Growth is Good: New Natural Products Industry Data Released

There is great new industry data on the natural products industry available in the June 2009 Natural Foods Merchandiser. You can download the industry data overview, by clicking here.

Some interesting highlights:

• Natural products were a $68 billion category in 2008 -- up $6 Billion (around 10%) from 2007.

• People are finally beginning to understand (in a big way) the need for Vitamin D -- sales in 2008 were up 94%. There has been a lot published in the science about the many beneficial effects of Vitamin D over the past few years and it is taking hold. I take 2000 IU / day religiously. I live in Maine, maybe I should be taking 20,000?

• Sales via the internet were up 22% to $1.4B. Still a small overall part, but great growth. And for companies that can sell direct -- nice margin impacts.

• The anti-aging and personal care category was flat.

• Beer was up 11%, with 22% of the category now organic. A shout out to my friend Jon Cadoux from Peak Organic (also based in Portland, Maine) -- Peak makes some great organic beer. US craft brewing is a $6.3 billion industry, up 10.5% over last year. I'm also a big fan of Geary's, which is also based in the craft brewing capital of the world, Portland, Maine. Maybe that's also why we need so much Vitamin D....we're inside drinking beer too much....

• NFM states that private label sales were - up only 5% and forecasts 7% growth in 2009. This is much smaller than I thought, given the economy and what I've seen elsewhere. Milk makes up 31% of natural private label sales with other dairy accounting for 29%. I guess a cow is a cow -- that's 60% of all natural private label sales. Private label salty snacks were a mere 2% of overall private label sales. Despite what some people say, brands still matter immensely.

• Energy bar sales continue to grow: up to $61 million from $57 in 2007. Although Clif Bara and Lara Bars are #1 and #2 respectively in the category, I'm a big fan of Kind bars (recently invested in by VMG Partners, a private equity/venture capital firm in the Bay Area) and a newer entrant, Kardea. Kardea's bars are very interesting. They taste great, and through plant sterols, have beneficial health effects. Functional foods are very much the path of the future.

• Gluten Free was up an amazing 28% to $1.6 billion. I can believe this easily. We have turned into a gluten free house. We don't have a celiac in the house, but someone in our family has a thyroid problem directly related to the intake of gluten. I meet a new person every week that is gluten free, it seems. One of our portfolio companies, The Rustic Crust, has an amazing Gluten Free Pizza Crust. Check out Rustic's new profile on Facebook and sign up to get a coupon. You can also order Rustic's crusts direct via their website.

This is a great, growth industry. Nice to avoid the doom and gloom out there everywhere else.

Recent Healthy Living Investment News

Venture capital markets remain tight, but the health and wellness/health living trends are real, and the opportunities for solid businesses, first-movers, science-based products and strong brands remain.

Here is some news from some recent deals in this space:

• Espresso Fitness (supplier/developer of interactive cardio systems) received $14 million in debt and equity (announced Dec. 2008).  The round included debt from Silicon Valley Bank and equity from Sierra Ventures, Physic Ventures and Enterprise Partners Venture Capital.
  
  
• Lifefactory Inc. completed a $750,000 round of seed funding from Greenhouse Capital Partners in March 2009 to support designing and manufacturing of green consumer products, such as BPA-free baby bottles.
  
  
• Plum Organics became part of Catamount Ventures' Nest Collective in Feb. 2009.  Plum markets and distributes processed food products to the infant and kids segments.
  
  
• Sweet Leaf Tea landed $15.6 million from Nestle for a 35% stake in the company.  My personal bet is that we see a radical brand redesign soon....just a guess.  I found the following summary on this transaction and space from a 3/31/09 Nutrition Capital Network newsletter:  "Last year Sweet Leaf Tea completed a round of funding from Catterton Partners, which committed $18 million of growth capital. Ready to drink teas, including organic, green and rooibos, have been a focus for big food and beverage companies seeking to expand their health & wellness offerings. In February 2008 Coca-Cola acquired a 40% interest in The Honest Tea Company, a niche manufacturer of certified organic RTD teas. Last summer, PepsiCo and Unilever announced a licensing agreement to manufacture, market and distribute Starbucks' premium RTD Tazo Tea."
  
