…Be confident and credible. It scares investors when founders do not know (or understand) their own financials. While most investors are not expecting founders to know the finest points of their financials the way a CFO with 30 years of experience might, know your numbers and understand the pressure points of your business (e.g. break-even point and what it takes to make your business profitable if it is not). Also, whether projections are conservative or not, be careful what you claim. Being credible, in all ways, is critical for an investor to back a CEO and a Company. It’s all about providing a reason to believe in the business and in the owner!
As part of our series about “5 Things I Need To See Before Making A VC Investment” I had the pleasure of interviewing Andy Whitman, Managing Partner at Loft Growth Partners.
For the last 20 years, Andy has devoted his uncanny acumen for what it takes to build successful brands, his unwavering focus on the fundamentals, and his unparalleled network to help dozens of entrepreneurs in rapidly building profitable companies. And, he has been informally mentoring hundreds more.
His polite but direct, tell-it-like-it-is style delivers immeasurable value to entrepreneurs by demystifying investing, helping them see around corners, be better leaders and grow businesses that are built to last.
During his successful career with General Foods and Kraft Foods, Andy developed his strong marketing, sales, operations and finance backgrounds. During this time, he recognized that nurturing smaller businesses to achieve rapid growth was his passion and has been focused on investing in and helping to operate small consumer products companies ever since. Andy has been an active part of the emerging branded consumer products eco-system since founding our predecessor firm 2x Consumer Products Growth Partners in 2001.
What sets Andy apart is his passion for entrepreneurs and helping them succeed. He was named by Forbes Magazine as one of the “25 Most Influential Kingmakers in Consumer and Retailer Companies” and has participated in more educational webinars, workshops and panels than just about any person in the industry.
As a single dad by choice via surrogacy, Andy is passionate about making the world a better place for his (not so) little girl, and never tires of rooting for his Wisconsin Badgers, or reliving the summer he spent traveling (for work) with music icon Jimmy Buffett.
Thank you so much for joining us in this interview series! Before we dig in, our readers would like to get to know you a bit. Can you please share with us the “backstory” behind what brought you to this specific career path?
During my time at General Foods and Kraft, I realized that nurturing smaller businesses with the goal of achieving rapid growth is my passion, so I founded an investment firm to do just that. Since 2001, I have been focused on investing and helping to operate small consumer products companies.
Is there a particular book that made a significant impact on you? Can you share a story or explain why it resonated with you so much?
As a parent, I’ve spent a lot of time reading books to and with a (now) 6 year old. One of my favorites is the Elephant and Piggie series by Mo Willems and in particular “Waiting Is Not Easy”. It reminds me we, as entrepreneurs, need to be patient, but also that a dose of “healthy impatience” is what makes kids special and entrepreneurs successful.
Do you have a favorite “Life Lesson Quote”? Do you have a story about how that was relevant in your life or your work?
I had the privilege of working for several of the most dynamic and brilliant leaders in the CPG world. I learned so much from them and hope to share that with my team and our amazing partner brand leaders. One of these visionary leaders said to me once “we can do anything, but we can’t do everything”. And, she had more than 20,000 employees at the time. If that was the case at a company of that size, we definitely can’t do it all at the emerging brand companies. We need to focus, do a few things, and do them really, really well.
How do you define “Leadership”? Can you explain what you mean or give an example?
Leadership is where you share a vision and a plan, and people want to follow you. Not because they have to, but because they want to. That’s leadership. Look at the military for inspiration. Some leaders say, “do it because I say so” and others inspire people to do things they could never imagine with the risk of the ultimate sacrifice.
How have you used your success to bring goodness to the world?
Over the last 20 years, we have partnered with inspiring and transformational brands across food, beverage, pet, home, baby, beauty and personal care categories. We help deliver meaningful products that consumers want and need, offerings that have a sustainable point of difference. We are proud to build the brands of the future!
That being said, the most rewarding sometimes are just the ones that happen by helping others in our ecosystem, or beyond.
During COVID-19, many companies applied for and received PPP funding. Our team was very knowledgeable and helping many, many companies; not just ours. Personally the most satisfying was helping the first generation Russian immigrant family that led my daughter’s gymnastics school. They made a decision to keep 100% of their staff on at full pay during early times in the pandemic even though no revenue was coming in — the family was borrowing against home equity lines to pay employees! Unfortunately, their PPP paperwork was “stuck”. I was able to help identify a glitch in the system via friends of friends, and get their application funded within a few days. That is what all this is about.
Ok, thank you for that. Let’s now jump to the main part of our discussion. The United States is currently facing a very important self-reckoning about race, diversity, equality and inclusion. This is of course a huge topic. But briefly, can you share a few things that need to be done on a broader societal level to expand Growth Capital opportunities for women, minorities, and people of color?
Diversity in leadership — in the investment world and across many industries — is more important than ever. We are proud to be a majority women-led firm, as two out of our three partners, and three out of four of our senior team are women. In addition, all of our partner companies have female execs driving their businesses forward and/or are majority female too. Finally, the diversity includes people of color in the majority of our leadership teams as well.
