What Consumers Care About in Health & Wellness Products, How Competition Builds New Categories, and Will Ozempic Have an Impact on CPG Demand? with Dayton Miller, BFG Partners

This episode explores the evolving landscape of consumer preferences in health and wellness products, the role of competition in shaping new market categories, and the potential impact of pharmaceuticals like Ozempic on consumer packaged goods (CPG) demand.

1. Venture Capital Suitability: Not all companies are ideal for venture capital; it's crucial to evaluate if the investment aligns with the company's growth and operational strategies.
2. Impact of Ozempic: Pharmaceuticals like Ozempic might significantly influence consumer preferences and demands within the health and wellness sector.
3. Investment Strategy: Understanding the stages of investment (Seed, Series A, B) and appropriate metrics for each can guide better investment decisions and company growth.
4. Role of Competition: Competition can drive awareness and accelerate the development of new market categories, beneficial for consumer education and brand positioning.
5. Consumer Trends: Staying attuned to evolving consumer preferences, such as increased health consciousness, can inform product development and marketing strategies.

1: Introduction to Guest and Topic

Dayton Miller discusses his background and the focus of BFG Partners on consumer health and wellness innovations. Insights into venture capital's role in nurturing startups. Mike Gelb: "Welcome to today's episode where we explore deep into consumer preferences in health and wellness."

2: The Venture Capital Landscape

Discussion on the investment strategies for different funding stages and how BFG Partners positions itself in the market. Dayton Miller: "We look for companies that align with our strategic vision of impactful consumer health advancements."

3: Competition and Market Dynamics

How competition among brands aids in category growth and consumer awareness, illustrated by examples from the industry. Dayton Miller: "Healthy competition can significantly accelerate category development and consumer engagement."

4: Consumer Preferences and Ozempic's Impact

Exploration of current shifts in consumer behavior and the potential ripple effects of products like Ozempic on the market. Dayton Miller: "Ozempic could redefine consumer expectations and demands within the health sector."

5: Closing Thoughts

Summarization of key insights and future outlooks on investment and consumer trends in the health and wellness industry. Mike Gelb: "Thank you, Dayton, for your enlightening perspectives on where consumer health and wellness is headed."

• Evaluate Investment Fit: Ensure venture capital aligns with your business goals and growth strategy.
• Monitor Consumer Trends: Stay updated on shifts in consumer behaviors to adapt products and marketing strategies effectively.
• Leverage Competition: Use competition to your advantage to enhance brand visibility and market penetration.
• Consider Health Trends: Integrate popular health trends into product offerings to meet evolving consumer expectations.
• Plan for Long-Term Growth: Develop a strategic plan that accommodates both current market conditions and future expansions.

Our guest today is Dayton Miller, Managing Partner at BFG Partners. BFG Partners help entrepreneurs build exceptional businesses that deliver sustainable growth and outperform competitors in the better-for-you food, beverage, and consumer products space. Their investments include Olipop, Athletic Greens, Caulipower, and Bobo’s. We discuss the inflection points at seed, series A, and Series B in today’s market, categories he’s excited about in consumer today, ozempic, operations metrics, and his time as an entrepreneur building Function Drinks from scratch to $20 million in sales.

People

Mike Gelb, Dayton Miller

Companies

BFG Partners

Books

None

Guest Name(s):

Dayton Miller

Content Warnings:

None

Dayton Miller
Once you take capital from an institution, it's either a gift or it's an investment, and people are going to want their money back at some point. What kind of made you decide that you wanted to become a VC? I began my career in consulting and investment banking and then moved over to Disney, which I was in the strategic planning group there, which I felt for kind of managing with capital and managing Disney's balance sheet. I knew kind of in my heart of hearts that I had interest in being an entrepreneur. It was one of the reasons why I moved back to LA.

Mike Gelp
Do you find that companies don't want to raise as much when it comes to venture capital? We always say like, venture capital is not for everyone. Try to give super honest advice, right. Because hello, I'm your host, Mike Gelp, and this is a consumer VC podcast brought to you by propeller Industries, the leading strategic finance and accounting partner for venture stage companies. On this show we discuss the intersection of venture capital and consumer innovation.

And if you're enjoying the show, please subscribe on YouTube or whichever platform you're viewing this content. And if you want the full experience, I highly recommend checking out the newsletter@theconsumervc.com you'll get all the new episodes straight to your inbox and a weekly recap of all the consumer deals that are happening. All content and episodes are for informational and entertainment purposes only and is not investment advice. Our guest today is Dayton Miller, who's a general partner at BFG Partners. BFG helps entrepreneurs build exceptional businesses and deliver sustainable growth and outperform competitors in the better for you food, beverage and consumer product space.

Their investments include Olipop, athletic greens, Cauli Power and bobos. We discussed the inflection point at Seed Series A and Series B in today's market categories that he's particularly excited about, Ozempic and what Ozempic maybe means for the future of consumer brands. Or does it mean anything for the future of consumer brands? What are the metrics he looks for from an operational perspective? And we also cover his time as an entrepreneur building function drinks, which he founded and built from scratch to 20 million in sales.

Without further ado, here's Dayton.

Dayton, thank you so much for joining me here today and also bearing with me because I know we had to reschedule this. How are you doing? I'm doing great, Mike. So great to be connected with you today. So great to connect with you today.