  
• Phil's Fresh Foods received an investment from Brendan Synnott's (Survivor/Bear Naked fame) Burrito Investment Group (BIG).  From what I can tell, the company has been quickly re-branded as Evol.  Again, NCN further reports: "BIG has secured the right to fund an additional $2 million to finalize the first tranche of the transaction. Additionally, BIG has the right to fully fund a second tranche. Phil's Fresh Foods, which was founded in 2001, increased sales 33% to $1.6 million in 2008 and has a 2009 goal of $6 million as the company plans mainstream supermarket expansion, according to a newspaper article posted on its website."

Trifecta! Healthy Living Venture Capital, Investment Banking and Consulting

I've been joking lately that no one told me when you move to Maine, you end up with several, concurrent jobs.  Well, five years after relocating to Portland from Boston, I now carry three business cards:

• Silverwood Partners (Investment Banking), Managing Director Advisor
• Royal River Associates (Consulting), Principal/Founder
• CEI Community Ventures (Venture Capital), Principal

Most of my work (under all three hats) is focused on the Healthy Living sector (which I generally defined as driven by consumer trends espousing healthy, active and sustainable living -- such as nutrition, natural/organic foods, active sports, fitness, wellness, weight management, sustainable living...).  This is a sector for which I have great passion and where I have focused the majority of my career building expertise and contacts over the past few years.  That said, under Royal River Associates, I will also entertain an occasional growth strategy project of a more general nature, per my Bain & Co. background.  

How did I end up with more than one job?  I moved to Vacationland in 2004 to join a venture capital firm, CEI Community Ventures.  The fund started operations in March 2003, which means that it will last until 2013.  It's a relatively small fund, and I am one of two investment professionals.  We made investments in nine companies, seven of which are currently active.  Since September 2007, the fund has been fully invested (no investments in new companies; only follow-on investments in current portfolio companies, to the extent the fund has remaining capital reserved for those companies).  Venture capital firms are operated by management companies (CEI Community Ventures, Inc. -- in this case -- manages CEI Community Ventures Fund LLC).  When a fund is fully invested, the management company typically raises a new, follow-on fund.  This means that the management company (and its employees) manage two funds simultaneously (mange out the first while investing the second) and take management fees from both.  In the current economic environment, raising follow-on funds may take longer than in typical times.  So, while I continue to manage my responsibilities with the portfolio of CEI Community Ventures, I am broadening my repertoire with both investment banking and consulting, in order to stay active in the market.

To do this I founded Royal River Associates (RRA), a consulting firm, earlier this year.  Before entering venture capital, I was a management consultant with Bain & Co., Inc., regarded as one of the best consulting firms in the world for which to work.  It was a terrific training ground.  With RRA, I work with both early-stage and later-stage companies on a variety of issues (growth strategy, business planning, financial planning, etc.).  But if I just did RRA, I would no be able to help companies with one of their most important needs and the thing that I have spent the majority of the last five years doing: assisting companies raise capital and advising companies on the sell side to achieve liquidity for management and investors.  That is where Silverwood Partners comes in.

I am very happy to announce that I have joined Silverwood Partners as a Managing Director Advisor (see press release). Silverwood Partners is a sector-focused investment bank that provides M&A and private capital raising advisory services.  The firm delivers acquisition, divestiture or corporate sale advisory, strategic-financial advisory and institutional financing services to companies in targeted business sectors.  My focus with Silverwood will be consumer in general, and Healthy Living consumer in particular.  My crash courses to pass the Series 7 and Series 63 exams are now over (success! and not fun) and I am now applying my deep industry relationships with the venture capital and private equity industry as well as angel investor and strategic buyer/investor contacts to work.  

And I can do it all from the great state of Maine...

Win a $1,000 Shopping Spree from ISIS

A quick post here as one of our portfolio companies has a new contest with some strong payback.  Simply join ISIS’ email list to be entered for a chance to win a $1,000 shopping spree from ISIS!  No purchase is required, but make sure you enter by May 15^th.  Click here to sign up.  

ISIS makes amazing women's apparel -- rainwear, sportswear, jackets....ISIS has become a huge hit in my house....my wife has around seven jackets and vests...and the eighth is on the way.  

Good luck!

CEI Community Ventures in the Wall Street Journal

My partner at CEI Community Ventures, Michael Gurau, was quoted in the Wall Street Journal today.  Karen Mills, who was recently confirmed as the new Administrator of the US Small Business Administration, used to work with the Board of our fund.  She will be a terrific asset for the SBA and for the future of SBA-backed equity programs.  Here's an article about her from Business Week.  Congratulations to Michael and Karen.

