Private equity firm VMG Partners announced the close of an $850 million fund, VMG Growth Fund V. This brings the San Francisco-based firm’s total assets under management to roughly $2.6 billion.
Founded in 2005, VMG has backed some of the biggest CPG brands to date including Kind, Bare Snacks, Pirate Brands, Perfect Bar, Daily Harvest and more. With a new $850 million under management, the private equity firm will undoubtedly be looking to add new burgeoning brands to its fold.
VMG has a knack for placing bets on startups poised to capture a growing consumer trend. It has invested in direct-to-consumer functional ingredients shake maker Daily Harvest, kombucha maker Humm, low/no-sugar confection maker Lily’s and premium meat snack maker Vermont Smoke & Cure.
Working with a private equity firm offers startup brands a different opportunity compared to venture capital firms or in-house incubators that food manufacturers offer. This includes being insulated from shareholder demands and often a more gradual timeline toward making an exit. This can alleviate some of the pressure that comes with working with a traditional VC firm, which is usually looking for quick returns. In-house incubator programs may come with a number of strings or specific requirements from the food manufacturer at the helm.
VMG has a track record of turning small-scale startups into household names and offers startups more than just capital. In 2019, for example, VMG helped revamp Popchips’ image after the brand faced criticism for a racial incident involving then-backer Ashton Kutcher. It was also sued for misusing the term natural and settled the suit for $2.1 million in cash and $300,000 in vouchers. VMG started by naming Popchips as the inaugural brand for its then-newly launched Velocity Snack Brands platform, which provides capital and support to emerging snack startups.
The opportunity to work with VMG would open a number of doors for a startup looking to build its brand and scale its product. In 2018, it backed sparkling flavored water maker Spindrift with $20 million. The brand went on to create its first national TV campaign and extended its retail network to major grocers like Whole Foods and Kroger, as well as Starbucks. What likely drew VMG to Spindrift’s capital table, however, was the brand’s meteoric growth. It grew its revenue 1,000% in the three years leading up to the investment. It also likely saw the rising tide of consumers’ thirst for flavored sparkling water beverages.
VMG may have some stiffer competition when it comes to signing the most promising startups. Established food manufacturers are hungry to get new brands that meet shifting consumer demand under their roof. Mondelez recently launched an early-stage snack accelerator called SnackFutures. It has been taking an aggressive approach to acquisitions and investments in early-stage brands. Other major brands with venture capital investment arms include Danone, PepsiCo, Nestlé and General Mills.