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Being Contrarian + August Box
3 winning brands that didn't appear to be winners at first + August box brands
FirstLook
October 27, 2024
Welcome to our 59 new subscribers since our last newsletter. I'll keep this fun, light, and informative. Did a friend forward you this? Subscribe here.
0110100001101001! (“Hi” in binary code )
Welcome back. Let’s jump in. But first…
Funding Announcement 🤑
Congrats to The Coconut Cult on raising ANOTHER $352,000 via a FirstLook intro. Coconut Cult has now raised $452,000 in capital going through our boxes. Congrats to them, they deserve every penny!
Founders and investors, come join FirstLook. We’re having a ton of fun over here.
Today I’m highlighting three successful brands that didn’t appear to be winners when they first raised. This is to inspire founders to keep their chins up (and heads down) when investors pass, and for investors to (re)consider the importance of believing in founders and being contrarian.
“But there are only so many minutes a day to chat it up with founders!” - some investor reading this
True - however, I’ll say what many founders and longtime OG investors would agree with me on: Too many new investors expect golden goose deals to fall in their laps.
This is Not Reality
Venture investing is hard and requires work put in by investors, believing in incredible founders who will figure it out, and a Why Now that sounds a bit crazy. It takes critical thinking and not just polling. This isn’t just me speaking on a hunch either. Much of the content of longtime VC investors echos this.
Much of this is driven by industry growth. The number of firms started, and folks becoming angels, is way way up. Literally just Google “venture capital growth past 10 years.” It’s ludacris. Because of this growth, there are a lot of new investors joining the VC sandbox, which is awesome to see.
To highlight a theme I mentioned in the last newsletter, which those longtime investors I mentioned above also say, is the need to get into “non-consensus, but right” deals. In other words, being contrarian. These are the deals that generate ‘f*ck-you-money!’ returns. Like the OG investors, I too will die on this hill.
Non-consensus deals generate the best returns through a combination of lower entry prices, less dilution from greater capital efficiency, & TAM expansion as they tend to create net new markets or opportunities. Hot early-stage deals on the other hand typically have inflated valuations that eat away at exit multiples, and can be not as cash efficient. The pitfalls of being overfunded is a hot topic right now in VC.
Don’t get me wrong, if you nab a 10x return on a pre-seed or seed deal within 5 years, that’s great. Those are hard to come by! You made money, and it was faster than the 7-10 years it typically takes an early-stage exit. However, I could have also nabbed a 10x return investing in Abercrombie & Fitch stock 5 years ago, but with way less risk and much more liquidity.
All this said, when you invest in a startup that money is locked up for a long time with a high probability of going to zero. So if you’re going to take all this risk, be sure your ROI accounts for that risk, no?
Now, to be absolutely crystal clear, I’m not saying you shouldn’t invest in hot, early-stage deals. They certainly can turn into stellar investments. It can also be beneficial having a hot company on your portfolio page to flex your presence and deal flow ability.
What I am instead saying is if you’re going to invest in hot early-stage deals, be cognizant of valuations and potential. Additionally, make a concerted effort to invest in non-consensus deals too. Those winners truly capture the VC power law and make all the risk taking worth it in the end. Otherwise, just save yourself the headache and go invest in Nvidia.
Ok, I’ll step off my soapbox now. Let’s dive into three brands who exited within the expected 10 year VC horizon, were early-stage contrarian, and produced north of 100x returns for early believers. I have not spoken to these founders directly. Everything I’ve gathered is from research, Pitchbook, and listening to the founders on podcasts, and guesstimating.
Siete Foods
Founded in 2014 by Veronica Garza, Siete was originally called “Must B Nutty”. Here’s their original website. In 2015 they rebranded to Siete Foods. Here was their website after the rebrand.
Fundraising: Per Pitchbook, they had a very interesting fundraising journey. In 2015 they got into SKU who invested $8,000. Shortly after they raised $1M from mostly local Texas angels. My guess is their valuation was between $4-7M for this raise.
In 2019 after 4 years of grinding via organic growth, they raised a WHOPPING $90M led by Stripe Group which was their last round before getting acquired by Pepsi for $1.2B (off of $500M estimated yearly revenue) last month.
Veronica and her brother Miguel constantly reference in podcasts Siete’s core values: “Family first, family second, business third”. This is one of those things you may see in a deck, but don’t fully appreciate until you meet the team. Lucky for the Stripe Group who approached them and struck up a conversation, they were able to feel that passion. Here’s Veronica recalling that moment on the How I Built This podcast:
“I was having a conversation with one of [the Stripe investors], and I told them, here's what I want you to know. We are building a billion dollar Mexican American food brand. We're not building the next Tostitos.
