Tag: investor

Beverage Business INSIGHTS

Published 90 X a year       Vol 12, No 57       Jun 9, 2015

Publisher: Benj Steinman   Editor: Gerry Khermouch   Senior Editor: Jim Sullivan

Legal vet of hundreds of capital transactions for early-stage food and bevcos offered financing clinic at last week’s BevNet conference in NY, exhorting listeners to opt for convertible financing if they can in initial round and to go with LLC corporate structure.

At issue in presentation by Nick Giannuzzi, founder of The Giannuzzi Group, was how to build strong foundation for your co without giving away rights inadvertently, getting overly diluted or finding yourself evicted from your own co. “It’s too late to think about this when you’re about to go down to 49% with the next round,” he warned. Of course, cos operating in desperate straits may have no choice but to give away rights, and even successful ones can expect plenty of dark days, he warned. “Every single entrepreneur who gets there (to exit) has to suffer,” he declared.

Giannuzzi is familiar figure in bevs, running 10-lawyer firm based in NY’s Meatpacking District that over past 10 years has focused exclusively on food/bevcos – 180 clients in total. This year co will likely do 120-130 rounds of financing. First client, he reminded audience, back when he was half the staff, was Vitaminwater marketer Glaceau. (Nick’s also investor in restaurants like STK and Bagatelle via The One Group, where he’s board member.)

Given need for feet on street, sampling, etc, bevs is capital-intensive biz in which founders generally must undertake a round of financing virtually every year unless they have a rich benefactor, Nick reminded. That constant demand is “ultimate challenge for the founder, because finding money is hard, finding people who believe in you is hard, finding people who believe in your concept is hard.” Even when you do, there are lotsa pitfalls to avoid.

First round, perhaps to raise $300K to $1 mil to fund first production run, typically goes friend-and-family route. Entrepreneurs confront 3 choices there. First, used often in tech sector, is convertible note round – say, $500K on terms where money loaned to co converts to next round of financing, generally at 20-25% discount. Advantage of convertible is “you don’t really have to deal with valuation, at a time your valuation is terrible because you haven’t sold anything yet . . . it’s one of the ways to kick that can down the road,” Giannuzzi offered. Some prospective investors reject convertible notes as way too speculative, he warned, but if anyone bites, it’s great. Failing that, founders should consider common equity round. To Nick, that’s much better choice than 3d option: preferred equity, which effectively gives investor downside protection. That means, if co needs to be sold at lower valuation, “they get their money back first.”

“My position is, if there is any way to do a convertible note on good terms, that can often be the right choice,” Nick exhorted. That flies in face of some lawyers’ view that, if you’re dealing with friends and family in first round, why not sell preferred? The trouble comes, Giannuzzi warned, when new investors want their round to be preferred, and superior to prior investors’. “Every time you give preferred, new investors say they want their B to be superior to A,” to point where, as rounds accumulate, “by time you’re done stacking all these preferred on top of each other, you have a board of 18 people and all kinds of blocking rights and other rights,” Nick said. “That’s why giving friends and family preferred sets a horrible precedent – I’ve almost never seen an exception to every other set of investors demanding preferred shares.” For those who go convertible note route, next round, maybe for $1 mil, is likely to involve common shares.

Problem with preferred is compounded in current climate where multinationals buy into promising cos earlier and earlier, “eating into rounds 4 or 5,” in turn pushing private-equity funds to start funding round 3 or round 2. That means you’re still small, untested co, not likely to get a great valuation, but now sophisticated funds are coming in writing $850K checks for 2 board seats, 16 blocking rights, preferred shares – all in round 2. That creates “really tough decision: Do you take the money at that cost?” Nick said he spends hours each day discussing issue with clients, but “it’s a person-for-person decision. Some of my founders will not be answerable to anyone, will fight for as long as they can to maintain full control of their company.” They’ll fight “like hell to get to round 4 or 5″ until a really great PE firm comes along with $10 mil and demands some concessions. This, of course, is for cos doing very well; otherwise, money may be hard to find on any terms.

Giannuzzi also waded into issue of fundamental corporate structure. Should you start out as corporation or limited liability co (LLC)? Tho in some industries it’s hard to find a buyer if you’re not incorporated, in food/bev “I’ve always advised clients to start as an LLC,” Nick offered. That offers 2 advantages: First, if you grow your co and instead of selling want to distribute your profits upward, you have a single layer of taxation vs corporation with 2 layers and “an absolute mess.” And 2d, LLC confers certain advantages with respect to retention of employees, consultants, celebrity investor/endorsers, etc. Unlike a corp, an LLC can award profits interest, rather than stock options, and recipients can get capital gains tax treatment. Of Giannuzzi Group’s 180 clients, probably 150-160 are LLCs. As for often-expressed fear that at some future time co will have to convert to corporate status, “in all our deals, only twice did we do a deal where somebody said you have to convert your LLC to a corporation,” Nick reassured.

