Stray Dog Capital is an early stage venture capital funds in the plant-based food marketRead more...
The firm invests in the consumer companies in spaces such as food and beverage, pet, and fashion
Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh, how times have changed! While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
Marcel Bens is Managing Partner at Emil Capital Partners.
Bens is Managing Partner and Chief Operating Officer at Emil Capital Partners and co-leads Emil Capital’s investment activities. He previously worked at a multi-billion dollar distressed private equity firm in New York City, and at an independent corporate and financial advisory firm in Sydney, Australia. Prior to that, Bens served in various key roles at a large German automotive conglomerate in the United States, Germany and South Africa.
He holds a joint master’s degree in mechanical engineering and economics from the Technical University of Berlin in Germany and an MBA from Columbia Business School in New York. He is trilingual in German, English and Dutch.
VatorNews: What is your investment philosophy or methodology?
Marcel Bens: Emil is the first name of one of the co-founders of our investor, which is a retail group based out of Europe; they’re in the fifth generation, 150 years old, and they are called the Tengelmann Group, and his first name was Emil. So, the first name was used when we founded the investment firm.
We're an early stage investment firm focused on the consumer space, so anything that touches the end consumer. As you can see from our portfolio, we have a lot of food and beverage, fashion apparel, personal beauty care, consumer technology, retail, and the pet space; those are the big buckets. So, everything that touches the end consumer and everything that offers a better solution to a problem. Sometimes that can be pricing, but most of the time it's really the new, reimagined consumer focus on quality and a better option; 10 years ago, when we were founded, the whole organic movement was well on its way, but you didn't have long organic aisles in at a Kroger or at a Walmart, it was still predominantly Whole Foods. And so, we believe that there's going to be more mass appeal for food and beverage and clean beauty and pet food that’s better for you. We started to look at all these companies and found, we believe, a great portfolio of investments.
Now, in addition to that, we consider ourselves to be very founder focused. We like to work with founders and we like to consider ourselves as a long-term partner, so we don't go in by saying, “hey, early stage company, we're going to give you some capital and then you'll never hear from us and we just invest in one round.” We’re very active, we're hands on, we like to help and support, obviously knowing every company is different, as is the support they need, but also in terms of fundraising and being there throughout the lifecycle of a company. So, we don't just invest in early stage, Series A and B, but we'd like to then continue to the C, D, or whatever rounds are necessary, to get the company to a place where they've earned their right to exit. That is also very important for us and we think about what the business fundamentals that make sense are. While, of course, growth is important, we think more of velocity, we think more of the repeat customer, less so about broad distribution and being national immediately, and all those things. It's really more about, does this product resonate with the consumer? If it does, the consumer will keep coming back and will they show brand loyalty? You can always push a product into the market and get to a certain level of revenue if you try hard enough by spending a lot of money, but the hard part is finding those companies that resonate with the consumers that are long lasting, not just with a quick fad or hype or something like that.
VN: What’s exciting about those verticals that you mentioned, like food and drink and pet companies?
MB: Take the pet space for example, the humanization of the pet. The pet food industry has been attractive over many years now, but you see a lot of the simplification of solving problems within the food or beverage category that also translated into the pet category. We have a company called Ollie that delivers meal kits or prepared food to your home; we have a company that does direct to consumer flea and tick, focused on monthly subscribers, so they get a monthly reminder to give their dog or cat some flea and tick treatment. Just simplifying things for the consumer in a different category and I think people are humanizing their pets more and more, so it's an interesting category.
Within food and beverage, there’s the whole development of food as medicine, which is a very interesting movement that we are looking into, and that we are investing in. Instead of the trend of using supplements, it's using food and healthy nutrition, health and wellness, which was also amplified by COVID, where consumers have been focusing more towards immunity and health and wellness, but also mental health and mental wellness. Those are interesting things that we see. Path to purchase, obviously, is a big one for us as well. Of course, that's been amplified, again, by COVID with more online, but also in a negative way for smaller companies online; you have a lot of big strategics that have a lot more money than the small companies to invest in search engine optimization and keywords and all of those things that make it expensive in this big world of the internet and ecommerce for small companies to have their share of voice. So, it's also interesting for us to look at how these companies can communicate with the consumer in different ways. Which marketplaces will survive that really promote more online, smaller brands, versus the big Amazon? On Amazon, if you type in “ketchup,” you’re only going to see Heinz ketchup but nothing more independent, if you know what I mean. That will be interesting to see as there's more movement into direct-to-consumer. We always look at it as more of an omni-channel approach versus just singular and, “this is the way to go,” because consumer behavior is always very diverse and so you do need to be in various channels at any given time.
