The general partner of the San Francisco-based investment firm talks to NutritionInvestor about building iconic consumer brands
By Murielle Gonzalez
“We’ve been one of the most active investors in the food space over the past 15 years,” says Wayne Wu, general partner of VMG. The San Francisco-based investment firm made headlines in March when it announced the close of its fifth fund at its hard cap of $850 million, and speaking with NutritionInvestor, Wu reveals the plans going forward. Wu joined VMG in 2008, three years after the inception of the company, which entered the investment arena with a focus on consumer-facing businesses.
Solidcore is VMG’s latest private equity investment, and while it is its first foray into the fitness space, Wu argues the deal is a testament to the company’s approach to supporting the growth of entrepreneurs building iconic consumer brands.
“We’ve been following the consumer on his or her incremental wellness journey, through the life of VMG to date, and we continue to explore how we follow the same consumer around his or her share of wallet,” he says.
Anne Mahlum founded Solidcore in 2013 to offer a 50-minute workout that delivers low impact and high-intensity strength training for the entire body. It has since expanded to 70 brick-and-mortar studios across the US and is now gearing up for growing online.
“We found a tremendous overlap in the Solidcore consumer in the brands that he or she buys, including Spindrift water, Perfect Bar snacks, and Ancient Nutrition,” says Wu, noting the investment decision builds upon the share of wallet theme he mentioned earlier. “We want to continue to follow this consumer across their individual wellness journey,” he adds.
Wu doesn’t like the definitions of venture capital or private equity – he defines VMG as a growth investor. “We invest in a very narrow number of categories, with a very wide range of cheque size and stage of business,” he says. “We’ll invest in a business as early as sub $10 million revenue with sub $10 million cheque and in businesses that are well over $100 million of revenue with well over $100 million cheques as well.”
He believes there’s a misconception that VMG only invests in late-stage companies. Addressing the misunderstanding, Wu recalls VMG’s investment in Kind bars back in 2008, four years after Daniel Lubetzky founded the company. Fast-forward 12 years, VMG realised the investment by selling the company to Mars in November.
VMG: A growth and catalyst investor
The close of VMG Growth V increased the company’s assets under management to $2.6 billion. The firm has exited all of its portfolio companies in VMG Growth I and II, and the sale of Kind marked the third exit of VMG Growth III. “We’re still investing out of VMG Growth IV, and we expect to start investing out of the fifth fund sometime later this year,” says Wu.
VMG Growth is the company’s core investment fund, but it is also capitalising on investments from VMG Catalyst, a $250 million fund launched in the summer of 2019 dedicated to investing in technology, resources and marketplaces that are strategic to portfolio companies.
“VMG Catalyst is solely focused on commerce enablement to help support consumer brands,” explains Wu, noting there’s a team dedicated to working with this fund independently but as part of the VMG family.
“We believe that the funds are extremely complimentary and help continue to fortify VMG in our long-standing commitment to the growth stage of consumer brands,” he adds.
To the point
What do you mean by building iconic brands?
I feel like there’s often this sense of unrealistic urgency to build an ‘iconic brand’ and overcapitalise a business, trying to rush towards doing so when the consumer can only absorb it at a certain pace, no matter how hard a company tries to push marketing upon the consumer.
What makes an iconic brand is an emotional connection between a consumer and a brand — a product, a service, a location, a person. It’s iconic when there’s a real, deep connection to such extent that the consumer wants to express it to others and it becomes viral.
That sharing of the emotion is a way of communicating who they are as human being. When brands can do that, they’ve transcended into a level of being iconic.
If we’re limiting it to an iconic brand that happens to be a product, then that product has to deliver a great experience for the consumer.
How can brands achieve iconic status?
Consumers value authenticity, so they want to know where the product comes from? How is it made? What does the brand stand for in terms of its mission and values? There’s also the look and feel of the brand that resonates with who they are as a human being. Are their friends or people they admire passionate about the brand too? All of those things work hand-in-hand — and they need to be genuine and authentic to the brand.
Can you give an example?
Our most recent investment in food is Milton’s, a brand with a heritage in bread, which expanded into the cracker category and most recently into the premium frozen pizza category.
Milton’s is on its way towards building an iconic brand because the product resonates with the consumer — and they are buying it. We’ve seen in Milton’s the highest-velocity item at Costco in the premium frozen pizza category.
We have Milton’s family pizza night every Friday, and our whole family looks forward to it — it’s that good.
What’s your view of the consumer brands in foodtech?
We don’t have a hard and fast line between food technology, food brand or a company with a food recipe. We want to back and invest and support the next generation of food brands, and some of those may have a more unique technology than others.
Historically, we’ve focused on consumer-facing, and ingredients technology is something that we’re looking at. We would want to understand the path towards building a brand around it, either trade or consumer-oriented brand, but a brand nevertheless.
What’s your view of the M&A landscape?
It’s as active as it’s ever been. We sold Nature’s bakery to Mars’ Kind in the past quarter, and we’ve seen Nestlé acquiring Mindful Chef, Danone bought Follow your Heart, and Mondelez bought Hu and Grenade.
The Covid-19 pandemic has played a part in this. M&A took a two-month break, but there’s been quite a buying and selling frenzy from mid-May to date. And it’s not just the strategic corporate investor. It’s the public markets in terms of brands going public via IPOs and SPAC-related transaction.
Wu says CPG food brands will continue to be on VMG’s radar, but he insists that what’s driving investment decisions is VMG’s commitment to supporting entrepreneurs in the consumer ecosystem.
He argues that oftentimes it’s a mistake to fall in love with a ‘space’ and then be determined to invest in it. “Rather, we want to partner with great entrepreneurs, and if it turns out that he or she is in a great space to be playing in, that’s great,” he concludes.
Date published: 23 April 2021