[00:00:03] Ray Latif: Hey, thanks for listening to the BevNET podcast. I'm Ray Latif. I'm here with John Craven. We are in Yarmouth, Maine, visiting with Mike Burgmaier, the managing director and co-founder of Whipstitch Capital. Mike, thanks so much for having us. Thanks for coming up today, guys. Mike, if you don't know, is a mover and shaker in the investment world as it relates to food and beverage. And we decided to come up and see him here in Yarmouth, which is a suburb of Portland. What brought you up here to Portland?
[00:00:27] John Craven: I moved up here in 2004. I'd been a management consultant at Bain & Company in Boston and then I joined a small venture capital firm up here. I love the city here, love the area.
[00:00:39] Ray Latif: Yeah. And you've been involved in the investment world, particularly with emerging beverages and emerging beverage companies and food companies since then. Can you tell us about, you know, your experience in getting involved with this industry?
[00:00:51] John Craven: Sure. I mean, so it started when I moved up here, actually, and working at this small fund. And there were just two of us there. And we had a mandate to invest in companies actually located in New England. So in some ways we were sector agnostic. The other guy became a tech guy, I was a consumer guy, and I ended up leading four transactions in the natural product space, three food and one personal care deal. So I just became incredibly deeply involved, raised all the money, sat on the board, was the acting CEO of a company for a while.
[00:01:21] Ray Latif: And you launched Whipstitch, was it in 2015? Right, right. And what kind of brought that together? What kind of led you to go out on your own?
[00:01:29] John Craven: Yeah, well, my colleague Nick McCoy and I, so the other co-founder of Whipstitch, together we had been running the consumer practice at another investment bank and we had done maybe 30, 40 transactions or so in this space. But we really wanted to kind of create our own brand, have kind of control of our staff and what we do and what we, you know, just who we are and focus exclusively on fast growth, emerging, healthy, consumer oriented product companies.
[00:01:57] Ray Latif: Since then, and over the past two years, you guys have been involved in some pretty significant deals.
[00:02:03] recently visited: Right.
[00:02:04] Ray Latif: You've been involved in some fundraising deals with Essentia and Spindrift. And most recently, you were involved in the sale of Covita to PepsiCo. Right. Can you tell us about a couple of those deals and why those companies were the right companies for you to work with?
[00:02:19] John Craven: Right. No, it's good. I mean, they're all fantastic companies. Essentia, Spindrift, and Covita, they're amazing. You know, so with Kavita, we started working, it was kind of funny. I was actually, uh, I was headed to BevNET and I was looking at the attendee list and I saw Bill Moses there from Kavita. I had read some articles lately about Kavita getting more distribution and in my house, Kavita had started to replace GT. So I actually just called up Bill Moses and I said, what are you doing in my refrigerator? And. And that kind of led to a conversation. I told him what we did and he said, we're raising some money. And so I just kind of looked at some of his materials and, you know, Kavita is just an, is an amazing product. And it had a lot of the key fundamentals that a lot of companies maybe don't have or they aspire to in that they had in just a few number of stores. I remember they were in about 1600 doors across the country, mostly natural. They had some conventional, but they're doing about $5 million in sales. And if you looked at the sales per point of distribution, very strong, strong and natural, strong and conventional. They had crossed over a little bit. And most importantly, their sales were increasing consistently.
[00:03:27] Ray Latif: At what point in their history was this happening at their $5 million level?
[00:03:31] John Craven: $5 million was probably around five years ago or so. I can't really remember exactly.
[00:03:36] Ray Latif: And that's when you first started to get involved with the company?
[00:03:38] John Craven: Yeah, so we started working with them at that point. We had a couple of different fundraising rounds, we topped off a convertible note, then we did the first institutional round with Carp Riley, and that's when we started talking to Pepsi. We started talking to all different groups out there. Later raised some money from a family office called SPK Capital. And which all led to the transaction with Pepti acquiring Covita last December, I guess it closed.
[00:04:03] Mike Burgmaier: And is that a pretty sort of typical timeframe? I mean, I think it's interesting to talk about something that is sort of present news having, you know, a starting point five years ago. I think that might be something that's, you know, helpful for listeners just to understand kind of what a typical timeframe for your involvement to an exit.
