One of Canada’s most successful investors in early-stage consumer products businesses is getting into the venture capital business.
BrandProject LP, led by former Virgin Mobile chief executive officer Andrew Black and a team of seasoned consumer-products executives, said it had raised $54-million for its first venture fund, backed by eight of the entrepreneurs it has financed through its “startup studio,” as well as veteran Bay Street investors including Geoff Beattie, Gary Slaight and the Bitove family.
Of the 22 investments BrandProject’s studio has made since 2013 with a modest $12-million in funding, seven have been sold, generating more than 10 times the total invested capital just from those exits. Several more are poised to deliver big returns, Mr. Black said.
BrandProject’s top success to date is New York-based meal-kit maker Freshly Inc., which it backed in 2014 when the company was generating US$1-million in annual sales. Freshly was on track to reach US$430-million in 2020 revenue when Nestle SA bought it last October in a deal worth up to US$1.5-billion. BrandProject earned 100 times its investment of less than US$1-million. It was also an early backer of Canadian Chefs Plate, another meal-kit maker, which sold to Germany’s HelloFresh SE in 2018, and oral care company Hello Products LLC, bought by Colgate-Palmolive in 2020.
Dominique Bélanger, managing partner of co-investments with BDC Capital, which backed the studio, said of the 100 early-stage financiers the Crown corporation has financed, “I can say for certain BrandProject is in the top five” in terms of returns. “Seven out of 10 times they’re actually making a profitable investment,” compared with top-seed investors who might succeed 30 per cent of the time.
Mr. Black began investing in early-stage consumer products startups after Bell Canada bought out partner Virgin’s share in the Canadian mobile operator in 2009. He was inspired by Virgin founder Richard Branson, who told Mr. Black, previously a senior executive with Lego, Nike and Cadbury, that he was good at starting companies, and should do several a year.
After achieving some initial success as an angel investor, he co-founded BrandProject in 2013 with fellow Virgin Mobile executive Andrew Bridge, tech entrepreneur Jay Bhatti and Starbucks’s former vice-president of global creative, Stanley Hainsworth. They raised the $12-million in an “evergreen” structure, meaning some funds returned from portfolio sales are perpetually reinvested to fund new deals.
Their approach was to back companies in the North American consumer products sector they knew well, typically investing roughly $500,000 per company for roughly a 25-per-cent stake. They not only put up money but sweat equity, essentially acting as co-founders of businesses that brought new products or business models to the sector. It has backed e-commerce companies that send out meal kits, frozen plant-based foods (Daily Harvest), skin care products (Atolla) and prescriptions (Felix), as well as restaurant pickup service Ritual Technologies and Peachy, a New York studio that provides “preventative Botox” treatments for wrinkles.
BrandProject’s team helps with everything from negotiating contracts to building websites, and even helped Peachy chief executive officer Carolyn Treasure pick uniforms and name tags for her staff. “They take a much more involved approach [than other financiers] and really get in the weeds with you,” she said.
Mr. Bridge and Mr. Bhatti served as Freshly’s chief marketing officer and chief technology officer, respectively, early in its development. “They kind of came in with a super-charged C-suite … and really helped through the difficult early decisions,” including rebranding and putting in place the right economic structure to do subscription sales, said Freshly founder Michael Wystrach. “It was a fundamental game-changer for us.”
Mr. Black said the BrandProject team began thinking two years ago they wanted to invest in companies at the next stage of their development. The new fund will invest up to $4-million a company, compared with a maximum of $1-million for a studio investment; already the new fund has invested in five studio companies. Most of the investments are expected to happen in the United States, with a handful in Canada.