So let's I'd like to focus first of all on today's market. I know that BFG focuses on Seed, series A, series B, type stages, and certainly invest in consumer brands, which we'll obviously get to. But for those different stages, seed Series A, series B. Can you talk to me a little bit about, like, the ideal metrics, the valuation ranges, the revenue ranges in those kind of three different parts that you're seeing. Because I talked to brands, talked to investors, everyone seemed to have a little bit different in terms of how they evaluate different stages.

So we'd love to see from your standpoint, what kind of the benchmarks are. Sure. I'd say we consider ourselves seed agnostic. So that's kind of really seed to series b, although we'll be a bit opportunistic and we have gone even later stage than that in areas where we either know the company well or we know the founder well. But I guess as we think about those kind of various classes, a seed would be something that's maybe less than a million in revenue or sometimes even pre revenue.

Dayton Miller
It's funny, years ago, when you would start this evening, your seed or series A could be considered pre pre revenue, but now there's like pre seed and pre pre seed and all kinds of different things. And years ago, venture capital used to be for businesses that were like, weren't making money and growth, equity was really for growth because the businesses were actually making money. And so the classifications definitely change over time, or the nomenclature. We try to just think about the business more so than like, oh, is this going to go into like the seed bucket or the core bucket or the opportunistic bucket? Obviously, you know, looking for great businesses and great partners.

So let's see. On the kind of series a side, I'd say that's typically these days for us, like more in the one to 15 million of revenue. And then kind of series B is typically north of that. Sometimes maybe series B is kind of north of 1010 million of revenue. And then, gosh, check size is really across the board.

I think we certainly think about positioning our check size relative to kind of the stage of the business and the size of the opportunity. And so there's definitely been times when we've gone early with a really small check in order to get to know the opportunity, get to know the founders, and then follow on throughout the life of the, of the business and in certain situations, six, seven times after our first check. So when you count convertible notes and then priced around. So. So, yeah, that's how we think about the landscape.

Mike Gelp
No, that's really helpful. Thank you. And thanks for giving, like, ballpark in terms of revenue ranges. Like that's, I think, really helpful because I was talking to the other, the other, the other day to somebody and I said, oh, like, know this, they invest in series a. And they were, and the person was like, oh, like, what is series a?

And I'm like, well, they describe it as maybe like two to 5 million in terms of revenue. But I mean, it really kind of depends on the company. I imagine category two depends as well. So that's, that's really helpful. So I know you went, you know, in your incredible career thus far, you went from Disney, you started function drinks that I know you had, you had a great exit for, and then what, what kind of made you decide that you wanted to become a vc and how did you actually end up, end up being part of BFG, really?

Dayton Miller
I mean, kind of think back. It's funny because when you look back at your life, you're like, oh, the kind of points really make a lot of sense, but began my career in consulting and investment banking and then moved over to Disney, which I was in the strategic planning group there, which is responsible for internal m and A, as well as kind of long term planning and also new business development for the company. So if we're launching a new line of business, like while I was there, we launched into education things along those lines, or if we're building a new cruise ship or if we're buying a tv station in India, like, that's all stuff that would get hit by this group. And that gave me kind of a pretty good flavor, I felt, for kind of managing a pool of capital and managing Disney's balance sheet and also kind of combining some of the skills I'd picked up as a consultant and on the banking side. But I knew kind of in my heart of hearts that I had interest in being an entrepreneur.

It was one of the reasons why I moved back to LA to work at Disney after business school. It was, you know, I knew I liked the industry, liked the location, but it would also be a nice platform to kind of do something a bit more entrepreneurial. And then, as you said, I launched a beverage company, built and managed that through exit for the next five years. And while I was doing that, I linked up again with my, my current partner, Tom Speer. He and I actually went to college together many moons ago now at this point, and I'm two years older.

And so we knew each other, although not super well, but we would see each other at Expo west, which is obviously coming up next week, and various trade shows around the country. At the time, he was doing bare naked granola and evolved foods. So we would kind of just reconnect these shows. And then the timing worked out such that he had exited Evol and had raised his anchor investment for fund one. And I was exiting my company to Sunsweet growers.

And so I was on the tail end of that. And fortunately the timing worked out. I was pursuing opportunities in consumer at that time. I felt like I should note that while I was an entrepreneur, we had raised some money from Wasserstein and company. They had done Odwala and so delicious.

And we had a really great board member from there. Ellis Jones to this day is a fabulous mentor of mine. And I just felt really grateful for everything he shared with me over those years, including during the great Recession, which was a tricky time to be running a business. And I felt like I had a lot to offer from those experiences. And doing early stage investing was a way to kind of combine those experiences with some of the other m and a transactional experience from Disney and other places.

Mike Gelp
I'd love to hear about the evolution, or. Yeah, evolution maybe, of BFG's thesis. I know it started off as Boulder food group, now it's BFG. Can you talk to me a little bit about like the initial kind of types of businesses that would be interesting or that you'd like to invest in back when it was in kind of like the fund one conception point versus, you know, now you're in the midst of closing fund three. How do you think about, like the evolution and in terms of also categories that you're interested in?