[00:04:23] John Craven: Yeah, I mean, we can be, there are companies out there like Kavita and like Spindrift. For Spindrift, we started working with Spindrift when they were one million going to two. But for the most part, we won't really, we don't have the opportunity to work with a company until they're at least five to 10 million in trailing 12 months sales, just because it's really not appropriate for us yet. But there are some outliers out there, but you have to dig deep to really kind of figure out the fundamentals of what's happening. But in terms of the amount of time that we might work with them, but also kind of just call it the gestation period of a deal to happen, like a Pepsi buying a Kavita. It was a relationship that we built and we started building five years ago that culminated with the acquisition. And I have to be careful sometimes. So I'm thinking in my head what I'm saying and then trying to check myself. Am I allowed to say this or not? And trying to remember what has actually already been written. But it was written that Pepsi made an investment. in Kavita. So, you know, we structured that investment and that kind of had the whole path to acquisition already built in. So there was a, you know, everyone within key leadership within Pepsi knew about Kavita. They start to think about it on their own, but obviously they don't have to buy the company, but you know, you build a strong trusting relationship over the years.
[00:05:39] Mike Burgmaier: So I guess for you though, like once you had that initial deal with Pepsi, is it sort of, I guess, on autopilot for you?
[00:05:47] John Craven: Nothing is on autopilot in life. No, people are always going to change within an organization. Brands can change, products can change. Kavita came out with the tonics line, the master brew kombucha line. So you can argue it's a different product line or a different, the brand is a little different. And it's always work. Gotcha. Yeah.
[00:06:08] Ray Latif: Yeah. I mean, that's a good question about like, in terms of autopilot, innovation seems to have been an important aspect of Kavita's growth and business as they grew and expanded the Master Tonics line and the kombucha line. How much did those move the needle for Pepsi?
[00:06:23] John Craven: You know, I think at the core, Covita was just a fantastic brand, you know, vitality and the probiotic nature of it, the taste profile, the mouthfeel, the kind of the science behind it, that was all kind of core and fundamental and also just the sales. When people create a brand, the brand has to have the ability to extend. And Kavita definitely proved that with the Master Brew Kombucha line and the Tonics line. You saw the label change over time, just the graphics of Kavita. It was kind of very, had the V that kind of twisted and turned at the end of more feminine. So the new block lettering is a little more masculine. And then the Master Brew Kombucha, branding itself is a little more has a little bit more of a masculine feel to it. But, you know, it definitely moved the needle. But at the end of the day, it's still just about the brand sales and how the how the product is selling. But certainly the kombucha line was growing quickly.
[00:07:18] Ray Latif: And, you know, I'm going to ask you one more question about Pepsi that you probably be asking Pepsi. But, you know, probiotics has been that big trend that everyone has been talking about and everyone seems to want a piece of. And Pepsi hasn't really done a deal since Izzy, which was I think in 2007 or it was a while back. So, I mean, you know, the brand was great. Cavita's branding is great, but what do they have in terms of their ingredient, their sort of point of differentiation from whatever else was on the market that really made sense for Pepsi to buy that company? Kavita creates their own culture.
[00:07:52] John Craven: No pun intended. Right. Yeah. But you have the culture of the bacteria culture. I guess it's tough to answer. They love the product. They had kind of the science. They were buttoned up. The initial investment was treated like an acquisition. The number of signatures that were required within PepsiCo to do a small investment was pretty amazing, but they did an amazing amount of scientific due diligence and R and D on the process, on the product, on everything within operations. So I mean, it's a lesson in part two to kind of that, you know, for, for companies out there, it's like, you gotta be buttoned up. You gotta be buttoned up from the start. Bill Moses and his team and Nate Patina down there. Unbelievably, incredibly talented.
[00:08:35] Ray Latif: I was going to bring up Essentia. I mean, Essentia has been around for a long time, over two decades at this point.
[00:08:41] John Craven: Yeah, I can't remember. Yeah, it has been a long time. Yeah.
[00:08:44] Ray Latif: This is a product, you know, and this is a category, alkaline water, that's only really caught mainstream awareness and attention over the last few years. Right. You know, when they're building their company, they're not necessarily thinking, hey, we're going to be in every kitchen in America. We're not going to be sipping. We are sipping on humongous bottles. Massive bottles. Essentia right here, 1.5 liters. Thank you so much again for this, Mike. Yeah, I drink a lot of this stuff.