We're not building the next Mission. We are building a billion dollar iconic Mexican American food brand. And sitting across the table, you know, my family was there and they were there.
They said, that's exactly why we want to partner with you. Because we also see that opportunity.”
Takeaway: Siete was an easy brand to pass on during their first raise. First time founders, healthy- but not crazy- organic growth, and their original Why Now was likely, “We think consumers will really want grain-free Mexican food going forward.” I’m not even sure I would have bought into that in 2015.
Overall the brand wasn’t a ‘can’t-miss’ deal. Those early angels in Texas nonetheless, accounting for dilution, likely bagged a 100-150x ROI. Even just a $25K investment netted $2.5-3.75M. Siete is a great example of the importance of making time to meet founders, getting a feel for their passion, and taking a leap of faith that their ‘Why Now’ is a noble pursuit.
Liquid IV
Liquid IV was started 2012 by Brandin Cohen and two other cofounders. I won’t go into the details of how things got started, plenty of content on there on that including this helpful video.
What’s interesting however is that Liquid IV started as a hangover recovery drink per their website in 2013 and as mentioned in several news articles at the time.
Fundraising: Per this June 2013 article in Loyal Marymount University’s school newspaper, it looks like by June 2013 after some initial traction and buzz on campus, they already had $125K in funding lined up.
It’s unclear at the time whether they were pitching these initial investors on the premise of building a beverage brand, or if the eventual transition to powders was already being discussed. I suspect they were, given their website in September 2013 includes powders (AND an extended focus on general sports recovery).
Per Pitchbook, they closed a $325K angel round July 23rd, 2013. No valuation is mentioned, but I suspect it was between $1.5-4M. It’s normal to give up about ~20% equity on your first outside raise (which would peg them at $1.625M val).
What we can infer with pitching investors around this time was the team was generating buzz locally, talk of powdered mixes was underway, and their Why Now was likely “Consumers want a better hydration beverage/option going forward.”
Takeaway: Similar to Siete, they had strong ~but not insane~ local growth. The founders had zero consumer goods experience, but their approach to hydration was unique. To some their ‘Why Now’ was intriguing, but not obvious as the hydration space already had some big players in it (ie. Gatorade).
I don’t know how many investors passed when they initially raised, but collectively this deal early on didn’t scream 'this is a no-brainer!’ It was likely that early investors through meeting the founders could feel their extreme passion and sense they would hustle their asses off (which if you listen to any podcasts with Brandin, you can tell he has tons of drive).
Liquid IV was acquired in September 2020 for an estimated $375M. Accounting for dilution, early angel investors who took a chance likely enjoyed a 75-125x ROI.
Halo Top Creamery
Originally founded by Justin Woolverton as Eden Creamery in 2012. Here is their About page around tha time.
The company changed its name to Halo Top in 2013. Justin’s How I Built This with Guy Raz episode is a great listen on their full story. It appears Justin pitched things as a better-for-you ice cream right off the bat per their website in 2013.
Original Halo Top packaging
In 2015 they redesigned their packaging with calories per pint going front and center. From here, things exploded. By 2017 they reached ~$350M in annual revenue and became America’s favorite ice cream.
After the rebrand
Fundraising: Per this CNBC interview of Doug Bouton who joined Justin in late 2013 as a cofounder, Halo Top did “something like $12,000 bucks” in 2012. “Woolverton kept his job until around mid-2013 when he quit to work on Halo Top full time. The company was growing and Woolverton knew he needed help.”
Per Pitchbook, Halo Top in September 2013 raised $455,000 via one investor, CircleUp. Valuation is unknown but my guess is $4-7M. That CNBC interview quotes them as raising “$500,000 from friends and family.” Unclear if Justin considered CircleUp friends and family, but it doesn’t matter. What’s key here is they likely had under $1M in revenue since inception when they raised their first round of $455,000.
Per Pitchbook, they raised another $400,000 in March 2015 from 4 named investors and several undisclosed. Per this CBInsights link, Halo Top did less than $1M in revenue in 2014. That doesn’t feel accurate, but ballparking is fine at this point. I estimate their valuation for this raised was between $5-10M.
