November 6, 2019

Sell Online or Go Door to Door (#77, Sun & Swell Foods)

by The Pitch

Kate Flynn has a plan to make her healthy snack bites stand out: skip the grocery stores, and find potential customers when and where they need a snack. It’s a strategy that’s outside of the investors’ wheelhouse, but if she can get them to try something new, they might be in for a treat.


Today's investors are Nimi Katragadda, Al Doan, Sheel Mohnot and Charles Hudson.

Transcript

You’re sitting at your desk, it’s 3pm on a Monday, and you start craving ... a healthy snack ... What do you reach for? You have SO many choices. 

You have RX bars and Clif Bars. You have organic chips or, gluten-free granola bites, vegan fruit leather, whatever … It’s like the golden age of health conscious snacking. 

Well, today’s founder ... says you shouldn’t pick any of those… you should pick her snacks. She says her little plant-based, bite-sized mashups of dates and cashews will emerge victorious in the snacking revolution. But not just because they’re delicious. She also has an unconventional plan to make her snacks stand-out from the competition. 

But unconventional also means unproven. Let's see if Kate can get the investors on her side.

From Gimlet, this is The Pitch. I’m Josh Muccio.

Today’s investors are: 

I’m Nimi

Nimi is a partner at Box Group, where they’ve invested $100M in over 400 startups. Including one company you’ve probably heard of, Warby Parker.

I’m Al Doan

Al built several ecommerce brands, two of them do over $100m in annual sales. And now he’s an angel investor.

I’m Charles Hudson

Charles started Precursor Ventures, where he’s invested $45 million in over 100 startups to date.

I’m Sheel Mohnot

Sheel has sold 3 startups for over $50 million dollars. Now he’s an angel investor and he’s invested in several companies worth billions today.

All right. On with The Pitch. 

Al: Hello!

Kate: I'm Kate.

Sheel: Kate, I'm Sheel.

Kate: Nice to meet you.

Charles: Hey, I'm Charles.

Kate: Nice to meet you. All right. Okay. So my name’s Kate Flynn. I’m the cofounder and CEO of Sun & Swell Foods. Did you know that three out of four women in the US have an unhealthy relationship with food? I was one of those women for most of my adult life. About three years ago, things changed for me when I stopped obsessing over numbers, like calories and the scale, and I started focusing on the foods I was putting in my body and how they made me feel. Staying away from things like added sugars, added preservatives, or things that don’t necessarily make your body feel great. And I would go into stores looking for grab and go snacks that I could eat throughout the day. I’d flip over the healthy snacks, and they would all have ingredient lists like 40 ingredients long with ingredients I didn’t know how to pronounce or I was trying to avoid. So I launched Sun & Swell Foods with a mission of making simple whole food eating more accessible to people living a really busy on the go lifestyle.  So I’m here today raising $600,000 so I can make this world a healthier place one bite at a time.

Charles: Very cool.

Kate: So I’ll hand out some snacks.

Sheel: Wonderful.

Kate: I have little packs for each of you.

Kate hands out small packets with her first product – snack bites. She’s brought them in cinnamon, chocolate and lemon-coconut.

And I tried them too. They’re so good. I was expecting little flavorless, cardboard-tasting lumps. But it turns out, these aren’t like the date balls my dad used to make. My favorite flavor … is the same as Sheel’s ...

Sheel: Tasty. I like the cinnamon one.

Kate: Yeah thanks. 

Al: Cool.

Sheel: What do these retail for?

Kate: $3. 

Sheel: What are your margins like on this product? 

Kate: Yeah, so our COGS are 90 cents and our average selling price is umm $1.60. So we have about 45% margin right now. 

Sheel: And with these four SKUs? Or are there others? 

Kate: So we launched with this line, it's our snack bites. They're all date and cashew based. We hit the market in 2017. Since then we also have launched some cookies and we have a trail mix and a cracker.

Al: Is it like an, I mean is your target space, is it like energy bars? Is that your competition? Or is it like snack foods, like a healthier potato chip sort of thing?

Kate: Yeah so it's… we don't like the word energy because we don't add anything to it.

Al: I hate it too.