[00:09:06] Mike Burgmaier: Clearly. Very hydrated.
[00:09:08] Ray Latif: Yeah. How did you kind of look at this company, having been as old as it is, as having some real impact on the industry?
[00:09:17] John Craven: Essentia is such an amazing story. And it was kind of funny when the company first contacted me, my first thought was, Yeah, right. The world really needs another bottled water. This is okay. This is gonna be a quick conversation. And then I talked to Ken Optane for a while, you know, just another just a fantastic operator, great guy. I love the way he looks, his view of the world, how he runs a company. But essential to me is a category of one. This is the only to me and this is the only functional water that exists out there. And it's not necessarily about the alkalinity, it's about the ionization process that the product goes through and how it's created. It ends up being a high pH, but it does hydrate and they've done clinical studies on this, full-blown clinical studies, it hydrates about twice as much as traditional water. But when I first looked at the company, it was just all about the sell-through. Ken had three people in an office, there was a salesperson, he had an outsource sales organization, he had someone taking phone calls for customer service, and he had a bookkeeper, basically. And sales were growing about 60 to 80% a year. And Ken will also say, when he first launched Essentia, it was too soon. The customer wasn't there. It was all about source water and Fiji and where's your water from. Then I think things moved a little bit more towards thinking about transportation and does that really make sense to be bringing water across the globe, at least for some people. But Essentia had developed this massive following and we did some data and looked at it and more than 70% of Essentia's consumers were drinking more than 15 bottles a week. It was just insane. It's bottled water and the loyalty and the consumption rates were off the chart and Amazon sales growing 20, 30% a month, which kind of still is continuing. And so it had this low awareness, great sales and incredible sell through.
[00:11:07] Ray Latif: And as far as the branding too, I mean, you talked about, you know, the branding as being really important for Kavita. You know, when I see essential on the shelf, wherever I see it, it definitely stands out. I mean, I think they've done a good job of creating something that looks different in the water shelf. True. For the average consumer, you said that the average consumer of Accenture, they really care about how it's produced, how it's made. They really see the difference between this and something else. For the other consumers, for the mainstream consumers, attracting attention, is it really that important for Accenture to do that? Is it important for you to do that, for them to really break out? Or is same customer sales really where the money is and where the interest for a guy like you
[00:11:50] John Craven: I think early on, it's looking at the sell-through. We kind of consistently say it's gross margin, velocity, and brand. Gross margin, velocity, brand. It'll make people sick just repeating these things. But you've got to have the margin from the beginning because you've got to be able to make money. And if someone's going to buy you in the end of the day, they've got to make money with it, even if you're going to lose money. to get there, and velocity, it's got to be selling off the shelf. You can't create something, we kind of joke, that's going to be a shelf warmer. It's going to gather dust. It's got to move. And if you're doing that with essentially no marketing, meaning that the branding and the package itself are selling itself, and then people are buying it, and people are talking about it, So they're buying and drinking more themselves, but the brand is growing organically on its own because you discovered it like, oh man, Essentia is fantastic. And this happens when I go to the store sometimes and I just throw five Essentias on going through the checkout line, the person behind me is kind of like, what is that? And I've had even a Whole Foods checkout person say, oh, you know the trick here, right, with Essentia? Like, oh, I mean, I know them all, I guess, but what is it? What do you mean?
[00:12:56] recently visited: And it's like, oh yeah, so yeah, when we go out at night, we all drink Essentia, the night before and the morning after. And it's like, oh yeah, the height is in this way. Oh, they actually did a clinical study and it does hydrate you twice as much. It actually changes at the molecular level. It's like, no way.
[00:13:13] Ray Latif: Very cool. Well, so sell through. Velocity, and I forgot the last one. Brand. Brand, okay. Yeah, yeah. Sell-through, velocity, and brand. All right, everyone who's listening to that should really focus on that. The important factors. Oh, and you said, no, gross margin. Gross margin.
[00:13:27] Mike Burgmaier: Gross margin, yeah.
[00:13:28] Ray Latif: Sell-through, and velocity, and brand. Yeah. All right. Now, spindrift has a lot of that going on, too. It certainly does. And it has a great founder, too.