Dayton Miller
Sure. So fund one was a roughly $50 million vehicle, which I think maybe is context in terms of, as we explain the evolution of BFG. But with that fund, we were focused pretty much exclusively on branded food and beverage, consumer packaged goods. We did make two business service investments out of that fund into greenspoon sales and cartography primarily. That fund was entirely food and beverage.

Tom obviously had a lot of food experience. I had a lot of beverage experience. Both early stage at that time at least. It was pretty unique to kind of have founders and entrepreneurs move over to the investing side. It's obviously become a lot more popular since then in the last ten years.

And yeah, that was kind of really how we got started. What we saw during fund one was that we were also seeing some interesting personal care opportunities. And we believe that a lot of the trends and the customers and the channels and just the decisions were very similar for personal care businesses as they were for food and beverage. And so with fund two, which was about twice the size, about 100 million, we did expand the mandate to include a sliver of personal care. And we are very much, I think, hopefully, thoughtful entrepreneurs.

But we want to walk before we run. We want to kind of prove that we have the right to win in certain areas. And so we took it pretty slow on the personal care side. And thankfully, we're fortunate to make some nice and nice investments there and already have two exits in that personal care space. So we feel pretty validated in our ability earning the right to do that, I guess.

So we're going to continue that on with fund three. Fund three, which is 125, is just exactly mirrors fund two. So we've been pretty patient and methodical, we think, at least in terms of how we've been building the business. We only raise capital every four to five years, and we try to be pretty discerning in terms of our deployment in any given year, and thoughtful around that. We're obviously LP's in our own funds, so we kind of put that investor hat on and what would we want to see kind of deal.

Mike Gelp
No, totally, totally. Can you explain a little bit about the deployment strategy? I understand that from fund one, fund two, fund three. It's every 45 years that you go on to raise the next fund. How many companies do you typically want to invest in with the upcoming, for example, let's say fund three when you start deploying?

And how does that kind of work from an annual rate as well? Great question. So I think as we think about fund three in terms of mirroring fund two, I think we're envisioning 20 to 25 investments in total. In fund three, we do think about those as kind of seed core and then opportunistic with the large checks really being in that kind of middle bucket, the core bucket with a core investment size of, call it three to 10 million, but we will go down to 500 grand, a million dollars on the seed side. And a lot of that's just driven by, we think that opportunities are changing.

Dayton Miller
And I think first and foremost, like, if you're not in a deal maybe early on, it's really hard to get into a deal later. I think capital efficiency is certainly changing. So it might be the only time some of these businesses raise. And hopefully we can kind of at least get to know the entrepreneurs, they can get to know us. It's obviously a really long term relationship that folks are entering, and if it's a fit and it makes sense for everybody, then we can become partners in a bigger way.

Mike Gelp
It's really interesting what you said, too, about capital efficiency and about how that might be the actual only time companies raise. Do you find that companies now maybe don't want to raise as much when it comes to venture capital or that, or that they're maybe more hesitant from that perspective? It's interesting, we always say venture capital is not for everybody and try to give super honest advice, because in a lot of ways, once you take capital from an institution, or anybody for that matter, you're starting a clock and it's either a gift and people don't want their money back, or it's an investment and people are going to want their money back at some point and they're going to want back more than they gave you, even if they're a wealthy uncle. And so I think there's a lot more thoughtfulness around the right amount of capital to raise. How long will that last and what are the milestones that this capital will allow you to achieve that you wouldn't have been able to otherwise achieve having not raised that money?

Dayton Miller
I think during the go go years, there was a lot of, well, my competitor raised x, so I need to raise y. And it's probably still very true in a lot of industries in our world, in the consumer world, we just think there's so many different ways to win. You can win being really capital efficient, or you can also really push hard and layer on the marketing gasoline and win that way too. There's no right way to win. How do you think about if you're a company and you're thinking about maybe debt versus equity and whether it makes sense to use debt versus equity, of course, pitch decks or what have you usually they outline.

Mike Gelp
Maybe not always, but, and of course never goes according to plan, but in terms of how you actually use that money, right. If you were to raise from like an equity investor or think about debt in your scenario, when do you think that? I know that there's no silver bullet here, but when do you think it makes sense for equity to be deployed to actually use in terms of financing growth for a business versus, you know, debt, for example. And typically when you make investments in the companies, what are they typically using? BFG and maybe other vc money.

What are they typically using those funds for? Great. Yeah, sure. So let's see, the way I think about kind of equity versus debt really gets down to cost of capital. Someone who's giving equity is going to expect a higher rate of return, maybe be more accepting of risk.

Dayton Miller
There's a lot of companies out there that might not be eligible to get debt because either they don't have the operating history or the financial profile or even like the inventory to kind of back the debt. So that's maybe a bit more kind of, kind of nuance. But, you know, I think when you're early on the way, I think about kind of taking capital in general. It's just what are you getting in addition to the capital, and what do you need from that capital? So that also goes to like, where does air capital tend to go?

I'd say often it goes towards augmenting team. A lot of times when we invest in businesses, it might just be two co founders or a very small founding team. So we certainly do a lot to support the build out of teams. There's typically some product development or innovation uses. There can also be some kind of scaling of the supply chain involved that can take many different forms, whether it's more on the actual building of production facilities.

