they expand into a broader retail network, getting into Kroger, Safeway and then national leaders like Target and Costco.
As these brands grow, they need different marketing resources, improved financial results and new talent on their teams. With John and Ryan’s background at General Mills, they’ve got a great network. Every time a company reaches a new revenue threshold, it requires a new set of inputs and support and that’s where our networks come into play.
Why the decision to focus on the later-stage start-ups, versus those you were investing in at Renewed?
Organic, natural and plant-based foods started to become really popular about seven years ago. That’s because food is an industry that everybody can understand and consumers are now looking at labels and caring where their food comes from. We’ve also seen a really big migration from tech entrepreneurs who have had big exits in their start-ups and now want to start investing in food and the future of food. Those initial start-ups have grown up now but there isn’t the same depth of investment capital available to companies that are at that $20 million to $70 million revenue range.
We decided that we could serve the most purpose and have the most value for these companies in being the capital that comes in the middle, between establishing the brand, growing it and and being approached by the large acquirers that may want to purchase the businesses. They don’t often get involved until the business is over $100 million in revenue. There is a gap in terms of amount of investment at that later stage before acquisition.
Will you provide assistance to your portfolio firms that might be looking for exit opportunities?
When we get involved in a business, we’re typically writing cheques of between $20 million and $50 million. And with that we take a board seat and we bring a slew of investor partners like Fresh Del Monte and our networks of marketing and innovation expertise, and hook them up to the company to help provide access and resources to these quickly growing businesses.
The goal for many of these entrepreneurs is to take the company to a place where they’ve grown it as much as they can and the next natural owner of that business is a larger company that can help it get global distribution and really grow beyond $150 million in revenue.
What sort of categories are you particularly interested in?
We’re focused on functional ingredients, but also organic, non-GMO and regenerative plant-based categories and products that are better than the conventional from a sustainability standpoint and are really moving the needle in terms of environmental footprint and also health and wellness.
Actress Kristen Bell is also an investor in your portfolio firm Good Culture, what’s the value of celebrity investment in this space?
It’s fun when the relationship with a celebrity investor is totally organic because a they just love a product so much that they post about it on their social media outside of any specific sponsorship deal. For the brands we work with, celebrity endorsements can be extremely helpful. But, the type of media and marketing that is perhaps the most useful is when the celebrity takes a unique interest in the product because they love the taste and the health benefits it provides for their families.