[00:13:36] John Craven: Bill Creelman is an amazing guy. I spent, I think it was maybe three years ago, four years ago at this time, I met someone who introduced me to Bill, spoke very highly of him. I thought we were basically having a discussion and this might be a company that would be good for us to work with 12 months from now, 24 months down the road, you know, because he was, you know, one million going to two that year. And Bill came up to Portland for the day. We spent about six hours together. And at the end of the day, I was just, this thing is so fundable right now. Bill is one of the most backable people you're ever gonna meet. And he ticked all those boxes on gross margin, velocity, and unique product, such a unique product. He created a supply chain behind that product. So there was so much thought. It wasn't just, you go to a co-backer and you've got an idea and you throw a brand on it and it's yet another one of those. It was so different. And you can see the vision with him too. The seltzers were kind of starting at that point, but they were, you know, the whole product line was cold chain. It wasn't shelf stable the way it is now with the cans. So we decided to work with him. We raised a much smaller amount of money than we typically like to do, but we knew we were building something for the longterm with Bill. And we were as bought in with Bill and Spindrift as everyone else was.
[00:14:47] Ray Latif: Yeah, I mean, they seem to be doing some really great business on and off premise. And it'll be interesting to see how that brand develops over the next couple of years. Now, you've also ticked off some great categories in terms of brands you work with. You've got probiotics and kombucha with Covita. You've got alkaline water or premium water with Essentia. There's carbonated water and craft soda with Spindrift. What else is Whipstitch looking at these days?
[00:15:19] recently visited: We like juices, we like plant-based drinks, we like protein. There's a lot of things out there and you should find out in a couple of months what some of them might be.
[00:15:31] John Craven: Oh yeah? Okay.
[00:15:32] Ray Latif: I expect a text message or email or phone call from you too.
[00:15:36] John Craven: We'll give you guys an embargo notice before the rest of the world.
[00:15:40] Ray Latif: Thank you very much. Much appreciated. Now if Jerry is listening, Jerry Kamush is listening, he's Mike Burgmaier, if you use the betnet first, we're done. I tell Jerry the same thing, though. Oh, jeez. See, I knew it.
[00:15:52] recently visited: I knew it. Of course.
[00:15:53] Ray Latif: Of course. I wanted to talk about, so you're interested in these categories. And you're not the only one, though. And you're not the only investment bank that's doing that. There's a lot of investment banks that are popping up. There's a lot of money out there that is available for the food and beverage industry for emerging brands, new brands. What's the climate like for investment? And how much competition is out there?
[00:16:13] John Craven: There is a good deal of money out there. One of the issues always been is, you know, are there enough good companies and good brands out there for the money? So there's definitely good competition for the best, for the best brands and the best opportunities. You know, you've got more funds, you know, just traditional funds like, you know, the TSGs and Cattertons out there and, you know, VMGs. And you've got some upstart funds that have been starting, you've got family offices that are more involved. Like when we brought in SPK Capital, on Kavita and you know, they had been deep looking at the kombucha space. You know, it's one of the things that we like to do is we like to get to know those investors before other people know they exist. Kind of similar, maybe when we sold Function to SunSuite, no one really thought of SunSuite as a buyer, but you know, we're always talking to everybody. So we kind of know what's on their strategic radar, but you know, then you've got strategics who are setting up venture funds now too and investing as well. So there are options out there.
[00:17:07] Ray Latif: Yeah. I mean, that's a good segue. I mean, I know we wanted to talk a little bit about the magazine story that you wrote for BevNET Magazine and about how strategics are kind of behind the eight ball on this and creating their own venture capital funds and incubation units to kind of catch up to where they need to be at this point. You know, how has that evolved? How has the role of the strategic evolved when it comes to investment and incubation?
