Touting higher success rate and operational efficiency, coupled with vast networks of industry talents and capital providers that are typically difficult for first-time entrepreneurs to access, venture studios are attracting concept-stage consumer brands at an unprecedented rate.
The venture studio or holding company model is not new to the technology world since the 1996 creation of Idealab, which claims it has created over 150 companies to-date with approximately 30% exiting via IPOs or acquisitions. This model essentially allows venture studios to partner with founders during the creation or incubation stage after validating their ideas through market research, and leverage their internal resources and partnerships to help them scale.
Compared to traditional VC firms and accelerators, venture studios are more proactive in building brands, involved in startups’ daily operations, in addition to providing capital funding. However, interest in venture studios from the consumer sector, including CPG-focused venture capitalists, is a recent, yet fast-growing phenomenon.
With the backing of Satori Capital, Sands Capital, and VMG Partners, Austin, Texas-based holding company Redbud Brands has secured $46 million in a latest financing round to accelerate the launch of its incubation-stage brand portfolio, while looking to acquire and create more compelling products on the market.
The company, founded by Brian Goldberg and John Ferrari, has primarily focused on creating, incubating and accelerating healthy, better-for-you consumer products since its inception in 2020, such as fermented ready-to-drink juice cocktail brand SunDaze, plant-based nutritional supplements brand KOS and cannabis-infused snacking company TSUMo Snacks. Goldberg has previously helped build Amplify Snacks Brands, parent of SkinnyPop Popcorn, as a senior executive before the company was acquired by Hershey in 2018 for $1.6 billion.
As the lead investor in this round, Randy Eisenman, cofounder and managing partner of Satori Capital believes Redbud Brands has the “specialized knowledge and key relationships to capitalize on the shift toward healthier alternatives” in the consumer space. He said: “The Redbud team’s experience across many consumer verticals and their ability to add both strategic and operational value to their portfolio companies gives them a true advantage that we think will create tremendous value for our stakeholders.”
Wayne Wu, general partner of VMG, also commented: “We’re excited about the beginnings of a partnership with long-standing friends with Brian Goldberg, John Ferrari and Redbud Brands. We have similar ideology in an ecosystem-driven approach that Redbud uniquely brings to life through its brand incubation studio. We look forward to seeing their brands come to life over the years to come.”
High-Speed Business Development Engine
Redbud Brands currently operates a portfolio across various growth curves, according to Goldberg, with 10 ventures at around the seed stage where the company partnered with cofounders and funded the majority of their capital to launch and commercialize.
“Separately, we are working on several potential operating partnerships with companies where the business is already in the market with several million dollars or so in sales,” Goldberg said, in addition to serving as an operating partner in later-stage growth equity brands, including KOS, beverage flavoring business Torani, and nutritional supplement brand Physician’s Choice.
The goal for its incubation-stage businesses, in which Redbud Brands owns a majority stake, is to facilitate their launch by helping hire their first dedicated employees, and supporting their first 100 days in the market through an iterative approach to prepare them for scalability and retail expansion, Goldberg noted.
“We are a ‘no sharp elbows’ collaborative organization, and as such, it’s no surprise that we have multiple venture and investment firms that have invested in Redbud directly,” he explained, including one of the company’s earlier backers Springdale Ventures. “We also have a long list of former CPG founders, attorneys, bankers, retailers and CPG executives on our capital table and in our ecosystem. A key growth initiative for us is building advisory boards for each Redbud business to ensure proper leadership and corporate governance. We are an open door with a high-speed business development engine to continue to broaden our ecosystem so that we can collectively build exceptional consumer brands.”
With consumers increasingly looking for brands that resonate with themselves, Redbud Brands stresses how authenticity simply can’t be manufactured; instead, it takes “an entrepreneur’s core vision and story, and build complimentary teams” for them, according to operating partner Ferrari.
For example, Ferrari said: “When we created Picadas with Hugo Martinez because he felt, as a Mexican student at Stanford’s MBA program, all his classmates were enjoying better-for-you alcoholic beverages but none of them spoke to him and his Mexican peers. So we created the brand based on Mexican street art with a Mexican design firm, used a Mexican manufacturer to build the product, hired an all-Mexican team and subsequently launched the product in Mexico.” The initial success has helped the product attract major U.S. distributors and celebrities.
The Beginning Of A 20-Plus Year Cycle
Looking ahead, Goldberg expects the venture studio model to play a prominent role in the consumer venture and private equity ecosystem partially thanks to its reduced susceptibility to market volatility and the growing demand for better-for-you, sustainable consumer products.
We operate our model to ensure there are very low burn rates on brands during the early years: since we fund the seed stage of our businesses, we don’t have extreme sensitivities to external investor appetite changes,” Goldberg explained. “Notably, consumer investing also performs very well in counter cyclical environments which we would welcome. If there were a slowdown, we would likely have better access to talents, manufacturing and vendor capacity and less new brand competition.”
Goldberg mentioned how Redbud Brands is currently working on a new healthy snacks made from a regenerative dairy farm, and the team hopes to slowly incorporate these new ideas into people’s consumption habits and eventually make them mainstream.
For the near term, he added: “We expect the market for consumer brands, especially in the wellness space to remain very strong… we think wellness and anti-aging, better-for-you food and beverage, and sustainability are going through a 20-plus year supercycle that is just starting.”