Takeaway: Putting this all together, we have a lawyer turned founder with zero experience building a FROZEN food co which is notoriously difficult raising $455K, who then added his lawyer friend as a cofounder a year later (who also had zero CPG experience), and then they raised another $400K 18 months later all with probably less than $2.5M in yearly sales…
Again, I don’t know what fundraising was like for them, but I’d guess they got a lot of investors completely passing on taking an intro. They don’t appear to check any boxes of a hot deal. Their Why Now in 2013/2014 was probably “We think consumers are really going to want a healthier ice cream going forward.” I’m an optimist, but even that Why Now can be a tough pill to swallow.
Halo Top was acquired for an estimated $2B in 2019. Per Pitchbook, they only raised $5M after their first two rounds so dilution here is minimal. Hard to believe, but maybe they had really good credit lines? Nonetheless, a $50K investment in one of their first two rounds likely netted $10M-$15M return. Hellooooo new beach home AND yacht for those early investors.
Bringing Everything Together
Siete Foods, Liquid IV, and Halo Top were not obvious deals early on. But for those early investors who made time to meet the founders and sense something was special, it sure did work out great from an ROI perspective. Generational wealth building at its finest.
The starting point for true, VC power law outcomes isn’t getting into hot, inflated deals. The math almost always doesn’t math. Instead, it’s connecting with founders, feeling their passion, and realizing their Why Now is a bit crazy but “big if true” as they say.
Don’t get me wrong, being contrarian is hard, and the VC fund side of investing isn’t designed to reward contrarian bets. For angels it’s easier, and it’s those massive outcomes that justify all the risk. Plus it makes for one hell of a story when you’re right. You’ll be a legend in your community!
Let’s end here on a quote by Fred Wilson years back that I loved so much I put in on the side of FirstLook boxes for much of 2022 and 2023…
And to officially wrap up, here is Troy Carter’s favorite VC scoreboard:
Founder Pro Tip of the Month 💡
In the last newsletter I addressed a strategy for how to frame your ‘Why Now?’ argument. One example was the ‘Economic shift’. I need to unpack that more as I did a very poor job the first time around:
In addition to there being an economic shift via a change by our government (such as a law), an economic shift can also be a shift in the mechanics of society.
Example #1: More women are succeeding in the workforce. This means a large number of them are having children later and have more income growth. This creates downstream effects on what the products they purchase and when.
Example #2: The Hispanic population is growing like crazy, so what does that demographic shift mean for what’s consumed? The Indian population in America is also growing, and they sure do have lots of money to spend, which sure does explain why alumni brand Rupee Beer has been exploding.
Example #3: Americans continue to get overworked. This point could support the non-alc and cannabis movements as we simply can’t afford to be hungover anymore.
I could go on and on with examples of economic shifts that support various Why Now’s. For your brand, think of economic shifts that are impacting human behavior and how money is being spent.
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August Box Brands 🚀
Arterra
Founded by Jonathan Willbanks + Maria Peevey + Matthew Graham | 📍Austin - Shop / Instagram / Linkedin
How We Met Them: I knew Jonathan from the investor side of things
One Liner ✍️ — Arterra is pioneering the premium pet supplement category. Think of us as AG1 for pets. Our flagship product is a scientifically-backed formula designed to extend and enhance dogs' lives, delivering comprehensive health benefits in one convenient scoop.
Discount Code: Use “FIRSTLOOK35” for 35% off
What made them stand out: Jonathan is a beast of a founder who started and built Cartograph, an Amazon agency, into a multi-million dollar business. He knows eComm very well, and can go from 0 to 1 to 10. He’s also extremely passionate. Jonathan had a Golden Retriever mix (10-11 year life expectancy) live to nearly 17 with outstanding quality of life until his last week. This was because of a custom supplements regimen he made for him every week, and what is now the nucleus of the commercialized formulas Arterra sells today (with heavy input from board certified vets). Lastly, I think Arterra’s framing as the AG1 for dogs is perfect, especially considering pets is one of the few industries where consumers spend very irrationally because we’ll do ANYTHING for our little babies :)
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Cape Cod'r
Founded by Kevin O’Leary + Will Patch + | 📍Boston - Shop / Instagram / TikTok / Linkedin / Brand Video
How We Met Them: Via an intro from angel investor Katya Kohen
One Liner ✍️ — "Born in the Backyard". New England-based company producing all-natural, spirit-based cocktails with 4.5% ABV vodka, tequila, and white rum. Our drinks are clean, crisp, and refreshing, offering a natural alternative to the synthetic, metallic, overly sweet, and highly carbonated options on the market. "Light, refreshing, and not too sweet, our sessionable drinks are perfect for any occasion!"