[00:17:32] John Craven: It's in a lot of ways in its infancy, I believe. And if you take Coke away as maybe the outlier, because they've been at it for a while with the established VEB group and Matthew Mitchell and the group down there just do a terrific job. And then Pepsi, obviously we worked with Chris Lansing and Jerome Metivier out of the Naked Merging Brands and the nutrition group there. on Kavita, but they're not as out there necessarily. They're not at conferences talking and so forth. But we've had a lot of conversations with a lot of strategics over the past three years about forming venture groups and what they're looking to do, how they're going to do it, the size check that they're going to write. Is there going to be a mandated path to acquisition or is it going to be an investment and just be a good partner and hopefully it'll work out to acquire the lots of different ways to go about it. Some strategics are saying, well, we only want to invest in things that are in categories outside of what we now have, because it is all about changing the categories and kind of where we are and what aisle and what door. And then you have others that say, no, it's all about finding the natural and organic or healthy option within our current categories. There's just so much happening out there. It's pretty amazing. But the big issue is that, and the premise of that article is that the sales for the large CPGs are just in massive decline right now. And we, in a very crude way, we basically sometimes just say, yeah, well, the problem is your customer is dying and not getting replaced with the older legacy brands.
[00:19:09] Ray Latif: It's the brands themselves that are causing this kind of decline in sales. People just don't believe in the brands as much as they used to. So you have to introduce a new brand to kind of fill in that sales decline, right?
[00:19:22] John Craven: Right. I guess I won't name the company, but we sold one of the companies and I was talking to the head of M&A there. And I don't wanna denigrate what their other brands and what they do. And there's multi-billion dollar companies and these have a lot of sales and a lot of consumers for them. But I basically say, I told them like, look, I look at your main product, I turn it on a side, I look at the ingredients, I'm done. I'm done for life. I'm never gonna buy this. I'm not gonna believe any kind of brand extension. You're gonna say, XYZ brand organics. Like, no, no, no, no, no. You can't go there. And then it's like, well, but the nutritionals, you know, the sugar and fat, kind of really how different is it? And I was just trying to say, you know, look, maybe it's brainwashing, maybe it's not real in the differences and what you're selling is actually totally fine. But I don't have the time or the capability to fully understand it, but my gut says what you're selling, because I can't pronounce it and I have no idea what it is. And I know there's research scientists and labs and things around it. It has not grown in my backyard. I'm not going there.
[00:20:24] Ray Latif: Yeah, that kind of transparency is really shaking things up for sure. People want that kind of not only transparency, but they want to know supply chain where the ingredients came from. And as clear as these companies can be, it seems like they're going to be better off. But it's also tough, I mean, certainly for organics. And that's a concern going forward in 2017 is, is there enough supply to satisfy what people want from organics? As far as... The strategics that, you know, you mentioned a couple of them. What are the strategics looking for sort of in beyond what some of the other institutional investors that you work with, what are they looking for? What's the difference between the two in terms of what they are asking for and what they are looking for from some of these emerging companies?
[00:21:09] John Craven: Well, I guess the strategic is really looking at it in terms of the fit within them from the beginning. It does relate to the current categories in which they play. I think they're looking at the brand a little bit more than investors do. Investors might be looking at the sell through and velocities, but strategics are really trying to think about the brand and the potential expansion for the brand and where it can go and where it fits within their current product portfolio. If you look at Annie's and where Annie's has extended within General Mills, it's pretty remarkable. I mean, Annie's was a public company before General Mills bought them, but the number of categories in which Annie's is expanding into, you can see it being a public company again on its own. But the question is, how far can it go? And then who is the consumer and the demographic around that? Because that's the thing, this M&A isn't going to continue forever at this clip and pace. Certain categories get done, certain brands get done, and certain... The strategists get, you know, okay, we checked that box. We've got the meat snack now, you know, so we're going to move on. And, uh, but, and then so like, well, how many meat snacks are going to be bought by the large players?
[00:22:14] Mike Burgmaier: I ask myself that a lot more than anyone expected.
[00:22:18] Ray Latif: That's true. I walked in with CVS and I see this wall of beef jerky and I'm like, where the heck did this come from?
[00:22:23] Mike Burgmaier: Well, but I mean, that's, I guess, a good sort of category to point to, though, that it seems like the original innovation that drove the first M&A activity is at this point just due to, like, time passing and new innovation. What was once sort of new and hot is now like the old thing that they're now like acquiring new brands to replace almost. Right. So, I mean, it is sort of like in some categories, like almost a never ending cycle, it seems so long as there's new innovation.
[00:22:55] John Craven: Right, yeah, the new innovations and honestly just difference in branding too. And the innovations can be subtle in terms of that, you've got a meat snack that has a gourmet angle and you have one that is more just like manly or, I mean, there's just one, I can't mention a name, but like my son wouldn't touch, There's no interest in Crave. And then this other one, his buddies come over and there's like 20 guys in the basement just chewing the stuff.