Stonyfield Farm Entrepreneurship Institute

Tomorrow, I will be a Respondent on the Finance Panel at the 5th Annual Stonyfield Entrepeneurship Summit at UNH.  Four years ago, together with Brad Sterl from Rustic Crust, I was the Finance "Case Study" at the Institute.  This was before CEI Community Ventures' initial investment in Rustic, when Brad and I were solidifying our relationship as prospective investor/founder and had a signed term sheet, but still had to raise additional outside equity to complete the minimum amount required for Rustic's Series A round.

The Institute, billed as a "boot camp" for entrepreneurs, is described as "an interactive, intimate venue for networking, storytelling and problem solving."  It's a unique forum featuring case studies in finance, marketing and organizational development. The Case Study entrepreneurs are described by the Institute as a "few brave souls selected to sit on the “hot seat” to have cases they submitted ahead of time explored by professional respondents and fellow participants."  Everything said in the room stays in the room.  And everyone is there to help and support, providing constructive criticism and ideas to help the entrepreneurs. 

Tonight features Seventh Generation Chief Inspired Protagonist/Founder Jeffrey Hollender, providing the "Tales from the Trenches" of the remarkable Seventh Generation growth story.

 This year's forum is fully booked, but if you'd like to go in the future, send an email to Michael Swack at Michael.Swack@unh.edu to make sure you are informed of future summits.

Nutrition Capital Network -- coming soon to NYC

For investors (funds and individuals), I highly recommend attending the Nutrition Capital Network meeting, coming up in NYC on April 20/21.  This will be the fourth NCN meeting and I've been to the previous three; they've been getting better and better.  The format is simple:  On April 20th there is a networking session and dinner -- a mixer for the investors and the 22 companies (selected from the 60-100 formal applications) invited to participate.  Those companies each get 10 minutes to pitch their company on April 21.  For those of you who have been to "pitch fests" and are now groaning, this one is well run and well screened.  The 10-minute limit is strict (although I'm up for an eight-limit myself) and the program moves quickly.  And the companies are good; in fact, I've noticed a quality improvement in each of the previous three meetings.  This year, the presenters are described in the NCN materials as:

$30 million botanical supplement manufacturer
$12 million scalable local fresh foods and produce business
$5-10 million value-added produce brand
$5-10 million in food testing/lab services
$5-10 million specialty & natural food brand
$5-10 million natural functional chocolate company
$3-5 million in sustainable non-toxic baby products
$3-5 million specialty tea company
$3-5 million claim-based functional fruit juice business
$3-5-million high-growth natural personal care brand
$3-5-million integrated essential oil brand
$1-3 million supplements and functional foods for kids
$1-3 million natural sunscreen brand
Developer of functional, renewable plant proteins
Biotech development of patented condition-specific products
Proprietary enzymatic extraction process for nutritional oils
Proprietary cultivation process for DHA ingredients

If you are thinking of attending but still not sure, send me an email at mcb@ceicommunityventures.com and I can answer any questions.  As you can tell, I'm a big fan.

It's not only good for seeing companies, but also for networking with fellow investors.  I've built many great relationships in the industry from people that I have met at NCN events.  I'll be in NYC in a few weeks and am already looking forward to it.  This is a great indsutry with great people -- both in the companies and with investor groups.

Here's a list of some previous NCN investor attendees:

2x Consumer Products Growth Partners
AEA Investors LLC
Aisling Capital
Avrio Ventures
Bruckmann, Rosser, Sherrill & Co.
Burrill & Co.
CEI Community Ventures Inc.
Charterhouse Group, Inc.
Coca-Cola Company
Danisco
Dean Foods/ White Wave Foods
Del Monte Foods
Encore Consumer Capital
Fonterra
Friedman Fleischer & Lowe
General MIlls
Gerber (Nestlé)
Glanbia Nutritionals
Greenmont Capital Partners
Highland Consumer Fund
Hilco Equity Management, LLC
HSBC Capital (USA) Inc.
Hunt Private Equity Group, Inc.
Inventages
Kellogg Company
Kerry
Kraft Foods
Lonza AG
Mars Health & Nutrition U.S.
Maveron
Nestlé
North Castle Partners
Novus International Inc.
Otsuka Pharmaceutical Co., Ltd.
Pepsico
Prolog Ventures
Quaker Oats QTG Technical Center
Quilvest USA, Inc.
Redwood Securities Group, Inc.
Rosewood Capital
RSF Capital Management
Sea Change Management, LLC
Sherbrooke Capital
SJF Ventures
Tate & Lyle Ventures
The Dannon Company
TSG Consumer Partners
VMG Partner