I think that's a good example where you might want to take debt because you have a hard asset that can be used against the debt and you don't have to pay such a high rate of return on building out a production facility, for example. In a perfect world, I think the businesses where we get involved, they either have really strong unit economics, but maybe they're not profitable on an absolute basis yet, or this is capital that allows them to achieve the growth necessary such that, you know, they're effectively break even and then it's up to them and they kind of control their own destiny in terms of how fast they want to grow relative to maybe market forces and the opportunity side. From your perspective, when you underwrite, what is from a timeframe perspective, what is the timeframe when it comes to roi for these companies that you underwrite, what's the ideal scenario? Yeah, so, I mean, speaking, I guess, from personal standpoint here. So our fun life is ten years, although it can be extended beyond that.

I mean, that is very standard in the industry. A lot of times it can extend for up to four years after that. But regardless, there's real time consideration there. I think we often say like 80% of the bell curve will occur between, call it three and seven years from the time that investments made. Sometimes you're pleasantly surprised to the upside.

I mean, one investment we were in for 16 months. So that was really nice and surprising. Doesn't happen often. It's not what you underwrite, but you'll take it when you can get it and, and then other times, you know, there's things take longer to mature and develop than maybe you had thought. And I think predicting when consumers are going to catch on to something is really tricky.

You know, I was just listening to another podcast and someone was talking about how Skype must really be kicking themselves because of you. Think about nobody went to Skype when COVID hit and they were there ten years earlier than everybody. I remember doing Skype calls years and years ago, but it never caught on and so need some type of catalyst and predicting when that catalyst will hit is hard. Yeah, that's a great. That's very true.

Mike Gelp
I remember using Skype, Skype interviews like a long, long time ago. And yet during COVID those, of course, we're all zoom.

I think that what's kind of interesting in terms of investing consumer brands versus technology businesses is that you typically have longer timelines in terms of when a brand actually matures. Or, or from also like an ROI perspective. It might not. It's really kind of hard to achieve in terms of what like a breakout brand is. Would be very different to like a breakout piece of technology when it comes to like from an ROI perspective.

But you might have more of them in, in like a portfolio, like a more. More breakout brands per se than more like breakout technology companies. It's a bit less power law maybe like dependent when it comes to consumer. Is that your approach or how you understand it? When it comes to when you think about what the actual performance of the ideal performance of the portfolio?

Dayton Miller
I think that's absolutely right.

Underwriting every deal for it to return the fund or two x the fund like some of the early stage venture folks do, I think is a bit unrealistic. I think it does. It mirrors the stage and risk you're taking. So when we do our seed investments, we're obviously looking for a much higher multiple. And we say to ourselves, does this have the potential to return a much higher multiple?

But then to your point, a lot of the businesses that we invest in as core investments have been around for a number of years prior to us investing. It just so happens that they might be at like an interesting growth point or an interesting inflection point where hopefully partnering with us and taking on the growth capital makes sense. I mean, one example that we're particularly proud of in fund two is bobos. They're celebrating their 21st birthday at Expo west this year, 21 years. And I think if you were to ask a lot of people, they wouldn't realize it's been around that long.

A lot of people in Boulder probably do. But, you know, just in the last couple of years, has it really taken off from an innovation standpoint and just what they've done in the last few years in particular, it's truly remarkable. Is that hard then, from your standpoint, when I think about pro rata strategy and whether you actually should, you know, follow on into brands, because you might not just not to compare investing in brands versus, you know, technology, maybe like software, pure software businesses. But I'm going to go there. I'm going to compare.

Mike Gelp
I'm going to kind of compare the two where you might, you might have, it might be maybe more like a hockey stick type growth on the technology side, but it's maybe much more slow, slowly, to get that kind of inflection point on the consumer side. Does that make it more tricky when it comes to when it actually makes sense to follow on? Well, I haven't done much software investing, so I can't really speak to that. But I will say from our side, yeah, it's very tricky. Right.

Dayton Miller
And not only that, like thinking about what's the right amount of reserves. So as you know, we're going from kind of fund two to fund three. How much capital do you hold back for those fund two investments in order to make follow ons? Every situation is truly different. I think we welcome opportunities where the capital of the round could be the last capital if needed, and then it's really, you control your own destiny and then if you want to raise more capital, then you're really doing it for true growth reasons because the opportunities that that capital presents more than offsets the cost of that capital.

And then, you know, there have been times where we've been positively surprised and negatively surprised. So, gosh, if someone's got that figured out, I would love to learn more. This episode is brought to you by propeller Industries. If you run a high growth business and you're focused on profitability, extending your Runway and improving your operational efficiency, you probably need a finance and accounting wiz that will grow with you. Well, instead of hiring someone full time, what would be cost effective is working with Propeller industries.

Mike Gelp
Propeller Industries is a leading strategic finance and accounting partner for venture stage companies and has partnered with over a thousand startups and high growth businesses across consumer products, consumer tech and enterprise. Some of the brands that they've worked with are liquid death, Alipop, Himss, Farmer's dog away, movie pass, and Giphy. Propeller also provides specialized support for fundraising and m and a with transaction advisory services. Propellers TA team of former investment bankers and investors can step in on more of a project basis when pursuing full scale financing and m and a. There's a link to Propeller industries in the show notes.

