Over the course of its six years, Springdale Ventures has invested across the spectrum of packaged food and beverage categories.
Backing backbar whiskey brands and adult non-alcoholic (ANA) alternatives to wellness supplements and grain-free snacks, Springdale has not cornered itself in any one category but judiciously looked for disruptor brands.
Springdale’s portfolio includes over 40 brands, from celebrity-backed products like Kloud Protein Popcorn and Feastables to differentiated products like Oddball or ANA wine brand Proxies.
Nearly two years since closing its $40 million Fund II, the Austin-based company continues to flex its capital across the industry. Nosh caught up with Springdale senior associate Mollye Santulli to hear more about the current state of investing, what brands should think about when fundraising and how to prepare for a pitch.
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It’s no mystery that the climate for CPG food and beverage brands has been constrained for some time and the current state of the economy doesn’t appear to be changing that dramatically. In saying that, how does Springdale Ventures make the hard decisions about which new brands it will help capitalize?
These days, when there isn’t as much capital around, some of the things that we’re most focused on are: How much money do you need to raise and how far does it get you? How much runway will it get them?
Founders should think about capital raising timelines. We love it when a founder has a clear sense of what they will use the money for and understands where the money will go. In terms of the business model generally, what do product margins look like? What does the contribution margin look like by channel? How can you make sure that you’re focused on being as capital-efficient as possible?
Does Springdale prioritize follow-ons with brands it has invested in previously?
Springdale is still deploying out of our second fund, and we reserve a portion of it to follow on with companies that we’ve already invested in. One bucket that we know of is continuing to reevaluate our portfolio companies.
One thing I would say is, if you have raised money from investors, it’s not a guarantee that they are going to follow on. We always encourage founders, even when we first invest, that they need to think about the next round and always be preparing. Likely, you’ll need to raise more money, so thinking about how you can build a great relationship with your investors and keep them along for the journey by hitting the metrics they are expecting you to hit.
Are there specific metrics that Springdale focuses on to judge success?
It’s definitely different since we invest across CPG. Every business model is a little bit different. For example, supplement brands have much better margins typically than food and beverage. So we would expect that the product margins to be much higher for a supplement business. They probably have a much larger DTC portion of their business and are scaling on TikTok Shop while retail is much further down the road.What goes the farthest with us in early conversations is: Does the founder know all of the different levers that they’re gonna have to pull? If they pull back on some of these things like trade-spend or marketing, what does that do to the business? What does that mean for fundraising?
What’s one of the big headwinds brands face right now as they raise capital?
Investors are much more focused on profitability right now. It’s a chicken-or-the-egg situation. Investors want to see growth in retail and we want to see sticky consumers, but brands need money to do all of those things. So finding enough growth without much capital behind you in order to get investors excited is another pain point.
Additionally, time is the most important asset for a founder, and a big pain point is just the amount of time it takes to cobble together those rounds.
There are a lot of people who say they invest in consumer goods, but founders end up wasting a lot of time and energy talking to angels or trying to cobble together a round. There are only so many investors who really understand CPG and specialize in it, so you’re already in a narrow pool. Founders need to bring on people who can be supportive strategically.
Springdale was started to fill that gap after an angel round, or a friends and family round. I think that’s still hard to find who to go to when you are raising $1 million to $3 million. Genevieve [Gilbreath] and Dan [Graham] started the fund to really fill that gap before a $5 million to $10 million round.
What would be helpful advice for brands pitching a VC like Springdale?
The most successful pitches are when a founder is really excited, and you can tell, because it’s often on Zoom and can be monotonous, but I also need to get excited, too.
It’s very obvious when people have looked at our website and learned a little bit about our portfolio. I come prepared by looking at their [pitch] deck, so we both are ready for a real conversation. When people understand what we look for, those things go a really long way.
I want to hear why you started this brand. I always ask that because you could be doing a lot of things to make money; why did you decide to start a business? Why is this the thing that you have conviction in? Why are you the person who will win in this category?
I want to hear the story behind the brand, but also the true tactical numbers and strategy. I want to hear about revenue projections for that year. What are the top three things you’re focused on? What does your margin profile look like? We don’t have to get into the nitty-gritty, but how are you making money? What are the levers you’re pulling to improve your margins over time? Finally, what’s your channel strategy?
At the stage that we’re investing, we want to see people who have a focused launch strategy. I’m not as particular about where they’re launching, as long as they believe their consumers are there and they can back up why their core consumer is shopping in that channel.