Can you share a story with us about your most successful Angel or Growth Capital investment? What was its lesson?
I always prefer to partner with great people on a good business, over a great business. It’s not just about the returns.
Can you share a story of an Angel or Growth Capital funding failure of yours? What was its lesson?
Listen to your experience. Listen to your gut. When things haven’t worked out, it usually is because I convinced myself that a concern wasn’t a concern. Bad idea. Listen to yourself, and those around you.
Can you share a story with us about a problem that one of your portfolio companies encountered and how you helped to correct the problem? We’d love to hear the details and what its lesson was.
Small companies always have problems. If we think things will be perfect or always go according to plan, we’re convincing ourselves of something that is definitely never the case. So, I seek to have many, many more things going well than those not going according to plan. That is far more important than what issues arise and how they’re solved because smart people will solve the issues together.
Is there a company that you turned down, but now regret? Can you share the story? What lesson did you learn from that story?
Sure, we’ll always miss things, and in the case of an entrepreneur doing fruit-based snacks, the business was good and we should have bet on him, as he made the business great.
Super. Here is the main question of this interview. What are your “5 things I need to see before making a Growth Capital investment” and why. Please share a story or example for each.
One, keep it short and sweet. Tell your story in a concise and compelling way. A few pages of text (executive summary with summary financials included), 10–20 slides and an easy to follow bottoms-up excel model is much more compelling than a 60-page word document or a Private Placement Memorandum. It takes a lot more work to be concise, but it’s worth it.
Two, a pure marketing pitch doesn’t work. Remember, you’re selling an investment in your company, not pitching your product to a retailer or consumer. Make sure to buy scanner data if you’re a small, natural/specialty products company so you can know everything you’d need to know about your business in a given snapshot. The same applies to financial data — demonstrate how your financials (income statement, balance sheet & cash flows) support your proposition. Provide detailed use of proceeds, and show how the investor benefits from the investment. Be specific. For investors like us, the two most important metrics are gross margins and velocity (also known as same store sales or sales per point of distribution) growth.
Three, ensure you don’t have a leaky bucket. Too many companies focus on rapidly expanding distribution and proudly say they “have distribution in 3,000 doors” yet the sales per store are weak. Far more important than breadth of distribution (it’s easy to expand distribution if your velocities are compelling), is sales per point of distribution (SPP) in a retail business or repeat order data in a direct-to-consumer/online business. For example, a business with +25% sales growth sounds good. But if you dissect the consumer takeaway and there’s a -25% SPP but lots of distribution growth, we’d describe that as a leaky bucket. In summary, sell-in without sell-through can be more of a liability than an asset when talking to institutional investors (beyond the angel stage). And, to you as emerging brand founders/leaders.
Four, be confident and credible. It scares investors when founders do not know (or understand) their own financials. While most investors are not expecting founders to know the finest points of their financials the way a CFO with 30 years of experience might, know your numbers and understand the pressure points of your business (e.g. break-even point and what it takes to make your business profitable if it is not). Also, whether projections are conservative or not, be careful what you claim. Being credible, in all ways, is critical for an investor to back a CEO and a Company. It’s all about providing a reason to believe in the business and in the owner!
Five, hone in on actual returns. An individual investor might be excited about a 10–15% annual return on an angel investment that “beats the market”. However, these returns are unacceptable to an institutional investor that seeks to make one or more times their money (commonly referred to as 1x) per year they’re invested in an early(ish) stage company. A private equity investment in a more mature and therefore less risky company is likely to seek >2.5x total return over the life of an investment. Make sure you’ve looked at the return potential from the prospective investor’s seat, including assumptions of further dilution down the road if there will be additional capital raised (and there usually is!).
You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂
Fortunately, we work in an industry where the entrepreneurs and companies will collaborate and help each other. It’s the same generally among the investors, which is rare, so take note. Don’t be bashful to ask others for help. As a good friend of mine says, “You don’t get if you don’t ask”.
We are very blessed that some of the biggest names in Business, VC funding, Sports, and Entertainment read this column. Is there a person in the world, or in the US whom you would love to have a private breakfast or lunch with, and why? He or she might see this. 🙂
Unfortunately, I never got the chance to meet Yogi Berra, one of the great strategists of our time. Some of my favorite quotes are “It ain’t over till it’s over” and “When you come to a fork in the road, take it”. If someone has a time machine I could borrow, please advise.
In the meantime, I am very fortunate to have my young daughter be an important part of my business life, too. She has gotten to know and be influenced and inspired by people like Aunt Sandy (Gooch; founder of Mrs. Gooch Markets acquired by Whole Foods in the 90s), Uncle Walter (Robb; recently retired co-CEO of Whole Foods), Uncle Gary (Hirshberg; founder of Stonyfield Farm organic yogurt), Aunt Bridgette (Heller; multiple time President for large CPG businesses) and many more. Less for myself, but boy I wish we had an “Uncle Warren” (Buffett) so he could impart a tidbit or two on her (and me, too). He’s always got such fantastic insights that apply to business but also life.
This was really meaningful! Thank you so much for your time.