Powerplant Ventures has closed a $42 million fund aimed at funding plant-centric companies. The fund’s goal is to leverage technologies that tap into plants’ benefits and various applications to support what it describes as the “next wave of better-for-you food companies and brands.”
First launched in 2015, Powerplant Ventures has made seven investment so far and has committed $8 million. It is now the largest fund to focus on investing in animal-free food startups, after New Crop Capital, which raised $25 million earlier this year.
With the fund, it is hoping to leverage what it sees as a massive shift in the way the planet grows, processes, distributes, and consumes food. The firm aims to partner with entrepreneurs looking to make a positive impact and who are creating so-called plant-centric products more convenient and enjoyable for consumers. With the fund closing, the team will play an integral role in the strategy, branding, team building, and operations for tomorrow’s leaders in the food and beverage industry.
“The basic thesis, or our purpose, is to help re-architect our food system to deliver better nutrition in more sustainable and ethical ways,” Kevin Boylan, founding partner at Powerplant Ventures, told AgFunderNews. Boylan and his partner, T.K. Pillan, founded popular vegetarian restaurant chain Veggie Grill ten years ago.
The idea for Powerplant was born after Boylan and Pillan were continually approached by companies seeking funding to produce alternative food products.
“Over the years, we constantly saw new products being shown to us by entrepreneurs looking for funding and mentorship,” Boylan explained. “We passed on deals early on like Beyond Meat, Hampton Creek, and Vega. Hampton Creek came to us five years ago looking for a $250k seed round at $7 million pre-valuation and now they are looking to raise over $100 million at $1 billion pre which is indicative of the opportunities that exist right now.”
Although Boylan and Pillan decided to steady their focus on building the Veggie Grill empire, they’ve finally reached a place where they’re ready to shift their focus to helping other brands in the alternative foods and wellness spaces achieve similar success. Now the restaurant, which has served 1.2 million guests in the last 90 days, serves as a testing ground for ideas and products that may wind up in the Powerplant pipeline.
Considering that the founding partners of Powerplant, which also includes ZICO coconut water founder Mark Rampolla and managing director of Disney’s venture arm Steamboat Ventures Dan Beldy, were only seeking $20 million to $25 million for their initial fund raise, they’re quite happy with the $42 million they captured.
The fund targets deals in the $1 million to $5 million range with most deals hitting the $2 million mark. Powerplant’s ultimate goal with each investment is usually either a strategic acquisition or an IPO during the next three to six years. Roughly three-quarters of the fund targets these “better-for-you” foods. Companies must have at least $1 million in revenue with 30% revenue growth. The next 20% to 25% of the portfolio will invest in ‘paradigm changers’—companies disrupting an existing category based on the intersection of food and technology.
Finally, 5% of the fund provides seed capital to “blue ocean opportunities,” which have proven entrepreneurs, strong co-investors, and a proof of concept with traction.
One unique aspect of the fund is that the LPs receive the entire management fee back before the fund splits the profits. According to Boylan, they felt it was the right thing to do.
Powerplant Ventures’ current portfolio includes: vegan snack maker Hail Merry, herbal adaptogen infused coconut milk creator REBBL, online specialty and natural products provider Thrive Market, TerraVia, vegan mayo maker Hampton Creek, food tech process and dehydrated veggie chips maker Treasure8, algae-based ingredients maker Solazyme, and at-home fresh packed juicing machine creator Juicero.
Boylan hints that there are two more deals closing in the very near future, as well.
Although there are many things that go into finding the right investment, four main factors comprise Powerplant’s list: great management team, leadership in an emerging category, solid financial fundamentals with a path to profitability, and a strong brand offering a unique competitive advantage.
“The process is so detailed. We have a treasure trove in our Dropbox folder outlining how we look at deals,” Boylan explains. “Strategy, branding, consumers, acquisition, retention, marketing, sales strategy, how effective has it been, assessment of product line, routes to market, channel and pack strategy, culture, organization effectiveness, supply chain, operations, finance, board of directors, advisors, CPG relationships. A company really has to have its stuff together to meet the hurdles that we set up.”
With per capita meat consumption increasing nearly 5% in 2015 according to a recent report from Rabobank Food & Agribusiness Research and Advisory Group, do alternative proteins and other plant-based foods have staying power?
“Roughly 40% of consumers are saying they are eating vegetarian or plant-based or reducing meat consumption within the last 12 months, which just shows that demand and demand will drive supply,” argues Boylan. “Not only is this here to stay, but it’s also being gobbled up by big food because big food has been losing market share every year; between 5 to 10 billion each year for the last five years.”
One of the biggest challenges that big food faces in his opinion is the inability to innovate fast enough. Boylan points to Danone’s recent acquisition of alternative milk maker White Wave Foods and Coca-Cola’s purchase of ZICO brand coconut water.
“There are opportunities to realize wonderful investment returns because the vast majority of companies that we invest in will be purchased by big food. They won’t go public,” he explains.
The space is not without its challenges. When Boylan and the other Powerplant Ventures members were seeking capital, they received a wide variety of responses to the idea of a fund that would focus squarely on plant-based products.
“The reactions ran the gamut. We met with one family office in Los Angeles, a wealthy family from a traditional business background, and the guy who runs the office said there cannot be enough plant-based deals to build a portfolio,” Boylan says. “During the 24 hours after we announced the fund we were shown 26 transactions. Some people we met were very enlightened and saw it as a growth opportunity.”
While convincing the consumer-base to swap out their animal byproducts for plant-based alternatives may prove difficult in some instances, the cultural coolness that many folks associate with adopting an alternative diet is a powerful force, says Boylan.
“Richard Branson tweeted about how more plants and less meat is healthier for people and the planet and it had an absurd number of retweets and quotes. Serena Williams eats a plant-based diet,” he notes.
Ultimately, he doesn’t think plant-based products are much different from other spaces which require companies to create the right product, with the right team and to achieve scalability in a market with enough depth to support the future goal.
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