If you were at Natural Products Supply Expo West, you were probably impressed with the number of competitors. There were hundreds of companies with nutritional supplements, organic products and “fill-in-the-blank”-free fragrances. Which companies made the originals and which the knock-offs? You couldn’t tell from the product labels.
Apparently, some venture capitalists think they can. A month from now, about a dozen companies will pitch investors at NCN IV in New York. Nutritional Capital Network, a consulting firm that publishes NCN and hosts webinars, produces the event at which established businesses might attract as much as $50 million and early-stage companies as little as $500,000. By the way, NCN held an investor forum at Expo West.
What types of companies might be invited to the spring tryouts? A recap of the fall conference provides a clue:
- 2 natural/organic personal care companies
- 2 baby food companies
- 3 beverage companies
- 8 snack, bar and food brands
- 3 representatives from the dietary supplement segment
- 3 raw material companies (ocean fish farm, buffalo meat provider and snack brand, nutritional oils)
- 1 independent retailer
The companies also varied by annual revenue. According to NCN, the largest company had $32 million in sales, but most were between $3 million and $10 million. Of the 22 presenters, six were early-stage companies, “but virtually all presenters showed recent growth well into the double digits.”
If there were not a banking crisis, a company with solid income could get a loan rather than give up part of its equity. So, what’s in it for both sides? The presenters get cash, not credit, to fund their ideas or build out sales channels.
And investors? As a rule, venture capitalists like companies that have proprietary products, a first-mover advantage and something more than “Superfood” scribbled on a paper napkin. They are also looking for an exit strategy, such as an acquisition or public offering. The application, due March 20 for the spring event, doesn’t provide any insight into the minds of investors. The form asks for customary information such as:
- Business model or unique value proposition
- Product descriptions, brand names, patents, trademarks or exclusives
- Distribution channels
- Current management team
Based on those criteria, it’s hard to differentiate between a nanotech company and a nutraceutical firm. Therefore, marketing may be as important as any aspect of a presenter’s chance for success. Supplement companies cannot make disease-related claims, so intellectual property such as formulas can take a manufacturer only so far. Foods are highly regulated, so even nutrition-fortified products operate within narrow confines. And organic products must conform to USDA and industry association rules to earn their seals.
But for the next Apple or Google of the nutrition world, the money is there. As always, the trick is to persuade investors to part with it.