Gerry’s Insights: Covid Cash

There’s an old journalists’ joke that the definition of “trend” is “two facts and a deadline.” In other words, we ink-stained wretches don’t always demonstrate great rigor when the presses are about to roll and an anxious editor is leaning over our desk demanding “Whatchagot?” Worker got his thumb sliced off at a slaughterhouse in Waterloo and a bartender got stabbed in a bar brawl in Dubuque? “Wave of violence hits Iowa food industry!” Of course we feel a jolt of relief when the trend we just predicted – however threadbare – gets borne out by subsequent events. Waiter got poked in the eye a day later at a Davenport diner? Excellent!

That was the fortuitous outcome a few weeks ago when I put together a story for my newsletter, Beverage Business Insights, declaring that, contrary to some early predictions, investment capital during the Covid-19 pandemic remains abundant and aggressively deployed. In fairness to myself, the thesis wasn’t so threadbare – such eminences as the banking team at Whipstitch Capital and researchers at Zenith Global were right on board with it. Still, no sooner was the (virtual) ink dry on the story than we saw LemonPerfect pull in $6.6 million, Waterloo was acquired by Eurazeo, Hint pulled in $25 million, Celsius pulled in $22 million, Kos pulled in $2.1 million, Guru said it’s pursuing an IPO and Unilever moved to acquire Liquid IV for an amount likely in the hundreds of millions. “Wave of financings hits bev biz!” Hey, that’s way more than 2 facts. So did I call it, or what?

Still, this outcome was by no means a foregone conclusion. Some thought consumers’ early retreat to staples spelled doom for early-stage beverage brands seeking shelf space for more premium, health-and-wellness-oriented entries. There was a school of thought that many institutional investors would be funneling funds to prop up existing portfolio companies rather than seeking out new ones. With the economic outlook having suddenly swung from buoyant to potentially apocalyptic, settling on fair enterprise valuations would be a challenge. Even the basic step of getting into a boardroom or restaurant with the management team suddenly was fraught. There were plenty of other convincing rationales for why the capital flow would dry up and deals would stop getting done.

That clearly hasn’t been the case, not in the U.S. nor globally. An analysis of July deals by Zenith detected “no apparent slowdown” in food and beverage deals. Credit some of that to the simple drive and resilience of folks in this space. Whether driven by greed, desperation or idealism, I’m actually a bit in awe of the dynamism they’ve showed. But for many in the money mix, the trends impelling consumers toward health and wellness – and impelling the CPG giants eventually to acquire these companies – are accelerating, not retreating. So PowerPlant Ventures was able to assure its investors, “We are encouraged by the recent deals in our industry as we continue to see acceleration of our thesis around investing in a more sustainable food system. We are excited to see food unicorns continue to grow,” citing a $200 million raise at Oatly and a $250 million round at Apeel Sciences. “We are in it for the long haul and we see a big, impactful, positive shift happening.” Nothing epitomized this more than the recent $200 million funding round for plant-based meat player Impossible Foods at what had become a $4 billion enterprise value. Stock valuations don’t always make sense: I could never understand why Shake Shack at one point was seen as on track to overtake McDonald’s in valuation. But this seems more of a Tesla-is-bigger-than-GM bet on fundamental disruption. Indeed, among those July deals tracked by Zenith, plant-based entries had become the leading category, accounting for 14 out of 64 deals.

As I write this just ahead of Labor Day, it’s too soon to take a victory lap. Trends are encouraging, but we’re in highly uncertain times. If we get mired in a long-running recession and everyone is broke, then all bets are off on good-for-you, sustainable, and the rest of it. There are enough feckless policymakers in office both here and overseas that can’t be ruled out. But the response so far has been at least minimally adequate – a vaccine may be around the corner and investors continue to lay the foundation for what could be an epochal change in the food and beverages we consume. And if it isn’t, we’ll have a much bigger deadline to consider.

Longtime beverage-watcher Gerry Khermouch is executive editor of Beverage Business Insights, a twice-weekly e-newsletter covering the nonalcoholic beverage sector.