[00:23:20] recently visited: Yeah, like I find empty bags everywhere.
[00:23:23] Ray Latif: I kind of feel like I knew where you're going with that in terms of the brands and stuff. It is weird. I mean, some of the stuff really did come out of nowhere. And then the premium versions of that premium jerky have really knocked it out of the park. And that's really, for me, what's it'll be interesting to see if a Crave can kind of elevate their game to get there as well.
[00:23:46] John Craven: Yeah, and I think Crave's a great product too. And it's kind of funny, I fly Virgin America all the time and enough, and I see you guys on the flights too. We're on the same Virgin America, LA Boston Express. But it's so funny, you know, and I mean, you guys probably saw this too, in the main cabin select, everything's free, the drinks are free, even the wine and beer are free. Crave's five bucks. Is it? Yeah, because everyone, they said everyone would order it and throw seven in their bag.
[00:24:13] Ray Latif: Some of the interesting things that you touched on earlier, the brands that you've worked with and some of the success stories, obviously, You know, five years from now, maybe we'll hear a little bit more about the Kavita and Pepsi deal. I wish I could really talk about it. It would be fun. We'll get to that. You know, someday. Year six of the podcast, we'll get to that. But, you know, in terms of some successful work that you've done on behalf of other brands, you mentioned Function and the deal with SunSuite. Can you talk a little bit about that and what kind of challenges you saw early on with this functional water or this functional drink brand and a strategic that wasn't necessarily known for investing in emerging brands?
[00:24:53] recently visited: Yeah, I guess I'll say what I can.
[00:24:56] Ray Latif: It's been years.
[00:24:56] John Craven: I know, I know, but I'm still friends with everyone and Sunsuit's a fantastic company. And it was interesting. Function was so interesting though, because in the wake of the vitamin water, huge deal by Coke, everyone's kind of saying, what's next? And Function kind of became this quick darling of what's next. And we weren't involved at that point. But they raised a lot of money at extremely high valuations and they had an immense network of DSDs distributing the product. But the problem was they didn't have the sell through. So one of my friends, Andy Whitman, has this phrase he likes to use, like leaky bucket. And it's in terms of a company growing in revenue. And the revenues might be doubling or tripling every year, but it's actually, you can still be a declining company because your revenue gains are coming from new distribution, but the product is not selling. You might be losing some distribution or your sell through is actually declining. So, you know, if you just took like a core set of customers that you had early on, and you looked at that on a kind of time series basis, your revenue is going down. It's not doubling or tripling. And Function had, you know, a lot of growth. And then they took a step back, you know, Dayton Miller and the team there, they're smart guys and they did some fantastic work and they took a step back. They kind of cut down the number of SKUs that they had. They improved the messaging and alternative energy in particular and the water product. And they picked out some key retailers where they really wanted to succeed. And they started killing it in Southern California, in CVS and some other C-store chains, and then in Whole Foods in the Midwest. And they built great K-stacks and they did on-the-street field marketing and field support. And so when we went to sell the company, we focused on, yes, the numbers might say that it was in decline, but this is actually a growing brand. And it really was. And because you looked at the velocity gains and what was happening and what those guys were doing and executing, there was a good story there. There was a really good story. And then for SunSuite, You know, they were an old PepsiCo bottler and at that time PepsiCo had bought all their bottlers and bringing them back. So SunSweet was a little worried about their, you know, they've got all this production capability and, but they're all in kind of prune juice. What else can they do? So they looked at, you can say prune juice is a functional beverage in some ways. And so it was a good fit. They could produce the product and sell it. So there were some synergies there and they had just gotten into the investing game with C2O ahead of that. And so it was just a good opportunity, good timing.
[00:27:39] Ray Latif: Yeah. And, you know, how were you able to recognize it though? I mean, you know, you were looking for a buyer, you were looking for a major investor for function.
[00:27:48] John Craven: Yeah.
[00:27:49] Ray Latif: What kind of work did you have to do, like work did you have to do beforehand and, you know, how did you really sell it to SunSuite or was it, it was one of those brands that could sell itself?
[00:27:57] recently visited: Well, I'll make Jerry happy here.