VN: You mentioned COVID. How has that changed the dynamic of these spaces, especially food and beverage? Food delivery, obviously, exploded very early on early on in the pandemic when people couldn’t go out to the grocery store anymore and they needed to get their food delivered. I believe people were also adopting more pets because they needed that connection with another living thing, and they couldn't really get it when they were locked down.
MB: Especially in the grocery channel, you've seen so much development with the 15 minute delivery companies, like the Gorillas and so on. People realized through COVID, that, “Hey, it's so much easier to go shopping if I just have food delivered. Subscribe & Save, how easy is that? I don't have to set any reminders on getting something that I then don't have. I just comes to my house independently.” So, there's a lot of that convenience factor within grocery and that's, of course, huge. That will continue, that's not going to go away. What I do think is going to come back a little more is, look, we are social animals, and so people want to come together again, you see that now. So, I still believe in retail, I still believe in brick and mortar but, again, it needs to be simplified through good online offerings through a good supply network or supply chain operation back end network where there's both online and brick and mortar and just simplifying that for the consumer. You can see that with larger department stores; they’re not giant department stores, but they're small, niche, brick and mortar stores where you still go in, you still can touch and feel the product, which is still going to be very important for a large majority of consumers. You can see within newer generations that's coming back; the Gen Z's like being outside together to walk through stores. Not big department stores, but smaller niche stores and so we shouldn't forget that.
VN: What is the size of your current fund and how many investments do you typically make in a year?
MB: In terms of how many investments, it really depends. This year we've made five smaller investments; that's a lot but they were smaller in size. We invest out of two strategic pillars: one really early stage, seed even, with companies below $10 million in revenue, even sub-$3 million if they're growing nicely and if we see the market there where we co-invest. And then a larger, growth-focused pillar, with companies above $10 million in revenue, where we would also take the lead. Those five were a combination thereof. I would say on average we do about two to three a year.
The total committed capital over the last 10 years is more than $350 million.
VN: How much is that in dollar amount for you in initial investment and over the life of the company?
MB: The first pillar would be anything from $500,000 to $3 million. That's the early stage seed, so we're flexible in that. On the growth side, it would be larger: it could be anywhere up to, let's say, $15 to $20 million. Sometimes, if you’re thinking about total committed capital, it could be $30 or $40 million. It depends, again, on the life cycle, the span of what it takes to get to the company to an exit opportunity.
VN: If you’re investing $500,000 to $3 million in the early stage, would that be seed to Series A?
MB: Yeah, exactly. So, that's what I mean by these two pillars: out of that first pillar, that would really be more seed and Series A. We're just co-investing; we don't need board representation, we're happy to help, we're there to support founders to grow their business. On the growth side, they're really more sizable businesses already, with bigger check sizes. On both sides, we prefer to be a minority investor. We prefer to work with founders because we feel like it's good for the founders to not feel like they're an employee of their own company. Therefore, they need a lot of skin in the game, and if you put in $10 million in a seed or early stage company, well then most likely you're going to own the company. So, you obviously also want to calibrate what the company needs at the time that they're looking for capital as well.
MB: The most important thing with the seed and Series A companies for us is the size of the market opportunity; it has a large market opportunity. We don't focus so much on the path to profitability, but margins need to be strong in seed, so I would say that, even in seed, we do a lot of work in looking through margins to make sure that, understanding with economies of scale and all of that, margins can be improved. But we will always want to be very realistic that we’re above a certain threshold within the margin so we have some room to also play with brand awareness, marketing, all of that. If you have a 20% margin, it's tough to get anywhere. Every category is of course different, so I can't give you a number because 40% in fashion and apparel would be horrible. It really depends on the category but, depending on the category, margins are very important to us on the seed.