Kate: But so but our overall vision is to serve all the snacking occasions. So I talked about a few of those other products that we launched, which are mainly, like, the crackers. But that's a product targeted towards literally the clean consumer who would never eat a Cheez-It. Or who would never eat a Wheat Thin. And so it's like, they don't have any options there. 

Charles: So this is a pretty competitive category. Tell me more about what your ultimate vision is and what does it take to build and scale a company in this category from scratch.  

Kate: So I think… So two years there was no bite or ball category.

Sheel: Sure.

Kate: Now there is. So we're excited to be part of this fast growing category of bites and balls. But we know that's not completely defensible. So it all comes down to brand. So for us we try to communicate simplicity. Clean and simple brand. So our strategy has always been to sell our snacks in places where our core consumer is spending their day. So that's places like coffee shops, fitness studios, workspaces.                                                                                                                                   We really target those trendier coffee shops where it's… the awareness and the visibility is really good for us. I mean, if you go into Barry’s Bootcamp, it’s our product sitting next to RX Bar, Epic Bar, Vital Proteins. Three of the biggest brands in this CPG food space.

Nimi: That's awesome. 

Kate: And ... they found us. They found us in LA and they reached out to us. 

Charles: And so right now it's all retail. Is there any direct to consumer? Or...

Kate: Yeah so we do, we do sell, it has historically been about 20% online.  So we totally know the importance of the channel and we cherish those relationships with that portion of our customer base. It just hasn't been our core growth strategy. 

Nimi: Do you think you ever go for a traditional retail?

Kate:  It’s definitely not in our strategy in the near term. But this year we've started going after the corporate offices. And umm that's going to be our main focus of growth over the next 12 months. 

Charles: Are there good examples of companies that have... I guess I'm more accustomed to building brands directly to the consumer as opposed to the employer. 

Kate: Totally.

Charles: Are there examples of that, or can you give me more insight on how you think the office channel helps you achieve your ultimate vision?

Kate: Yeah, totally. And I would say, not just office, but alternative channels in general.  So a great current example of one is Oatly. Have you guys heard of Oatly?

Sheel: For sure.

Kate: Like, they're a coffee shop brand. And that's like 70% of their business. And after establishing the brand there, then they started to roll out into grocery. You know, RX Bar got their start in fitness studios and CrossFit. Personally, like I think one of the biggest barriers to people building a food business is it's really hard. So my cofounder is my husband, Brian. And Brian's background is in sales. He actually did sales and sales operations in the tech space. But we knocked on 400 doors. And everybody asks us how we did it. We're like, it's no secret sauce, it was just, umm just....

Al: Knock on doors.

Kate: Knocking on doors. Which nobody wants to do. And obviously as we're looking towards our next scale of growth we can't build it one door at a time, and that's where, you know, the best thing about the corporate world is the snacks are free. And so it's like free trial. 

Everyone loves a free snack! It’s a fair point, and a smart way to get the word out about the brand. But it’s not what these tech investors are used to. They’re like …  have you tried this thing that we love, called the internet?

Al: What would it take to convince you that ah... That was the worst idea ever and you should...

[laughter] 

That’s coming up … after the break. 

[break]

Welcome back. Kate Flynn is pitching her plan to turn Sun and Swell into the next big brand in healthy snacks. And that plan, lives and dies on her ability to sell to coffee shops and corporate offices. Which is a big change from what these investors are used to. And Al, with his deep ecommerce background, is particularly skeptical. 

Al: I’m so torn because I hate the corporate growth channel. I love the D2C, like, let’s go to Amazon, let’s get in Wholefoods, let’s go that route. It just feels so much slower to go the hand to hand combat of coffee shops. I mean, 400 doors is great, but that’s like, that’s one good sale in another space, right?

Kate: Totally.

Al: Is there... Talk to me a little bit more just about why, I mean...

Kate: Why we chose that?

Al: Yeah, like why? Like, could I convince you to...

Kate: No, totally. So I go back to who our core consumer is. And when are they in that emergency pinch where they need something like this. And it’s when they’re on the go and they’re out and about and at they’re at the office or they’re at the coffee shop.

Al: Why aren't you $10 million in sales tomorrow? I mean, Brian sounds like he's great he could murder this like.

