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Hain Celestial is Rewriting the “Rules” of Corporate Venture Capital

September 26, 2017

Large food corporates know that they can’t get left out of the innovation going on in the world of venture-backed food startups. There are at least 13 food companies with venture capital funds including General Mills’ 301 Inc, Kellogg’s eighteen94  capital, Campbell Soup’s Acre Venture Partners, Tyson’s Tyson New Ventures and Chobani’s incubator

In November, Hain Celestial, one of the largest natural and organic food products companies globally, launched its venture group: Cultivate Ventures. The initiative is an effort to keep up with new innovation and give a refresh to brands unlikely to get much attention in the massive Hain portfolio of brands as well as investing in new products and incubating small acquisitions.

The company has had a rocky few months on the back of a lengthy accounting probe into its financial practices. Even though the audit found no wrongdoing, the company’s stock price has not yet bounced back, although it was bolstered by the acquisition of a 9.9% stake by activist hedge fund Engaged Capital.

Beena Goldenberg has taken on the role of CEO of Cultivate Ventures in addition to her role as CEO of Hain Celestial Canada. Cultivate took over management of six brands — responsible for $70 million in sales in 2016 — when the platform launched. The public Fortune 500 company’s 2016 financials will be released later this month amid some controversy around their reporting procedures and timeliness.

We caught up with Goldenberg, who spoke at FoodBytes! New York a few months ago and is today attending FoodBytes! Austin where a colleague will be judging the agrifood startup business competition.

Goldenberg explained to us why Hain created the new group and how Hain’s way of working with startups may differ from a traditional VC.

Why start a venture group in-house at Hain Celestial?

Companies are all getting into this venture space because they see the innovation that is happening. When you go out to these entrepreneurs, they’re pushing the limits and trying new things and we want to do more of that. We want to see more of that and develop more of it by bringing it in-house. We’re going to do it a little differently because we have some brands within our portfolio that have been underserved in the larger brand portfolio. We don’t have to go out and find a brand to acquire when we have a strong growth brand in-house, but we’ll still selectively acquire brands that complement our existing portfolio.

For example, we have our Health Valley brand that, historically was organic canned soups. But if consumers are moving toward the perimeter of the store we can take Health Valley and put it into the perimeter of the store with innovation. So we kind of have two sides to Cultivate Ventures. We have our own brands where we invest, bring some focus and grow. And then we have the new opportunities that push the limits, get in some new ideas, bring some new credibility to our mission at Hain Celestial, but also keep us ahead of the curve.

Hain Celestial, we’re the originator, we’re a founder of the natural and organic space and continue to be day-in and day-out, not just a small part of our business.

Is the intention for Hain Celestial to acquire these companies? Is that how you’re choosing them?

We could go either way. We could do an investment and then over time look at a right of first refusal as an opportunity, we might want to track and then see where it goes. But if you look at how Irwin Simon built Hain Celestial, he built it on acquisitions. The easier route for us would be partnering with the entrepreneur in an acquisition with an earn-out, which is what we often do. It could be a 3-year or 5-year earn-out, but they’re going to benefit from our infrastructure and investment to help them grow and get into new doors they probably couldn’t on their own, certainly not as quickly.  They’re still going to be the drivers because they know their brand, products, and category, and they have their passion; and they’re going to win with the earn-out as opposed to an investment that then grows, and they make the money with a sale at the end.

Are you staffing this effort from with Hain Celestial or hiring from outside?

Right now we have a team of 18 people and more than half of them are in sales. We have marketing folks that are working on refreshing some of the legacy brands that haven’t had the focus with new packaging and innovative ideas for how to stretch them to where consumers are today. And then, a couple of the brands that we had at Hain Celestial were moved into Cultivate, which needed more supply chain work. They’re great brands, but the work hasn’t been done to get efficiency and streamlined supply chains, so we have supply chain expertise and R&D support as well.

And there are some functions that we didn’t hire for that we’re going to leverage off of Hain Celestial, including legal, regulatory and accounting. What we need is the strategy, the innovation, the work to get these brands on the right path to grow.

What are the details of the fund in terms of size, timeline etc.?

Irwin Simon didn’t want to put limiting parameters like that on it. He said ‘Find what fits.’ We have access to the money; if it’s the right fit, we could do it, and we can keep doing them. And there’s not a time limit. Because we’re not looking so much at finite investments, we’re looking more at acquisitions or right of first refusal, it’s going to be way before ten years, and we’re going to look at likely three to four years with earn-outs and opportunities to really drive these businesses.

What kind of innovations are you looking at now?

We’re looking at the perimeter of the store. We see more and more interesting innovations there and millennials are interested in it. There are lots of cool ideas in areas like probiotics and functional foods that are in the perimeter of the store that we could get into and build. I think seaweed is coming in a big way. I think all these fermented food like kimchi are coming. We have our BluePrint brand, which is on the perimeter of the store, which has a new line of energy teas with moringa and matcha – real ingredients with functionality that are natural functionalities.

What stage are you looking to invest?

There are some rules. We want an opportunity that’s at least $2 million in retail sales, and that we felt was very differentiating because there are a lot of people out there investing in ideas that might be under $1 million. Why we picked that number – and it’s not hard and fast – is that it takes it from an idea to actually showing that it’s accepted at retail and it has some presence. We could then help that team take it to the next level. How to open doors and expand distribution: that’s what Hain Celestial is really good at. We can really help them, but it has to be more than an idea. So at the low end, we want to be at about $2 million. At the high end, we’re saying $30 million, and that’s because if it gets bigger than that, it should go through the larger Hain Celestial process, not the Cultivate process because now it’s a big enough brand. So we’re really focused on these smaller opportunities that can then grow.

The other interesting thing that we’ve said is brands don’t live in Cultivate forever. We’ve said that brands are going to live in Cultivate for about three years. We’re going to put in investment and focus and see if they tick and what they can do. And if they really perform, they’ll get rolled into the main Hain Celestial portfolio. And if they don’t, then we’ve got to talk about divesting.

For the ones that don’t make it, how do you handle them when Hain Celestial has passed. Isn’t that a strong statement to the market? Will that add to the challenge of getting your liquidity back?

We announced to the market that there were some brands we were going to divest last May and have made some announcements about that.

Are you looking at or considering investing in startups that are outside of the food space but rather on the supply chain or logistics side?

We’re not ruling it out. One of the areas that we’re interested in is the direct to consumer space. We have a couple of brands – our BluePrint brand and our GG Crackers brands that have direct to consumer businesses. And we’d be interested in that space because it is very targeted and some of our SKUs are really small and maybe don’t deserve the shelf space in the grocery store, but the core user wants them. And there’s a great opportunity to build that variety and availability with more online and direct to consumer.

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