If you want to learn more information, how much do you pay attention to what the strategics are doing or how they're operating the market? When it comes to thinking about maybe from a category perspective, maybe thinking even from a metrics perspective, or what a company maybe needs to achieve, is that at all also a consideration as you kind of, as you kind of look in terms of deploying your capital or not as much? Yes, I'd say. I think in general, we're certainly looking to invest in big categories, disrupted brands, businesses that have potential to be really big and profitable. I would say just first and foremost, we are most focused on building a good business.

Dayton Miller
And we're strong believers that if you build a good business with attractive margins and financial profile, there will be a buyer there, maybe with interest rates moving as much as they have in the last 18 months, private equity isn't maybe quite as formidable, but that's obviously a real option, too.

I'd say in terms of maybe thinking about what type of hole a brand or a business could kind of fill in a portfolio, it typically happens for us at least like later. So, you know, maybe when you're two to three years away from starting to think about an exit, you know, maybe it informs your innovation strategy. Do you want to go into certain channels if you go into, or certain product lines if you do so, would you be more or less attractive? Would you be likely to have those product lines valued by who might be the two or three most logical buyers? You know, it's stuff that you talk about, but I think you would never let the tail wag the dog.

I think building a business for acquisition is a scary way to build a business. And, yeah, it's just. I don't know, it's, you're just waiting for the train to come. If it doesn't come, your sol. It reminds me of a conversation I had with Luke Vernon a little bit, because when he was an operator, he said we first kind of built the company for acquisition, and then it never kind of happened.

Mike Gelp
They had to switch gears and make him up more profitable. And that was a really big learning experience for him on his episode. And I really appreciate that. Honest. And also some of the differences, too, in terms of growth versus profitability, which there's a lot of conversation these days around.

Growth versus profitability. Well, no, I was just going to say, first of all, I love Luke he's awesome. Very close to the firm, and we definitely see eye to eye. He's on the board of Bobos with us. If I'm an entrepreneur and I'm raising capital, you're not going to get the same answer from every firm.

Dayton Miller
It really is a fit thing. Right. And just going back to kind of like, there are multiple ways to win, and it just really comes down to what you want your strategy to be. There's been a lot of success out there, of folks, you know, deploying a lot more capital, investing a lot more heavily, maybe on the marketing side, things along those lines. And so you just gotta be kind of.

I think everyone's maybe thinking about their own experience as well as how much capital they're looking to deploy and what their strategy is. And you ask ten different funds, you'll get ten different answers. Yeah. No, that's a very, that's a very, very fair, fair point that kind of everyone has. There's no one way to build the business.

Mike Gelp
Right. There's. There's many different ways. And, and, you know, it also, you don't have to build a big business. Right.

You can build a great, great business that, um, uh, that doesn't have to be hundreds of millions of dollars. Right. Um, it's still super impressive, I think, to build a very, very profitable, um, you know, mid size, um, um, medium sized business that's still, like, incredible, um, it's so hard to build. But you, you said something earlier, too, about, um, how the focus is building great businesses. Of course you're aware of what maybe strategics are doing in the market, or maybe how the later players are behaving when it comes to exits or what they've acquired, or even what they're not doing.

The point is, obviously to build a great business. Let's talk about your evaluation process at the early days in terms of identifying identifiable traits in your mind that then, hey, this company actually might become a great business. What do you look out for in your evaluation process? Sure. So, yeah, I'd say, like, it's kind of, we think about, like, our funnel, maybe there's probably a bit of, like, a kind of higher level investment set of considerations that we think about, maybe before getting a lot more company information.

Dayton Miller
But that would be things like product themes for us. It really does start with the product. We're big believers in the products, in our portfolio, and we're obviously investors and better for you. And so having some element of that or functional is really important to us, obviously taste. But I'd say kind of product, then we think about kind of market positioning, like, you know, is this something that we believe will have mainstream appeal?

You know, how broad of an opportunity is it? Do they have the ability to be like a leader in an emerging category? Is it kind of consistent with maybe some of the shifts we're seeing in categories to kind of meet the market needs and then would just say just maybe some of the operations and track record and that kind of gets to like, the team, maybe how engaged is that is the customer base and what is kind of management's vision and how they finance and run the business thus far? And lastly, would be kind of fit with BFG. I think, you know, we're looking for businesses that would like to have an active investor and a real partner.

And I think also for us, we are conscious of building a portfolio. So that's either offering diversification to our other investments in the portfolio or maybe it complements our existing portfolio in some way and then we're modest sized funds. So how much capital has been raised? Thus bar is also something that we tend to think about. So that's kind of maybe, I don't know, as we're getting to know a business.

And then when we go deeper, I'd say it's a lot more kind of core investment guidelines. Whether there are certain kind of financial metrics, operational metrics, sales and marketing metrics, things along those lines we get into in the next phase. Got it. No, that's, that's really, that's really helpful. Kind of like starting with the product, seeing if the product is actually, it's, you know, functional, obviously, you know, taste is king.

Mike Gelp
You also said, of course it has to have, you know, mainstream appeal. Of course, like the commercialization. It has to kind of go maybe beyond like the natural food side, I'd imagine. Like it has to be seen through, you know, all across in different types of sales channels or distribution channels, how the, the thing that I think is, you know, interesting is any point when it comes to better for you products or functional products, you have this kind of push and pull in as well. Is it just, you know, be you being a small company and maybe not, you know, getting to scale, you have this kind of push and pull in that your prices are typically higher than what the, maybe incumbents are, but of course, maybe the product is actually better than the incumbent product in that category.