In the growth, what is important to us is, obviously, margins but also a path to profitability. It’s that we have a clear path within about 18 months, that's our figure. Within 18 months, we need to feel comfortable that we can get this company, with the help of the other investors and whatever we're doing, to profitability or break even cash flow profitability.
VN: How do you diligence the market? How do you determine if that market is there or if it's going to be there in the future?
MB: In the seed stage, especially in new categories, it's hard because some markets develop with a certain new category, and that's a little bit art, less science, about where we see the new consumer behavior going towards. Other things I would just honestly say are relatively straightforward: if you're looking at a performance beverage, performance drinks, sports nutrition, if you're looking at plant-based categories, plant-based beverages, plant-based foods, the frozen category within plant-based foods, you can, through research reports, very quickly get a sense on where the market is now. Then through, again, consumer behavior and trends and other reports you can read up on, you can see the likelihood of growth. For us, it's not a number that we need to see on the opportunity, it's really more about what's the relationship between that market opportunity? How big can the company get, and what does that mean for a return profile? So, yes, if we see that this category right now is $50 million, we wouldn't really get excited about this unless we believe that this $50 million category will become a billion dollar category because, even if we have a monopoly at $50 million, it's tough to make a good return. It’s different if you're the owner of the business because that could still be very nice, but not as an investor.
VN: What about the product? If you're talking about a food and beverage company, for example, do they actually have to have a prototype at that point?
MB: In seed, we've invested in a company called Renewal Mill, which is all related to upcycle ingredients and that’s a category that we believe is growing and growing. They are creating new ingredients from food waste, and it’s a very interesting company. That was a seed investment: they had the product, they've started to sell the product, but it's a very early stage. I would say that is the earliest that we have gone so far.
A prototype within food and beverage is always a little hard because most people who have a bathtub can produce their own beverage and show it to you; the same with food. So, it’s usually not a prototype but, even in the seed to early stage, we do like to see and get some market response; it can’t just be, “Here’s what I made.” Even if it’s in a small market, in a small regional area, we do like to see the product in the market, and we do like to look at the velocities. How does the consumer accept this product? What is the response? It’s not necessarily about distributions but really more about the depth of repeat purchasers, retention. That's much more important for us.
VN: Along with product and market, the third thing early stage investors look at is team. What do you want to see from those entrepreneurs and those founders that make you want to invest?
MB: In the seed and early stage, it's very important to have a founder-led team. If I think about what we can provide, we have a great group of operators that we work with, so you can always add and help with resources in helping the founder, but the founders are an integral part of that team. In the end, it's really about the ownership aspect and that passion to create something big. Some founders are better at listening than others, so what we really focus on is founders that we can build up a good relationship with, and by staying along in that life cycle we’re trying to build up that relationship. That's why we also think this two pillar strategy is important because you get to know one another, we get to work together, and that is really important. We don't like working with founders who believe they know everything best because we know we don't know everything, so we try to surround ourselves with smart people who can then help the founder, and the founder needs to be open to that. So, does it need to be a completely defined, strong team that has everything from finance, operations, marketing, and sales? No, because we can help with that. But the attitude of the founder, of the team of founders, needs to be cooperative, collaborative, in order to grow the business. So, that's absolutely fundamental.
Now, as the companies grow, that changes a bit, but even in the growth stage, having founder involvement just creates so much more authenticity to the brand, in our experience. It doesn't always have to be that way, but if I were to choose, I would always choose founder-led teams versus just a hired group of managers.
VN: When COVID first hit, there was some trepidation or fear that VCs wouldn't be able to deploy their capital, but that definitely did not happen: last year was a record year and 2021 is going to be another record year. So, it's actually the opposite, and now that rounds and valuations are both higher now than they've ever been before. Why do you think that is and what do you think that means?
MB: There’s a lot of capital to be deployed, the markets have moved in the direction where the VCs, private equity firms, have a lot of capital. That's still going to continue into next year. We saw a huge spike in the last two years, as we all know, in SPAC registrations; these SPACs need to find an asset within two, maximum three, years. And so, the valuations are going to stay strong for companies that deserve it, because there's going to be a need for these SPACs to combine with an asset. That's still going to be interesting, speaking as a firm that has portfolio companies, that's an opportunity to exit interesting assets. The high valuations in my view are still going to continue and that is something that we are also always evaluating; we always need to make sure that it fits within our return profile, because we are a smaller investment firm and, therefore, we need to make sure that we spend our money very wisely, as does every other firm, of course, nobody would say anything different. But we focus very much on whether this valuation at this point makes sense. A lost opportunity for us is not as important as a big mistake.
