BRAND BOYS
In a market obsessed with tech startups, one emerging private equity firm makes 40% per year with trendy products like gourmet jerky, frozen Sriracha chicken and vegan makeup.
by Amy Feldman
Strolling the aisles of a Whole Foods Market in West L.A. on a bright fall day, Josh Goldin, Julian Steinberg and Trevor Nelson come to an abrupt stop to marvel at a towering stack of Barkthins displayed in the salad bar area. Last April, their private equity firm, Alliance Consumer Growth, or ACG, scored big when the chocolate-snacks company sold out to candy giant Hershey for $290 million, or about four times revenue. They point out that in the science of brick-and-mortar retailing, seemingly small efforts, like promoting a product at the end of a grocery aisle, can make a new brand look established—or an unheard-of one appear like the next big thing. “With young brands, it’s all about getting people to try it,” says Steinberg.
For the past five years, ACG, which is dually headquartered in New York and Los Angeles, has logged an enviable record investing in startup consumer brands that are reinventing categories in an industry long dominated by stalwarts like General Mills, Pepsico and Procter & Gamble. The market for consumer products has been in a state of upheaval in recent years. Upscale Millennials expect their packaged food and beauty products to be healthier and organic, without the toxins and chemicals that previous generations accepted for lack of choice. They’re willing to pay more for those healthier products, and they aren’t loyal to the big brands. That, in turn, has opened a gap for entrepreneurs—and led to a surge in acquisitions of startups by the large companies.
Goldin, Steinberg and Nelson were early in seeing this shift and figuring out how to play it. Since ACG’S inception in 2011, it has funded 15 entrepreneurs, investing $5 million to $25 million for minority stakes in companies that it believes are on the cusp of explosive growth. In total it has raised $344 million in three funds. The first two have purchased stakes in budding companies like Evol, maker of Millennial-friendly frozen meals like Sriracha chicken; Krave, in Sonoma, California, a seller of gourmet jerkies like cranberry thyme turkey and chili lime beef; and the Honest Kitchen, a marketer of high-priced health food for pets. Last November, ACG’S latest fund ($210 million) made its first investment in Oregon’s Pacifica Beauty, a vegan and cruelty-free makeup and skin-care company.
“There is something magical about these brands,” gushes Goldin. Maybe. ACG’S most impressive trick has actually been its knack for selling out before these hot consumer brands cool down. To date, 6 of ACG’S 15 portfolio companies have been sold to larger corporations or gone public. In 2015, for example, Hershey bought Krave for $240 million, netting ACG a sixfold
gain on its initial stake of less than $10 million. Shake Shack’s red-hot 2015 IPO produced a $90 million payoff for ACG. ACG’S returns since inception are averaging about 40% a year, according to investors. “You don’t have to come up with the next Uber to be an entrepreneur,” Goldin says. Nor, as it turns out, do you have to invest in Uber or Facebook to make a fortune.
Much of ACG’S success comes from old-fashioned shoe-leather research. On weekends, and whenever they’re traveling (a week per month each), the trio walk the aisles at retailers like Whole Foods and Target, taking dozens of photos with their phones of new products and intriguing product displays. “Our wives won’t shop with us,” Steinberg says. They then overlay what they’re seeing with data on the category and tap into their network for viable investment prospects.
Goldin, 39, hails from a retail family that owned an eponymous department store in Buffalo, New York. He met Nelson, 38, on their first day in the mergers-and-acquisitions group at Lehman Brothers in 2000. Their focus: consumer companies. The third member of ACG’S team, Steinberg, 38, is well connected on Wall Street. His father was the late corporate raider Saul Steinberg, and his half-brother, Jonathan, is chief executive of ETF asset manager Wisdomtree. Steinberg, who has an M.B.A. from Columbia Business School, learned to analyze companies at Bear Stearns and then in 2009 personally invested in organic baby food company Plum Organics, which was sold to Campbell.
The three first teamed up on an investment in Babyganics (on Long Island, New York), a maker of baby lotions and sunscreens that contain no toxins or parabens. Then, in 2011, Goldin, Steinberg and Nelson left their jobs and founded ACG, rais- ing $44 million from high-net-worth investors. “We all sort of got together and said, ‘It’s not just Babyganics,’ ” Goldin says. “We saw this disruptive movement of entrepreneurs coming along.”
And they were right. They took an early 7% stake in Shake Shack, the burger chain founded by New York restaurateur Danny Meyer that made its debut on the NYSE with a $1.6 billion valuation. Even though Shake Shack wasn’t looking for financing, Goldin talked his way in by persuading existing investors to sell. “Josh was just persistent,” Meyer recalls. The Meyer relationship later blossomed into co-investment in Tender Greens, an L.a.-based fast-healthy restaurant with a cult following. Today, Tender Greens, which serves fresh chef-created meals for $12 a pop, has 24 locations.
With Krave, ACG saw the potential in moving jerky from a truck-stop snack to a healthy, highprotein one on the shelves of Whole Foods. Ditto for the healthy Tv-dinner brand Evol (“love” spelled backward), since bought by Boulder Brands. Evol founder Phil Anson, 38, a Colorado mountain climber who started out selling burritos from his car, says he immediately connected with the ACG guys. “They’ve been able to create this amazing, rich, authentic ecosystem of entrepreneurs under the ACG umbrella,” Anson says.
Home-run investments like Shake Shack have attracted a flood of new capital into consumer products, so finding bargains will be tougher in the future. In an effort to maintain its edge ACG has created a Silicon Valley-style incubator model for its portfolio companies. At a retreat in Sonoma in 2015, for example, Evol’s Anson met Way Better Snacks’ founder and CEO, Jim Breen, and later joined its board. Meanwhile, Nick Reader, 42, who cofounded PDQ, a chicken-restaurant chain, with Outback Steakhouse’s Bob Basham, met the former marketing chief of yogurt brand Chobani and hired her as a consultant. Reader says that the prospect of making connections, in fact, was the main reason PDQ welcomed an investment from ACG. “The first thing they did was open their portfolio of brands,” says Reader. “I would sit with these people, and I was like a groupie.”