ACG Closes Fund V; What Are They Looking For?

Is the market for food and beverage investment looking up? According to Alliance Consumer Growth Partners (ACG) managing partner and co-founder Josh Goldin, the answer is a resounding yes. With yesterday’s announcement of the close of its Fund Five, the investment firm is poised to make strategic moves in the food and beverage sector.

Coming in at $160 million, Fund Five is less than half the size of Fund Four’s $350 million, and smaller than Fund Three’s $210 million. When asked about the change, Goldin was refreshingly candid. “It’s a tough fundraising environment for everyone. We're all part of the global economy and, unfortunately, subject to macroeconomic forces.” Credit where it's due, Goldin's honesty is a breath of fresh air in an industry often filled with platitudes.

But, Goldin also emphasized that the decrease in fund size was intentional.

“We are always trying to figure out, and it’s evolved over time, the right number of investments in a fund…[it works best when] you say, ‘Okay, we're gonna go make seven or eight or nine investments, and based on our average check size, what's actually the right amount of capital to go into a fund?” he said. “At the end of the day, the return is sensitive to the fund size. If you return the same amount on a bigger fund, it's a lower return. If return the same amount on smaller fun, you're a hero, because the returns are better. So we're always trying to optimize for having the highest possible returns for our investors.”

ACG plans to maintain its check size but will reduce the portfolio size from the 12-13 companies seen in prior funds to 7-9 brands. Generally, ACG looks for businesses with $10-$90 million in sales, though that can vary. Because ACG takes minority stakes in companies, versus seeking control deals, Goldin said, it can still afford to invest in larger companies.

ACG has a rich history of backing food and beverage brands, with its portfolio including Krave Jerky, Suja, evol, Bark Thins, Shake Shack, and Cappello’s. So I asked Goldin why Fund Four’s portfolio companies (Athletic Brewing, Skims, Harry's, Good American, Milk Makeup, Super Ordinary, and Herschel) largely fell outside these two segments. Some of these deals were simply a case of being offered a good opportunity or with executives ACG already knew, but Goldin said the makeup is also an indicator of the financial climate.

“During COVID, and post COVID, there have been complexities for food and beverage brands around manufacturing and margins, and it took companies a few years to figure out how to navigate [this]. There was a period where a lot of packaged food brands and beverage brands, even if they were great brands, they had challenges making the margins work,” Goldin said. “But in beauty, particularly prestige beauty, you're going to have a much higher gross margin profile.”

Similar moves from other funds, like VMG and CAVU, show ACG isn’t alone. However, Goldin said F&B brands should remain optimistic about raising capital in 2024 and beyond. As brands have recalibrated, the potential for better margins and solid finances has increased. He noted there’s a “high chance” that “a good portion” of Fund Five will be invested in food and beverage brands. ACG has already invested from Fund Five in Momofuku Goods and, he added, with founders no longer seeking huge (and often out-of-touch) valuations, ACG’s smaller check size allows the fund to be more competitive.

“I think the fundamental things that make a company or an investment great are still the same today as they were five or 10, or 15 years ago. It's still about creating an amazing, better product in a big pre-existing category,” Goldin said. “You also still need to have a price point that is accessible to most people — that could still be an accessible premium. But the hard part is still capturing really good economics when you're subscale. If you’re a $30 million food company, and you're selling at a 15% premium to the national big brands, it's pretty hard to have an amazing product and still have great margins and economics. That's the rare part.”

In short, while the landscape may be challenging, there’s plenty of reason for optimism.