How Food and Beverage Startups Should Pitch Investors

June 18, 2019
Entrepreneurs, you can sell on the promise or on the data. But keep in mind these 9 data points.

Food startups are really hot right now, and all successful ones reach a stage where they need outside capital. Whether you’re looking for a loan, investors or a total sale of the company, following are some points that will help make that “pitch” a success.” 

What is the starting point in pitching early stage investors?

Differentiation and impact. Like most high growth companies, innovation and differentiation are important in the food & beverage world. However, unlike technology or life sciences companies, food & beverage entrepreneurs are often making more incremental-type changes in the core products with bigger changes occurring in the packaging, pricing, go-to-market strategy, marketing rollout, distribution methodology and other business-side activities. Entrepreneurs need to answer how their line is different and why consumers and the trade will care

What should be the focus of a pitch?

Unlike in other verticals, food and beverage entrepreneurs are expected to be in the market and selling product at the time of even early investment pitches. The implication is that there will be real-world results that can be evaluated by the investors. At the seed stage, the data around a new venture may not be predictive of future scalability. But by the Series A stage, investors will be highly reliant on the data. You can sell on the promise or you can sell on the data, but not both. Before there is reliable data, an entrepreneur can pitch the “promise” – meaning the expectations and beliefs about how the brand will perform in the future. Once a venture is doing $1 million in revenue, investors will be much more interested in the actual data.

In this column, Jeremy Halpern, who is a partner and co-chair of the Nutter Law Firm's Emerging Companies Group, provided answers to common questions on how to pitch to investors. You can also read his informative primer on commercial agreements on Food Processing as well. 

What are the key data points that should be addressed?

Investors basically start from the exit – can this brand scale to $100 million in sales and then be profitable? To predict that, investors want to understand the core economics of the business as well as the actual sales data indicating customer traction. Key metrics include:

  • Gross margins and unit economics – explains whether a product can be sold to an end customer at retail at a price that will create value for the customer, the retailer, the distributor and the brand.
  • Velocity per point of distribution – tells the story of whether and how fast the product is being purchased by customers from retailers at the suggested retail price.
  • Distribution footprint and key accounts – helps describe where and to what extent the brand has been able to capture the interest of the trade and in which verticals and channels the product is more and less successful.
  • Comparison data to key competitors – helps investors understand how the product is competing in the retail environment and, in particular, in the set with head-to-head competitors who are vying for consumer attention.
  • Social engagement data – helps predict brand awareness, brand loyalty, virality, cost of future customer acquisition and customer and channel segmentation. Investors value the ability to understand how and which consumers identify with the brand.

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How does e-commerce come into play?

If the brand has already spun up an e-commerce solution, investors will seek:

  • Purchasing data – volumes, monthly number of customers, average order size, reorder rates, and geographic distribution.
  • Click-through data – what kinds of marketing programs and costs yield customers, conversion rates, and, if available, demographic and psychographic data on the consumers.
  • Costs of acquiring a customer – typically some combination of social media advertising, SEO and social media and platform tools (e.g., Amazon).
  • Review data – provides insight into consumer satisfaction and competitive advantage and, in theory, may predict whether future customer acquisition costs will be higher or lower.

What additional themes or risks should be tackled?

Investors in food and beverage brands are thinking about whether the brand will gain consumer traction, whether the team can lead it to extreme high growth and whether there is a market for acquisition within the larger consumer packaged goods community. Investors are trying to understand the “brand” opportunity, not just the performance of the products. They want to know how the brand will capture consumer imagination and be extensible over time into new product lines and areas.

In other words, they want to know the things that are valuable to acquirers. On the risk side, investors are seeking to understand whether there is a stable and scalable supply chain and the necessary infrastructure through broker and distributor networks in each case to support the brand if it were in fact to scale rapidly. They want to ensure that manufacturing, marketing, and distribution will be in lockstep alignment as the company grows and scales.

What are the key elements to delivering a successful pitch?

The first is the advance planning, thinking and preparation that goes into a presentation. This involves identifying and testing the 50 to 150 hypotheses that make up the business plan.

The second is to remember that the entrepreneur (not a deck, summary or document) is the pitch – the materials are just visual aids for telling a story. This means that the entrepreneur needs to be impressive and practiced in the delivery of the pitch. Rehearsal is key – it will help to hone the delivery and refine the story so that only the strongest, most essential points make the final cut.

Third, the pitch is the beginning of a relationship with a potential investor. It needs to be inspiring, enticing and must motivate investors to lean-in: to want to know more about both the entrepreneur and the business. It has to have the right combination of credibility and authenticity while at the same time showing the opportunity for outsized returns and for making a market impact. This is akin to saying, “there is a huge unmet need, and we, tiny startup that we are, are going to solve it, and here’s how.”

Each communication moment, whether in a formal pitch, over email, on a call or in due diligence, needs to reflect the entrepreneur’s passion and vision and needs to align with the data and the execution plan that will take the venture to a successful exit

Jeremy Halpern is a partner and co-chairs Nutter’s Emerging Companies Group. Jeremy also co-leads the firm’s Food and Beverage group. Jeremy’s practice focuses on emerging companies, private equity, venture capital and angel financing transactions, mergers and acquisitions, commercial transactions, executive and team compensation matters, and general startup support for high growth companies in technology, life sciences, and the food and beverage industry.

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