VN: What does it mean for the companies themselves? You said the companies that deserve it will continue to get those big valuations, but there will be companies raising too much money, at too high valuations, that don't deserve it. What's going to happen to them?
MB: Well, at some point that's going to catch up to them. If you're continuously producing losses, once the well dries out, your valuation is going to plummet, but the companies who deserve it are the ones that are self-sustaining. They're the ones who, in my view, earned their right to exit when they want to. Sure, you can put some more ammunition in, you can feed the fire and amplify growth, but the fundamentals, the structure of the business, needs to be very sound and those are the companies that are still going to be very, very valuable and continue to be valuable, and also interesting to strategics. The ones that are losing a lot of money are going to have difficulty; it may be a little different in certain public markets, but if you're talking to strategic acquirers, what we're noticing more and more is the focus on the bottom line, not just the top line. A lot of big strategics have been burned by just looking at top line growth and then realizing, “Hey, wait a minute, we can't get this thing profitable.” And so, strategic acquirers are maybe going smaller, in terms of revenue size, but fundamentally, from a business structure point of view, are more sound, meaning break even or profitability, and then picking out those nuggets. Those companies' valuations, I believe, are going to stay strong.
VN: There are many venture funds out there today, how do you differentiate yourself to limited partners?
MB: Over the last 10 years we have been very fortunate that we only have one LP group. Now, the structure of our firm is just like any other venture capital firm, although we’re structured as an evergreen fund, and I've structured it so we can always take outside capital, but we haven't done that because it was not necessary for us yet. So, we’re very focused on our portfolio. Does that mean it's always going to stay that way? No. That's why our structure allows for other LPs to join, but we currently have one LP group and that's the group, of course, we always have to convince, with every new fund, to put in more capital. That's our differentiation: we don't have to go on long fundraising tours. It doesn't mean it's any easier, but it's certainly a little different.
VN: Venture is a two-way street, where investors also have to pitch themselves. How do you differentiate your fund to entrepreneurs?
MB: The pitch is building up trust, long-term capital support, and long-term support. We, of course, need to justify our existence by realizing investment opportunities at some point, but we are, I don't like to use the word flexible but, in the end, we are flexible through our mandate in terms of type of securities that we can invest in, as well as the time frame at which we can invest in. We've never been in a situation where we have to do a fire sale because our investment period is over, or we need to close a fund; we have an open end fund, that is our benefit from more from the fund structure perspective.
From a relationship or philosophy perspective, an investment strategy perspective, a structure perspective, it's the brands we invest in. Our biggest asset is talking to founders and showing the portfolio of companies that we've invested in that have exited or are still part of our portfolio. That was certainly harder 10 years ago when we started because it was like, “Well, what are you going to offer that others won't?” It's certainly easier because we can show what we've done with companies, how we've helped companies, who we've worked with, and the founders are always a great reference if anybody wants to talk to them about how we do it. Again, every case is different, every project is different, every company is different, but we do consider ourselves as being very hands on. I know a lot of people say that, but there are also a lot of very great larger firms that don't offer the support that they often say they do. And we do.
VN: What are some of the investments you’ve made that you're super excited about? Why did you want to invest in those companies?
MB: Which ones do I pick? We have 37 companies to choose from, of which we exited seven, so it's going to be very hard.
We have three companies within the pet space, one of which is Ollie food delivery, and another one is a company called PetFriendly, which we just recently invested in. That is subscription based flea and tick, and they’re going to move into other over-the-counter medications for animals. We think that's a huge category; it’s simplifying things for the consumer, making it more convenient. It’s a great company, with proprietary IP, and it solves a real problem for the consumer.
