Robust Insights from Investment-Focused Live Event — October 22, 2024
Cleveland Avenue Founder/CEO Don Thompson with Naturally Chicago Managing Director Jim Slama at Chicago Seed Co.’s “Raising Equity and Debt Capital” session, held at the home base of the Cleveland Avenue venture capital firm on October 22. Photo by Bob Benenson/Naturally Chicago
Tickets sold out for “Raising Equity and Debt Capital” — the live event presented by Naturally Chicago and Chicago Seed Co. on Oct. 22 at the Cleveland Avenue venture capital firm. The event drew a full house of investors and brands that want to connect with them.
This was not surprising, as a shortfall of investment in emerging Natural Products brands has hindered the industry’s growth... even as consumer demand for natural products is rising.
As Naturally Chicago Managing Director Jim Slama wrote in an article published by Crain’s Chicago Business and New Hope Network:
The last few years have been rough for emerging food and beverage companies as they try to grow in the consumer packaged goods (CPG) industry. The pandemic’s disruptions were followed by much higher interest rates. Then tight money prompted many investors to close their wallets to brands seeking new capital.
With resources limited, many promising companies were unable to fund growth and instead hunkered down, seeking a path to profitability. Some closed.
The session at Cleveland Avenue, held in the Taste 222 restaurant on the ground floor of the firm’s building at 222 N. Canal St., provided expert perspectives on the opportunities that await investors if they loosen their purse strings, and how brands can shake the money tree even in a challenging period.
Cleveland Avenue’s Don Thompson. Photo by Bob Benenson/Naturally Chicago
Don Thompson, Founder/CEO of Cleveland Avenue, was the featured speaker. Thompson came out of the world of Big Food – he was an executive at McDonald’s for 25 years, culminating in his 2012-15 tenure as CEO – and made a major shift, launching Cleveland Avenue to invest “in lifestyle consumer brands and technology companies that positively disrupt large and growing markets.”
His answers to questions from Slama and from brand founders in the audience reflected his more than three decades of high-level experience in the food sector.
Thompson saluted entrepreneurs who “dream big,” but added that “dreaming big never paid all the bills.” He said this is why Cleveland Avenue is an active rather than a passive investor, noting that while capital is great, thought and strategic partnership can be the key to success in navigating early-stage issues such as supply chain, profit & loss, accounting, legal structure and more.
Citing the direct impact and ripple effect of the COVID pandemic, Thompson noted, “This has been an interesting time if you're expanding facilities and trying to grow capacity. It's an interesting time if you are a person who has had a lot of investors who have been willing to fund you time and time again and, all of a sudden, the funds ran out and money got tight.”
He continued, “I thank you all for your resilience, and those that I don't know, I thank you for just being you and driving hard, and know that there's some of us who are trying to support you.”
Equity Panel
Thompson’s talk was preceded by two panel discussions.
Equity Capital Panel (from left): Jessica Murphy of S2G Ventures (moderator), Trish Thomas of Every Body Eat; Bert Cohen of Vitality Capital; Jason Mercer of Cleveland Avenue; Emily Groden of Evergreen. Photo by Bob Benenson/Naturally Chicago
The first, on equity investment, was moderated by Jessica Murphy, Vice President at S2G Ventures, who chairs the Naturally Chicago Board’s Programming Committee. The panel included two investors -- Jason Mercer (Principal of Cleveland Avenue) and Bert Cohen (President of Vitality Capital) -- and CEOs of two rising-star brands, Trish Thomas of Every Body Eat and Emily Groden of Evergreen Waffles, Jason Mercer (Principal of Cleveland Avenue), and Bert Cohen (President of Vitality Capital).
Cohen’s comments about Vitality Capital provided a snapshot of the current tight equity capital market.
· Noting that the investment landscape has been very challenging in recent years, Cohen stated that 25 percent of the equity funds that came into the industry five years ago are no longer raising a second fund to provide brands with investment capital. He explained that his Vitality Capital has deployed about 75% of its funds and is not looking to make many new investments until they see some companies in their existing portfolio achieve successful exits (meaning selling their businesses to larger companies).
· He said that for younger emerging brands with $1 million to 10 million in sales, the investment market will likely remain challenging for a while.
· He acknowledged that the market has slowed down this year, and Vitality Capital has been focused more on portfolio management rather than new investments.
Jason Mercer – who chairs the Naturally Chicago Board’s Finance Committee – described the adjustments that Cleveland Avenue has made.
· He said Cleveland Avenue has slowed down on new investments this year, focusing more on portfolio management and supporting their existing portfolio companies.
· Jason explained that Cleveland Avenue is now placing more emphasis on profitability from day one, rather than just focusing on growth as they had in the past.
· Jason noted that Cleveland Avenue is being more cautious about new investments, as they recognize that many of their portfolio companies may need bridge capital or additional support, and they want to ensure they can provide that.
· He said that Cleveland Avenue is being more cautious about new investments, as they recognize that many of their portfolio companies may need bridge capital or additional support, and the firm wants to ensure they can provide that.
· Jason said Cleveland Avenue is thinking carefully about who they bring to the table as investors, as many other firms are also in a late deployment cycle and may not have the same capacity to provide follow-on funding.
· He highlighted the importance of adding value to their portfolio companies and helping them reach monetization events or get to a better fundraising market.