[00:27:58] John Craven: Cause I actually read about, you guys are grimacing. No, I read about, you know, their investment in C2O actually in Jerry's column. And so then I just called up SunSuite and had a conversation with them about it, what they were looking to do. You know, we're, kind of like a 24-7 team on what we do. We try to turn over every rock and try to understand what the different opportunities are and get ahead of the curve on buyers and investors so that when we have a client, we know exactly who to turn to.
[00:28:28] Ray Latif: I know we only have a few more minutes left, and I don't want to do a sort of one-on-one kind of thing here, because you've done a lot of those for BevNET and sincerely appreciate them, as do all our readers and attendees. That's always fun. But in this current climate, For the food and beverage industry, it's almost like there's a lot of stuff being thrown at the wall and you're trying to see what sticks. But at the end of the day, you talked about gross margin, sell-through, and velocity, and branding as being so critical. But there are companies that do that well. In your mind, in your opinion, what are the key elements of a successful brand or company that is eventually acquired, that really does have that windfall exit?
[00:29:06] John Craven: The other elements, I mean, I guess the one thing I didn't talk about is product, but, you know, I was just thinking about Kavita, Spindrift and Essentia again. They're all unique products and the products deliver. You know, they deliver on the branding, they deliver on the nutrition. Everything is just aligned with that. And a lot of times, you know, you just can't be another me too product out there and you kind of see some followers at times and it's just, you can't be yet another blank.
[00:29:34] Mike Burgmaier: Well, what about the actual category? I mean, how much does that, I know you guys are focused on, you know, healthy and natural, but obviously there are tons of different kind of categories that fit within that. How much does that play into kind of the companies that I guess you guys are working with or willing to work with?
[00:29:53] John Craven: Yeah. I mean, certainly the category itself just needs to be large enough that an acquirer would want it. You know, you can't be something that, you know, it's like, we're going to be 80% of the category. So we're going to, and we're going to be a $40 million business. That's just not interesting because that category can go away. You know, when something is like so ingredient based or single ingredient focused, the fear is always that it's a trend and it might go away. And so, you know, we have to think about the long-term value and the size and the mass appeal. It's all going to start with these smaller numbers of consumers that aren't necessarily looking at the price of a product or they're willing to try something. The first mover is here, but if it can't cross over and then be a big Costco success, be a big mainstream success, it's not going to make it in the end because it's capped on the growth potential. You know, that's why Coke always says we want billion dollar brands. And, and I think, you know, some of the ones we've worked with, they should get there. It's still going to take some time, but that's why anything deserves a large valuation too, right? Because it's all about your buying the future.
[00:30:59] Mike Burgmaier: Sure.
[00:30:59] John Craven: You can't justify the price today, but you're going to grow into it and surpass it.
[00:31:03] Mike Burgmaier: Well, I guess that sort of leads to just another thought, which is that a lot of the categories that we are talking about, and I guess to some extent you could argue maybe Covita is one of these, the categories rapidly unfolding and growing, you know, it's not like taking a piece of say meat snacks, which has been around a long time. Granted, you could say Covita is a probiotic and whatnot, but sparkling probiotic beverages, that's, I guess, a new thing. Right. How do you look at a category like that and get a realistic sense of its future valuation then? Good question.
[00:31:39] John Craven: Good question. I'm not going to say something that's gut, but you have to believe. And then at the end of the day, the strategic needs to believe.
[00:31:47] recently visited: I can't tell you the number of investors who passed on the first Kavita round. And a good friend of mine, again, who's spoken at BevNET too, and I won't say his name, he's like,
[00:31:55] Whipstitch Capital: No one's ever going to buy that product. No strategic is ever going to buy it. It's going to be a small niche thing. It's like, you know, I don't think you're right.
[00:32:04] recently visited: This is where trends are moving and it's low calorie, it's functional. Yeah, but some people are stuck like drinking their Diet Cokes. It'd be obviously like essential bottled water, huge.
[00:32:14] John Craven: A little more clear. Yeah. Sparkling water, Spindrift, absolutely huge. And Spindrift, no one had really taken kind of the premium sparkling water route. You know, a lot of other brands look like they might be private label Walmart brands.