Within food and beverage, god, we have so many, it's hard to really pick one. We have a company called Cheribundi, which is a tart cherry juice, now also offered as a concentrate. As you might know, tart cherries have a lot of benefits including muscle rebuilding, anti inflammation, and naturally recurring melatonin, which adds to recovery. So, how are we selling that product? It's the all natural recovery drink. Now, why is that interesting for us? Because, since last week, 331 college and professional sports teams in the United States drink this on a regular basis to add to their recovery regimen. The whole last two years were the years of recovery: you're looking at WHOOP, you're looking at Hyperice, you’re looking at Theragun, and then you have Cheribundi, which is focused on all natural recovery. The biggest asset, and the interesting part as an investor, is you have 331 professional sports teams, including seven out of the last eight Super Bowl champions, who consume this. It’s prescribed by their dietitians and nutritionists. Of course, there are no formal agreements in place, but they consume this on a regular basis, yet nobody's heard of this as a regular consumer. So, bridging that gap from here to getting it to the mainstream consumer, that's the opportunity that we're investing in. It’s very exciting.
We also have a very efficacious probiotic juice company that now has fast melts, powders, and shots to go, called GoodBelly. It's been around for a while, you will see it in Whole Foods; I drink it every day. It really helps and as we all know, again amplified by COVID, immunity and health starts in the gut; if your gut’s are healthy, your immunity is strong. So, everybody should be consuming probiotics. These are probiotic juices, very delicious and, again, an opportunity where we say this is a company that has a reason to be and a reason to invest behind to grow.
VN: Tell me about yourself a little bit about your background and what led you to venture capital in the first place.
MB: I was fortunate enough to grow up in a very international environment and lived on different continents and countries. I ended up as a mechanical engineer at a large automotive company, Mercedes Benz, and then, as life happens when you start making plans, you get opportunities that get you into different areas. So, I went from production as an engineer to more into strategic opportunities, production strategy, corporate strategy, within a big corporation and then was more and more finance related. That's how I was then introduced to the world of finance, worked at a corporate advisory firm in Australia for a few years, then came back to New York and worked at a distressed private equity fund right after the crisis in 2007. A very interesting space, obviously, because there were a lot of distressed assets, so I learned a lot, it was very interesting, and then I met the founders of this company who asked me to join, so I've been here since inception. We started in late 2011, so exactly 10 years ago, and have been here ever since, co-leading the team and the investment opportunities that we have. I’m just looking forward to the next 10 years. So, that’s how I got here.
VN: What are some lessons you learned?
MB: Everything takes longer and everything takes more money. That's how I would summarize it.
Look, we've had some great successes, but we've also made some great mistakes, and you’ve got to celebrate your mistakes because that's how you learn. In the end, we always talk about how good decisions come from experience and experience comes from bad decisions, and that's how we have lived the last 10 years as well. That's also our benefit: if you've experienced this and you've been around and you've worked with these smaller companies for a long time, you can add value by knowing what can happen and what can go wrong in order to avoid that. That's a benefit to founders who are just starting out at an early stage who are on their way.
VN: What excites you the most about your position as VC?
MB: It’s meeting founders, to be honest. New investment opportunities, seeing the passion, because it's hard. I mean, starting a business is really hard. We experienced it somewhat as a fund with a small team of four people that has grown now; it is just very difficult to build a business and I'm very humbled by that and I have deep respect for these founders. So, the best part of the day coming into the office is if we have management meetings and you get to sit down with a founder who's telling you about their story and how they got to do what they're presenting or pitching to do. That is extremely exciting.
And then, honestly, and I say this a lot internally, what I really enjoy is coming back to the office and being with the team again. We've had team members start during COVID that have never met in person and you see them meet for the first time and they're shaking hands and they're saying things like, “Oh, man, I never knew you were so tall,” because you've only seen each other over Zoom. I have to say that was, at least recently, a great part of the day, seeing people interacting and being in the same meeting room, physically in the same room, and having a conversation. That's when you realize that, while working remotely works perfectly fine and we've all been able to earn our flexibility more, which is a great thing for all sorts of reasons, including that it's more acceptable to work remotely, that we’re not always expected to travel everywhere, all of these things are great, but coming together for team culture, being together, there are nuances that you cannot replicate online over Zoom, over video, and that's great. So, that always excites me every day when I come in.
VN: Is there anything else that you think I should know about you or the firm or your thoughts about the venture industry in general?
MB: We always look forward to meeting new founders. I mean, that's what we do: we back the next generation of consumer products. That's what we try to do every day.
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