Discount Code: Use “CODRFREESHIPPING” for free shipping
What made them stand out: The craft cocktails marketing is growing at an alarming clip, but it’s also a busy one. What I liked about Cape Cod’r was their authentic story and roots…you know… those things that actually matter in the long run for success. Started in, you guessed it…Cape Cod, this brand incorporates all the vibes of this East Coast haven. I also really love their dedication to dominating locally and building a passionate consumer base (who travel a lot). Cape Cod’r is early, but I don’t see a reason why they can’t replicate the success of what Cape Cod chips did which sold for $4.87B on their last acquisition.
Education Moment: what Cape Cod’r is doing is exporting Cape Cod vibes. I’ve seen this strategy from time to time, and when done correctly, it can go very well. This reminds of me a clothing brand that made BAZILLIONS in revenue exporting SoCal vibes….Hollister!
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Melati
Founded by Lorin Winata | 📍SF — Shop / Instagram / Linkedin / Brand Video
How We Met Them: Via their signup on the FirstLook.vc
One Liner ✍️ — Melati drinks crafts non-alcoholic spirits made from 21 plants for gut and liver health.
Discount Code: Use “ILoveFirstLook” for 10% off
What made them stand out: Melati has quite a few things going for it. First, Lorin comes from the VC space so she understands the mechanics of this industry which imo is very important and something many founders don’t understand. Second, similar to Arterra, the ingredients here are incredible and clean. Lorin’s dedication has helped her become on of the best non-alc drinks in all of Singapore where they first launched. Lastly, the non-alc movement continues to plow forward. This post by the founder of De Soi is a great read covering recent acquisitions in the space. Melati is early in the U.S., but I trust they will continue knocking down doors and delivering an experience consumers love.
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Owl
Founded by Lindsey Wilson |📍Venice, CA — Shop / Instagram / Linkedin / Founder Video
How We Met Them: Via an intro from investor Rana Taghdisi Argenio
One Liner ✍️ — On a mission to change the world, starting with your gut.
Discount Code: Use “Gimme15” for 15% off
What made them stand out: Owl is an incredible story. Lindsey is what we call an accidental founder. Years ago she made a commitment to heal her gut and spent years learning about holistic health, nutrition, and intuitive eating. Her research led her to identify gaps in the wellness industry and create her own products starting with broths. A few extra jars went to some friends, who loved them and told their friends, who told their friends, and Owl was born. 8 years later, profitable since day one, and multi-millions in revenue. Incredible how much she’s done with so little. Today Owl has expanded to several services and product lines handcrafted with organic and local ingredients. Lindsey’s ready to pour gas on this fire and take the brand to the next level.
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Rejuvenation
How We Met Them: Via their signup on the FirstLook.vc
One Liner ✍️ — 100% Plant-based energy juice.
Discount Code: Use “ILoveFirstLook” for 10% off
What made them stand out: Rejuvenation is early in their journey, but hot damn do I love these bottles. They are incredibly unique which makes them stick out on shelves for consumers to grab. I also loved Anna’s story where she was inspired to start this plant-based energy drink after surviving a severe allergic reaction to a synthetic energy supplement. After deep research, she realized so many of the popular energy drinks today contain harmful chemicals that consumers who care about their health should avoid at all costs.
I know early-stage beverage is damn near impossible to raise for, but that’s what FirstLook is for. To help get more eyeballs on founders with authentic stories pursuing noble missions.
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YoFiit
Founded by Maria Amazan | 📍Toronto - Shop / Instagram / Linkedin
How We Met Them: Via their signup on the FirstLook.vc
One Liner ✍️ — Nutritious & unbelievably tasty non-dairy beverages, versatile enough to be used in anything or consumed as protein shakes.
Discount Code: Use “ILoveFirstLook20” for 20% off
What made them stand out: I loved this brand because it tastes so damn good. I drink it right out of the carton (like a savage), and also add it to my coffee each morning. Plant-based milks is a busy category, but growing and winning on taste and quality is how you eventually get crowned king. What I also liked about Yofiit was Maria. She is an agricultural engineer by trade but worked in investments for most of her career, having led BlackRock Asset Management Canadian Sales among other places. She’s a serial entrepreneur and previously started and sold her last venture. She developed much of the R&D that Yofiit leverages to create such a great product, and I’m excited to watch this brand continue to grow.
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That's all she wrote folks. September box is next. Keep on building my friends.