Another issue pertains to mgmt control: derived from partnership law, not corporation law, LLC makes shareholders key, with general partner making all decision even if there are 100 limited partners, Giannuzzi said. Power can be put in a single person or, more likely, a mgmt board that decides everything. At start, agreement is put in place “that puts you in charge of your company – we call it our ‘god agreement,’” that all employees must sign acknowledging they have no rights at all. All other members are merely “along for the ride,” he said.

Technical aspects aside, Nick acknowledged during Q&A that it’s partly power game: “Are you hottest girl at the dance? You need to feel the market out . . . You need to be realistic with yourself.” As with another BevNet speaker, Sherbrooke Capital’s John Giannuzzi (BBI, Jun 4), Nick warned founders not to always reach for highest valuation possible. “That’s not always so smart. It’s better sometimes to bring it down a little bit to give away less rights,” he said. You may end up weighing several term sheets from prospective investors – the highest, say, at $27 mil valuation but demanding lots of rights. “Maybe the guy with the $20 million valuation will actually let you run your biz,” Nick suggested.

Engredea News & Analysis
MetaBrand Capital | Engredea News & Analysis

October 7, 2014

 

MetaBrand Capital, a “conscious capital” private equity fund and the new investment pillar of MetaBrand—a full-service firm providing product formulation, outsourced operations, and sales and marketing services to natural, organic and nutritional food and beverage brands—announces a $5.75 million investment in Brooklyn, N.Y.-based Runa LLC, supporting the growth of the natural, “healthy energy” food and beverage category utilizing the Amazonian guayusa tree-leaf.

Taking the Triple-Bottom Line approach to corporate social responsibility one step further, MetaBrand founder and longtime natural products entrepreneur Eric Schnell embraces the “Quadruple Bottom-Line,” a socially and environmentally aware business philosophy dedicated to People, Planet, Profit—and Purpose. Through the MetaBrand Capital fund, the company will primarily focus on growth capital investments in the food, beverage, nutrition and natural and organic product industries with strategic partners that embody and embrace a similar socially conscious business approach.

“This is the first major investment for MetaBrand Capital,” says Schnell. “Runa represents all the criteria that we see in the Quadruple Bottom-line business model. MetaBrand has previously partnered with Runa in helping to pioneer the ‘healthy energy’ beverage category, and this strategic partnership allowed us to see that Runa truly is a perfect example of what a conscious capital investor cares about—fair trade, organic and natural, socially responsible with a strong moral obligation to give back. We absolutely believe in Runa’s authentic story, vision and potential for the brand. The investment was the natural progression of our commitment to their mission.”

Other notable investors joined MetaBrand Capital in the round, including Mark Rampolla, founder of Zico; and Brian Krumrei, managing director, TSG Consumer Partners; plus investors from the music and entertainment industry including Jon Fishman, drummer for the band Phish, and Coran Capshaw, founder of artist management company Red Light Management. Nick Giannuzzi, attorney, The Giannuzzi Group, LLP, represented Runa in the deal.

Guayusa, cousin to yerba mate, leads ‘healthy energy’ beverages
Runa, cofounded in 2009 by college classmates Tyler Gage and Dan MacCombie, is a privately held company that sells beverages made from guayusa (pronounced “gwhy-you-sa”) leaves. Guayusa is a native Amazonian super-leaf with as much caffeine as a cup of coffee and double the polyphenols of leading green tea products. Unlike traditional teas, guayusa has no tannins, so it tastes surprisingly smooth and naturally sweet. Indigenous peoples in the Ecuadorian Amazon have brewed guayusa like tea for thousands of years as an essential part of what makes them “Runa”—fully alive.

With a mission to improve the livelihoods of indigenous farmers in the Amazon, Runa’s founders believe that consumers everywhere can benefit from the bounty of the rainforest without destroying it, starting with the people who live there. Runa works directly with more than 3,000 indigenous farming families who are proud to see guayusa shared around the world. These families are Runa’s partners in a Fair Trade relationship, and by organically growing guayusa in traditional forest gardens they help protect the rainforest.

“We’re anticipating strong multi-category growth of the guayusa ingredient, and we’re truly excited to work with the powerhouse MetaBrand team in our efforts to become a leading brand and ingredient platform in the organic, specialty and conventional markets,” says Gage. “With this new investment, we plan to increase our support of the distributors and retailers that have helped us build our brand so far, and go deeper in key markets where Runa is growing. We are committed to being focused and targeted with our sales growth, and are excited to educate more consumers about the benefits of guayusa and the spirit of the Runa brand.”

“Runa has successfully pioneered and established a clear market demand for guayusa as a unique ingredient,” says Debbie Wildrick, MetaBrand chief advisory officer. “The company has emerged as one of the fastest growing certified organic and natural ready-to-drink brands in the U.S., and we see the opportunity for guayusa as an ingredient to have useful applications in a range of healthy products—from beverages to dietary supplements. We see guayusa as the next green tea trend, and look forward to helping Runa define clear sales and distribution strategies across food, drug, mass and convenience store channels.”