When you think about your evaluation process and maintain appeal. Because one thing that I don't think gets talked about as much is how important price is and how price sensitive consumers are. How do you think about price when you're evaluating like an opportunity? Yeah, you raised a great point. I mean, I should have framed it this way, which is, it's really about providing a good value proposition to the consumers.

Dayton Miller
And I think no matter what consumers want value and especially now. So, yeah, I guess to us at least, it kind of varies based on channel. I think if you're going into retail, I don't, never say never, but something in the 20% to 30% range in terms of a premium relative to kind of the conventionally priced product is historically a premium that consumers have been comfortable with, that has been validated with offering the organic version of something else that's on the market. So the broad numbers, and I'm sure there's some more variance by, by category, but kind of ballpark something in that 20, 30% range. I think where we've been surprised by people really breaking those norms is on the direct to consumer side.

And there it's, you know, you're not on the shelf being comparison shopped and you kind of own your own community, own your own audience. I think there's a lot more liberty to price there and, and a lot of ways to kind of over deliver on value, so to speak, whether it's, you know, surprise gifts or just exceeding expectations of your, of your consumer. And so, so it's interesting, I think the direct consumer brands that are kind of finding their way into retail that, you know, maybe built really sizable business, direct consumer are finding that, that maintaining that premium in retail is tricky. That's really interesting, maintaining that premium, because, of course, you're also backing into that. You're thinking about what are your cogs?

Mike Gelp
What are the things? And of course, in retail you have a number of their costs that are going to incur. You have a distributor, you've obviously the retailer, you have slotting piece, you've all these things that go over. And not only that, when you first get into retail, you know, is the product merchandise correctly? Right?

Is it, is it, is it in a good spot? Is it not in a good spot? Oh, the product isn't selling through. Like there's a lot of, as you put it, like you're actually competing. You're obviously, it's a market, you're, you're competing against others that are in your aisle versus like your, your shopify site and you're like, oh, my gosh, like, this is great.

Well, there's no other competition here on the site itself. So, so does that, do you, do you find then if that's the case, like e commerce in general, that because of course, like, you know, Amazon obviously still different to brick and mortar, not saying similar, but it's still, you know, a market, you're still, you know, comparing in terms of price products. Is it easier to evaluate brand that actually has done well on Amazon when it comes to price because the, the consumer is actually, if they're performing well with that price, then maybe you can actually find they can actually set that price in retail. Or is it way too different? No, I think that's super valid.

Dayton Miller
I think obviously it's part of Amazon Whole Foods together. That's definitely much more of a marketplace. And I think there certainly ways around it and tricks around it. Whether it's different price pack architecture when you go into retail, maybe it's a single serve versus multi serve things along those lines. I think you should just optimize for channel.

You're looking to ship high dollar dense small packaging when you're unbreakable, whereas when you're going wholesale, it's very different. But no, I think it's a nice data point to have. How do you think in this market? There's a lot of chatter, I think I brought up earlier about profitability versus growth. And of course, I know there's not one silver bullet here, but many reasons why people are pushing profitability.

Mike Gelp
I think maybe a big reason is just maybe because it's really hard to get. There's just not as much capital in the market as there used to be when it comes to on the equity side. Debt now is a lot more expensive, obviously, with interest rates. So I think entrepreneurs need to be, if you don't have access to those levers, then you almost have to go profitability route because you obviously need to stay in business. You really can't go over growth.

But what's your perspective? Why does it make sense maybe for a brand in this market to actually really push growth? Let's call growth getting into new stores on the retail side, or whether it's the same retailer or bringing on a new account.

Why does it make sense for a brand to actually push growth in this market? To us it comes down to unit economics. And I think it's unfair to expect everybody to be profitable at any stage. But do you have good unit economics or good line of sight to strong unit economics at certain minimum order quantities or things on those lines? And then if that's the case, I think you want to take into consideration like what is the size of the market opportunity today?

Dayton Miller
Who are the folks who are likely to enter this market. How much of a lead do you have on those other likely entrants? And how much of a stronghold can you establish in that category or area before others enter? I think it's fascinating, because I do think that this also varies by category, but some level of competition in a category is a really good thing for building a category. I think of one of our old portfolio companies, birch benders, but they were really rising at the same time as Kodiak cakes.

And granted, Kodiak Cakes was a bit bigger, but having that kind of rivalry between those two, I think, made each of them better, and it built consumer awareness, you know? Oh, have you tried Kodiak? No, but have you tried birch benders? It's like, and I think the same thing happened when coconut water was becoming something 15 years ago and even better for you, soda today with Alipop and the others. So it's definitely something that will, that grows consumer awareness and adoption.

Mike Gelp
I love it. Ollipop and the other. And the other. I cop that. Dayton.

I caught. I copped that. Yeah. I mean, I was also thinking about, when you mention it, like, the coconut wars, because I always loved learning about that period because they were really kind of going neck and neck in New York City and kind of battling Mark and Mike, and just seeing how obviously both those companies and, and the trajectory and making coconut water obviously a thing and kind of mainstream. It's obviously been super amazing how that category has been.