Yet fundraising success is possible, as underscored by entrepreneurs on the panel.
Emily Groden, who founded Evergreen with waffle recipes she created at home for her family, won the 2024 Naturally Chicago Pitch Slam for established brands. Photo by Bob Benenson/Naturally Chicago
Emily Groden left a career in law to start Evergreen after perfecting recipes for healthy, tasty waffles for her young family in her home kitchen.
· Emily said it took her quite a while to get to a "yes" from investors, going through hundreds of "no's" before securing her first round of institutional capital.
· She advised not to take the rejections personally as it's a common experience for founders, and to instead view each conversation as an opportunity to learn and get feedback.
· She found that Evergreen was initially too small for true CPG investors, so she had to look outside the CPG community to friends, family and other investors who were personal fans of the brand.
· Emily emphasized the importance of building relationships with CPG investors early, even when you don't need their money, as they can be valuable connections and potentially introduce you to other investors.
· Success breeds success, and Emily shared that focusing on Evergreen's unit economics and sales data, particularly velocity, was key to unlocking more positive conversations with investors.
Similarly to Groden, Trish Thomas developed Every Body Eats’ allergen-friendly crackers to provide healthy alternatives for her and her family.
· Trish emphasized the importance of solving real problems as an entrepreneur. She highlighted that Every Body Eats was the first company to make it possible for people with dietary restrictions to eat together, solving a real problem.
· Trish shared that Every Body Eats has a diverse investor base. When she and her co-founder, a Black woman, realized their investor base was not diverse enough, they actively worked to diversify it, which led to their largest investor coming on board.
· She advised the audience to not be afraid to ask for investments, as people won't invest if you don't ask, and a "no" doesn't mean it's a permanent rejection.
Debt Panel
The Debt Capital panel included Adam Chrusciel of Bank of America (moderator); Jim Rolfe of CIBC Bank; Evan Waggoner of SG Credit Partners; and Hudson Penn of Bridge Finance Group. Photo by Bob Benenson/Naturally Chicago
The panel on raising capital by borrowing money was chaired by Adam Chrusciel, Commercial Banking Associate at Bank of America and Naturally Chicago Board member. He was joined by Jim Rolfe, Managing Director of CIBC Bank; Evan Waggoner, Director of Originations at SG Credit Partners, and Hudson Penn from Bridge Finance Group.
The panelists discussed their roles and the types of debt products they offer, including SBA loans, traditional bank financing, and equipment financing.
Rolfe led off the discussion:
· Rolfe emphasized the importance of having your financial house in order, with reliable systems that can produce financial statements in an accurate and timely fashion.
· He stressed the importance of open communication with lenders, including sharing bad news early, as it allows for more options and flexibility.
· Rolfe noted that when he has to say "no" to a company, he tries to explain the reasons and provide guidance on what they can do to potentially get to a "yes" in the future.
· He said that banking is about building relationships, not just transactions, and that he never wants to hide behind a curtain when having to deliver a "no" decision.
· Rolfe highlighted that as a commercial bank, CIBC has to play by a different set of rules due to regulations, which can limit what they can do compared to non-bank lenders.
Waggoner was next up:
· Waggoner emphasized the importance of understanding why the brand needs capital and how they plan to pay it back.
· He said SG Credit Partners, as an asset-based lender, is focused on maintaining the right balance between liquidity and cash burn for the brands they work with.
· He advised brands to explore their options and talk to multiple lenders, as different lenders may view the same opportunity differently based on their own risk appetites and investment criteria.
· He recommended that brands leverage their existing investor relationships and network to get introductions to lenders, as that can help start the conversation on a higher note.
· Echoing Rolfe, Waggoner stressed the importance of having all financial documentation and projections in order before approaching lenders, as disorganized materials can frustrate the process.
And here are takeaways from Penn’s insights:
· Penn discussed the concept of a "sale-leaseback" arrangement, where a brand can sell their existing equipment to a lender such as Bridge Finance Group and then lease it back, allowing them to access the equity in that equipment.
· He noted that as a non-bank lender, Bridge Finance Group is often working with companies that are not yet profitable and burning a lot of cash, so they focus on ensuring the brand has at least 12 months of runway.
· Penn said Bridge Finance Group also looks closely at the resale value of the equipment they are taking as collateral, as well as the brand's operational execution capabilities, to assess the risk.
· He emphasized the importance of brands having experienced operations teams, as self-manufacturing can introduce a lot of complications with which lenders need to be comfortable.
· Penn advised brands to reach out to their network, including investors, to get guidance on professionalizing their financial materials before approaching lenders, as it can significantly improve the process.
Jim Slama then took to the stage and, prior to introduce Don Thompson, highlighted Locally Made, the program Naturally Chicago launched in May 2023 to directly connect emerging brands and grocery retailers. To learn more about Locally Made, click below to view its new video.
After Thompson’s keynote appearance, the event ended with a networking happy hour featuring delicious treats from Taste 222’s kitchen and specialty cocktails, beer and wine at the bar.
Photo by Bob Benenson/Naturally Chicago.
Photo by Bob Benenson/Naturally Chicago.
Photo by Bob Benenson/Naturally Chicago.
Photo by Bob Benenson/Naturally Chicago.
Photo by Bob Benenson/Naturally Chicago.