This week private equity investment group VMG Partners announced the close of their fourth fund at $550 million, with another $150 million available in a flex-up vehicle. The capital, said VMG Managing Director Wayne Wu, will be invested in emerging, lower middle market companies producing consumable branded goods.
Wu defined lower middle market companies as ones that generally have revenues between $5 million to $100 million. In terms of VMG’s own check size, he added, there’s no “average” example.
“We have a number of investments that started at an equity investment of well less than $10 million. And we’ve written checks that are much larger than that, but we are certainly very comfortable writing checks less than $10 million with an opportunity to grow to larger checks over time, Wu said.
Like other private equity groups, there are parameters of how much capital VMG can put into one given partner portfolio company. The flex-up vehicle will allow the group to potentially go beyond that threshold with a more streamlined and simplified process. While the $150 million is there if needed, Wu said that VMG may never utilize the capital in the flex-up vehicle and is there to only be used opportunistically.VMG’s portfolio strategy remains to invest in emerging, entrepreneurial brands. However, said Wu, the group sometimes wants to continue to support a brand they have already invested in or a brand that simply sees extraordinary growth at a young age.
“If you think about this in the context of a train ride, we’ve known [some brands] since the first stop on a train ride and sometimes we wind up investing at the second stop because that’s when it made sense for everybody,” Wu said. “But for some brands, they could be going along on that train ride for a very long time without a stop, and might have just gotten there very quickly, and we end up investing a bit further down the path.”
The limited partners (LPs) in VMG Fund Four were aligned with previous funds and carried over to the flex-up vehicle. Wu said VMG is “thrilled by the continuity of their investor base.”
VMG’s Fund Three was $500 million and still has not been fully deployed, Wu said. The group has no specific deadline for switching to capital from Fund Four.VMG has been in the business of investing in branded consumable goods, including food and beverage, personal care, beauty, pet foods and pet treats, wellness supplements and alcoholic beverages, for over a decade. Its 20-plus investments have included food and beverage companies such as Spindrift, Humm Kombucha, Justin’s, Perfect Bar, Vermont Smoke and Cure, Health Warrior, Sonoma Brands and Quest Nutrition.
While the landscape of brands has changed over that time, Wu said the group’s dedication to emerging brands and support of the entire ecosystem of companies within these categories has remained constant. However, what has somewhat evolved is the timing around when VMG invests in companies.
“What we’ve learned over the years from fund one to fund four, is that we have a pretty good feel at a pretty early stage of getting to know the brand, whether this is something we want to be a part of. There were earlier days where we would wait a bit and then invest [in the company] later.” Wu said. “Now we’re making investments earlier than we ever have.”
Although some private equity groups first identify macro-trends and then find a company representing that trend to invest in, VMG focuses on the brand first, Wu said. The group invests in brands they feel are and will be successful; when they are successful, however, the brands do usually fall in line with a trend in the marketplace.
One of the assets VMG brings to its portfolio of companies, besides capital, is a “toolbox” of ways in which they can help. According to the group’s website, this could include assistance or guidance with talent management and recruiting, branding, marketing, field teams, distribution strategies, influencers, exit strategies, supply chains, operations and legal affairs.
Wu said that when a company joins the VMG portfolio, the group and the brand align on a strategic vision. Then, the two ascertain where VMG’s toolbox can be activated to give the highest chance for that brand to be successful. This wider range of offerings is what attracts some companies to VMG.
“When putting together a strategy for how to tackle anything from innovation to customer activation they provide great insight from their experiences,” Bill Keith, Perfect Bar founder and CEO, told NOSH. “They had everything I was looking for in a private equity group. They had a proven track record with several major wins under their belt [and] they are active investors that have experience tackling issues that most entrepreneurs and startups face in this industry.”
The larger companies that VMG invests in, Wu noted, are generally still brands that can benefit from one or more elements of the group’s toolbox.
Regardless of company size, VMG is heartened by the excitement in the industry.
“We’re excited by the number of folks starting brands. You’re seeing a lot of great ideas and the growth of the space has inspired a lot of folks to start their own companies and brands where they are trying to raise the bar on what people put in and on their bodies,” Wu said. “And that’s really exciting… We just hope that we’ve made some positive impact in helping [brands] move a little closer to the dream and vision that they’ve hoped for.”