Wow. Lollipop and the other. That's awesome. So, well, I wanted to kind of one trend that I think is on a lot of people's, uh, minds when it comes to food and health is ozempic. Um, and I've heard some people say, oh, it's a fad.

This is not gonna go mainstream. Um, uh, uh. Versus others that think of this as really kind of a big shift. Like, I think of it, for those that think of it as a big shift, I think it almost comparing it to, in technology, what's happening with AI, right. It's kind of like, like the next frontier.

And so my question, my first question is, what do you think about ozempic? Do you think that this is going to be that companies, if we take like, the AI, the AI comparison, a lot of companies, for example, are positionally in technology, like, oh, this is how we're incorporating AI, for example. This is how we're utilizing it. Incumbents are thinking about how to gain access to AI or partner with companies on the olympic side. Should this be, if it is like next frontier.

Maybe it might be a stretch, but if it is going to really change consumer consumption, do companies really need to be aware of that, or do you think more? So this is going to be not a fad, but this might just be not as mainstream as we think? Yeah, so I don't know. We probably have different views internally within BFG on this. So just speaking from myself, I actually think it's going to be a really big thing.

Dayton Miller
I think it's maybe a little bit hard to envision today because it's so price prohibitive as well as just the convenience of actually doing it. But if costs come down and it becomes something in pill form, which I think is already kind of trials undergone, I think we're just at kind of the tip of the iceberg here in terms of, you know, adjusting the way, the way consumers eat. I think it's, especially in Los Angeles, there's a lot more people taking these products than you may think. And I'd heard somewhere else that, like, the Upper east side is the number one area of New York that's consuming these products, which is certainly, you know, one of the most affluent, if not the most affluent part of New York. So I think we're just still at the very early innings here.

My following of this, and another reason why I'm bullish on it is I've seen it, or at least from doctors I kind of track. They talk about it not only from like, a food suppressant, but it's really like a craving suppressant. So, you know, it's alcohol, it's, you know, and then sweets and obviously food and carbs and things. So, yeah, I think to not at least be thoughtful about it and what might change if instead of 7% or whatever, they're kind of forecasting to be the adoption, if it's 21% or. I mean, there's no doubt that there's an obesity crisis, and this is one solution to it.

Maybe the current version of GLP ones are not perfect, but is it better than being morbidly obese? Probably. It's certainly going to take some time for the data to play out, but that's not good either.

Maybe the folks who are using it to lose their final ten or 15 pounds in the Upper east side, maybe that falls away once more data comes out about it, but there's still going to be a lot of folks on these, I think, assuming the data continues to support the trend. I think weight loss is something that never goes out of style. It's like weight loss, energy and sleeper are three functionalities that you can always bank on that americans always need. And certainly, obviously, salt's one of them. You know, as we've been thinking about it, it's kind of how do you complement it versus, you know, maybe trying to fight the tide.

Maybe that's easier for us to think about because we're so much smaller and, you know, we don't have this enormous aircraft carrier of a portfolio that we're trying to turn. But, you know, obviously there's data around increasing protein consumption, losing lean muscle mass if you've been on glp ones. So some of the, I think Bellring brands has spoken about that publicly, how they, they believe that that's really impacted their sales of premier protein. And, you know, I'm definitely a big fiber believer and there's been some, you know, definitely some talk about how fiber complements and in some ways maybe even acts similarly to, to glp ones. And in terms of suppressing appetite.

Yeah, I haven't actually tried them, although I am a little bit curious just to feel the effect in terms of like, if you really are nauseous from eating or something. But, so I can't really speak to like the, maybe the side effects are a lot worse than I'm hearing, which is, which is certainly a possibility. Yeah. What I've heard, and again, I'm not an expert, but, um, in terms of like, weight loss, it doesn't, um. It, of course it's not, um.

Mike Gelp
It's not like it's only fat. Right. It's also, of course, you know, protein too. And so, um, and muscle. And so, um.

And so what I've heard is that, um. But what, what is interesting, so totally understand maybe from like an investment perspective. Okay. Is there an opportunity here then on the, on maybe protein snack products or protein products that actually can kind of counter that or complement it? What I've heard, too, is the company that makes the consumer version of ozempic is actually developing or trying to develop something where it's ozempic, but then also you don't actually have that muscle loss.

Um, so it's actually mo, uh, most of them are fat, which is interesting. Um, but, um, um, which that makes me, makes a ton of sense. Um, uh, but, um, I I do, I do like that. And I like how you're, you know, that. Okay, let's not try to fight this.

Let's see how we can compliment this in terms of if this is like the new reality, um, that, that people might. That of course, if the price comes down and it, and, and we can produce enough of it. How can we kind of compliment that when it comes to, when it comes to the companies that we invest in? I mean, are you also thinking about this when you're thinking about like a valuing companies? Like, how does this, or not so much just because it's so early.

Dayton Miller
Maybe subconsciously because we've always been investors and better for you. And I have heard it like, increases cravings for fiber and salad and stuff. And so, not that we're necessarily doing like, produce businesses, but, you know, I think nutritionally dense is certainly one characteristic of better for you. The other thing I'd say is, like, it maybe feels a bit uncertain right now because, like, the shift is occurring, but, like, once the shift kind of occurs and, like, the baselines reset, like, there is population growth and, you know, longevity increases that are kind of offsetting it. So it's like people are going to continue to eat longer or live longer and eat more.