[00:32:28] Mike Burgmaier: Well, what always amuses me is that I asked the question of how do you know the future of an emerging category? I think there's also that other side where someone's in a big category like water or, you know, sparkling beverages and you'll hear stuff like, well, they'll never compete against, I don't know, Nestle water or whoever it is. It's like well-defined category with a big player, like little guy has no chance. Right. Right. Right. I guess, yeah, I was sort of asking you a loaded question of, yeah, gut feel, of course.
[00:32:57] John Craven: Yeah, well, I mean, you see it in the numbers. You have to really dig into the numbers. I mean, one of the articles wrote for you guys like five, six years ago, and I think we called it for buyers and investors, the numbers rule. And I think you have to always figure out how numbers can tell your story. And it's not just subjective. We have the best product. Hopefully it is, you know, you've got the best product, but if you can't remove it from the subjective and have numbers talk for you, Because the CFO from PepsiCo is not going to approve the deal unless the numbers are there. So get the numbers early on and figure out how they can tell your story.
[00:33:34] Ray Latif: So that's interesting. So Indra Nooyi might have been like, I love this brand. I want to buy this brand. And the CFO is like, you're crazy. We're not buying this.
[00:33:40] John Craven: I'm not saying that. I'm not saying that. Indra does love Kavita, and I know her favorite flavor.
[00:33:46] Ray Latif: How about that? Yeah, well, she has mentioned that Pepsi's got to work almost 24-7 to kind of innovate for the future at this point. And I'm interested to see what they're going to do for the future. It feels like Kavita might just be sort of the tip of the iceberg for them if they really want to become that healthy player when it comes to beverages.
[00:34:07] Mike Burgmaier: So I guess before we wrap up, I feel like we'd be remiss if we didn't ask for anyone who's still listening would probably want to know this. How can you and Whipstitch help, you know, listeners and at what point do they approach someone like you?
[00:34:23] John Craven: Yeah. Well, thank you. We like to get to know companies early. And for the most part, we really can't work with someone until they're at least $5 to $10 million in trailing 12-month sales. Because we raise capital for companies and we sell companies. If we're raising money, we like to really raise a minimum of $5 to $10 million. And if we sell a company, it's probably $25 to $100 million minimum enterprise value that we're looking for. But that said, we break our rules sometimes, too. Working with a spindrift from going 1 to 2 million, and we signed up with a snack company the other day that is sub-million, that's rare. That's super rare. But we like to talk to people early. And if I can't talk to them, we've got a great team. And so if we can get to know you and if we can't help you by being retained and running a process, maybe we can help provide some feedback or point you in the right direction. But we're here to help. We love these products, love the categories. The entrepreneurs are the real heroes out there and taking the risks and we've got the easy job and I can't believe this is my job. It's just the best job ever.
[00:35:31] Mike Burgmaier: Nice, nice. So don't be afraid to call or email, I guess. Yeah. Email. Fair enough. Fair enough.
[00:35:39] Ray Latif: Yeah. One of the other last things that we do now, this is really the last minute, is we always talk about what people are drinking or what we're drinking during the week or the month and some of our favorite brands and libations, as it were, aside from the 1.5 liters of essential that you crush every night. Yeah. Anything else that's kind of tickled your fancy?
[00:36:00] John Craven: I really like Koya. I mean, it's a new one out there, but plant protein, like 18, 20 grams of plant protein, only a couple of grams of sugar. A testament for me is that a lot of times I bring stuff home, my kids are like, no, no, I'm not taking that. And my daughter is a, just demanding it. And so, yeah, I like them. And I'm still drinking a ton of kombucha. And I wasn't there two years ago. So the categories are growing.
[00:36:27] Ray Latif: You and me both.
[00:36:28] John Craven: Yeah.
[00:36:29] Ray Latif: Good stuff. Cool. Mike, tremendous stuff. Really appreciate you hosting us here at your home. I don't know if I mentioned that you opened up your home to us. The podcast makes house calls.
[00:36:39] recently visited: The home office, the main office of Whipstitch.
[00:36:42] Ray Latif: It's great. It's a wonderful home office, but thanks so much again. Tremendous knowledge and really can't wait to hear what's coming in the next couple of months.
[00:36:51] John Craven: Yeah. Thanks guys. No, it's nice.
[00:36:52] Ray Latif: It's always great. All right. See you soon.
[00:36:54] John Craven: Okay. Take care.