And so there's, it's not like suddenly every, every wind is blowing against you. What are some, what are, I guess, some other macro trends that you are thinking about? Or maybe not macro since of course you're investing the early stage, but what are some maybe developing trends that you're really excited about that you think could be long lasting and not just fads that you're thinking about? What would be the right company in this area to invest in? Yeah, I'd say just in general, like, we're certainly more opportunistic focused than we are kind of thesis driven.

Outside of being thesis driven or better? Better for you, there are definitely areas. Obviously, fiber continues to be one protein another, I do think kind of mental health and emotional support, brain health, general well being, you know, more than just kind of physical health, at least from the outside, is another area that's, that's been interesting to us. You know, I think the, no matter what people are, there's kind of a compression of time. Like, people feel compressed for time.

And I think about, like, our portfolio company oats overnight in terms of providing just a nice on the go solution that you can drink with one hand, and it just kind of solves for that breakfast on the go. Right. So compression of time would be another just good value proposition, would be something else. And I think in general, we're going back to kind of timing consumer trends. I think we're generally believers, like, it just, it needs to be better for you.

It doesn't necessarily. Who are we to kind of say, like, what's exactly good for you. I think you could have someone say that certain vegan diets that maybe are lower in protein, high in carbs are not as good for you as other maybe mediterranean diets or whatever. We just think good for you is such a personal decision that we're just focusing on better for you and taste and moving in the right direction. What's one book that's inspired you personally and one book that's inspired you professionally?

Well, I knew this one was coming, so I'd say on the personal side, you may have read this one, but obviously in the throes of parenting right now with a three and a half year old and a six year old. But my favorite parenting book is good inside. Have you read this? I have not read this, no. Oh, man, it's such a game changer.

So, yeah, the kind of basic premise is like, take the most generous interpretation of a situation and use that to kind of inform next steps in decision making. And there's a lot of themes around resilience over happiness and how do you kind of teach kids to be long term happy. And, yeah, it's just, I don't know, parenting is such a journey. And so that one, I've just been, I feel like I've really been impacted on from a personal level. On the professional level, I'd say essentialism, which I think folks have mentioned before, but, you know, it's just whatever the tagline is, like the disciplined pursuit of less or something.

But at the end of the day, you just have a choice, right. And you don't have to do it. You choose to do it. It's very empowering. You technically maybe could do everything, but maybe you can do anything, but not everything.

And just the power of kind of elimination, I just think is really refreshing.

It's like the joy of missing out the Jomo, which especially as you kind of have expo anxiety with three different events at any given time, it's like, what do you really need to get done here? And using that to focus. But maybe one last one I'd mention is a book called different by Young Ni Moon. And this one is probably more relevant for the entrepreneurs who listen. I think what's really great about it is it talks about how when you're launching a consumer product, how so much of it is just around, just standing out from the competitive herd and leaning into that point of difference.

So some of the examples in the book, it's like vitamin water going into the water door. And so they bring all of this color into the water door, so it's impossible to miss it. Or the BMW Mini, when it launched some of the copy around, it was like, it's even smaller than you think it is. And so they really leaned into how small it was. And the bottom line is you don't need to be all things to all people.

Like, you just have to have a point of difference and then you can kind of figure out if that point of difference, it presents a big enough market opportunity or how big of a market opportunity and kind of scale the business accordingly. But if you're not different, then it's just, it's a long slog. No, I love these examples and also in all these three books sound great. I've read essentialism before and loved it, but different sounds great. I mean, one point on, on different, just one.

Mike Gelp
One example that I like to think that I think about from time to time is Heinz. When he started with ketchup back in the 18 hundreds bottles. Back then, they didn't actually, they would never clear glass bottles. They were always like, it was hiding. They wanted to hide what the color was of the container because it usually especially ketchup.

Like, it wasn't actually this, like bright, you know, ripe tomatoes. It didn't look like that. It was very kind of dull, dull red and just not a very pretty brownish, pretty dull color. And Heinz really kind of had some ingenuity about how to actually produce his product and wanted it to really shine. And he's like, I'm doing clear glass bottles.

Like, you're going to know exactly the product that's inside. Um, and I mean, all this stuff because, you know, we, we obviously see a lot of glass bottles that are clear. But, um, that was kind of thanks to Heinz for, uh, for that. So I think that's pretty cool. Kind bar comes to mind.

Dayton Miller
Similarly, just showing that it's, uh, yeah, you know, and to that maybe, maybe just like final thought, like, I think innovation can take many different shapes and sizes and packaging. Innovation is real innovation that should be appreciated 100, 100%. Well, Dayton, thank you so much for your time. This has been so much fun. Thank you.

Thank you, Mike. I look forward to seeing you next week and really appreciate you having me on and love listening and being a fan of the show. So it's been a real honor to be on the day. That's so kind of you. Thanks so much, Dayton.

Mike Gelp
Really appreciate that. And there you have it. It was such a pleasure. Tony with Dayton. Dayton, thanks again so much for coming on the podcast.

If you're enjoying this show. I highly recommend checking out the newsletter@theconsumervc.com. You'll get all new episodes straight to your inbox and a weekly recap of all the consumer deals that are happening. Thanks for listening.