Kate: Well, our constraint has been largely our time... Like, we do everything. And we're not, I mean... We have a couple part-time, we have a kitchen staff, we don't make the product anymore ourselves.

Al: Which has to feel really good.

Kate: Right. So we do have some support. But exactly what you're saying. Like building the business one door at a time to 400 doors to get, yes, hugely time intensive.  We realize that. My approach as an entrepreneur was like get validation. Okay. Try again. Get validation. Try it again. Like I think personally, my journey just needed to start a little slower and steady. And I now I'm just at this point where we're like, we just need to grow this thing. People want it. Businesses want it. Customers want it. We just need to grow it. So we did 150k last year in revenue. And then this year we've started going after the corporate offices. Umm We're planning to do 250k in Q4. So.

Sheel: 250k in revenue you're going to be in Q4.

Kate: In Q4.

Nimi: What’s your aspiration for how big this company is? 

Kate: So my vision is to have a brand that reinvents the world of packaged food. And I think it starts with like… I firmly believe 10 years from now, the grocery industry and the snack food industry is going to look so different because we’re just becoming more aware every day about how we can’t keep eating these heavily processed ingredients. If I look at the big success story over the past couple years was RX Bar who in five years go to 120 million. Something I feel really solid about is that in three years we could get to 10 to 15 million. And like my ultimate vision would be to have the brand you know well over 100 million dollar brand, and play across categories and whatnot.  Umm but I feel like that’s super achievable for us. 

Kate's got pretty good answers for the investors' concerns ... except for one. Al is still hung up on the idea of selling door to door. It’s too old school, manual, archaic even! For this internet born millionaire.

Al: Yeah, the corporate channel is such a, it’s such a different space than I know. I mean, what would it take to convince you that ah… That was the worst idea ever and you should...

[laughter]

Al: Like, what would it take to pull you into other channels and go right away? Or is it just human capital constraint? 

Kate: It’s resource constraint. I would love to build our brand more in DTC. But I just don't have the, I don’t have the strategy behind it right now. Or the expertise ... 

Al: Does it hurt the strategy if you show up in Costco tomorrow?

Kate: Yes. I think so. umm I think, well, the biggest way would hurt our strategy is I think we lose focus. So we start designing products around Costco and  it would be a little bit pulling away from focus of what we’re...

Al: Sure.

Kate: ... trying to do. 

Al: Man. I love, I love the product. Like my wife, my wife she, all my snacks have turned into this kind of stuff. And I miss my chewy Chips Ahoy. But uhh but no, I mean, this is a space that is kind of near and dear and I love the ingredients. I mean, it feels like it should exist everywhere. The value add that I know how to do is like, let’s go and be everywhere and that’s how we’ll succeed. And so there’s this part of me that wants it to be the way that I know how to do it. I’m looking at it through the lens that’s familiar. So I’m not going to say anything yet. I’m just going to hang out for a few more minutes and just see.

[laughter]

Al: Still stewing over here.

Sheel: I don’t mind the corporate channel actually for where you’re at today. I think direct to consumer is actually pretty hard in this category. I worry about it from a venture returns perspective. And I think that your projections are totally realistic. I just, for me, it’s not the return profile that I’m looking for for a venture investment. 

Sheel: So I’m going to pass on investing. But would love to be helpful.

Kate: That would be amazing. Thank you so much. 

Sheel: Sure.

Charles: So I really like, I really like you. 

Kate: Oh, thank you.

Charles: I think one thing I really appreciate about you is I think you have a very authentic sense about how you got to where you are. And the things that come natural to you on the corporate side versus pretending that you have this deep background in direct to consumer. And I think part of being successful as an entrepreneur is understanding kind of your own unique path. And I appreciate the fact that you haven’t oversold what you think is possible. My only reservation right now is I don’t, like, I don’t know enough about the corporate channel. And I definitely get the sense that’s where your instincts say to go. And I think if we can crack some of the distribution stuff, this could be really big. So I’d like umm to look at a small investment for our fund of like $10,000. 

Kate: Awesome. 

Nimi: I love, I love the whole story here. And I love the product, and it's delicious. Um we’ve invested in quite a few direct to consumer brands, like Warby and Harry’s and I think our expertise and sweet spot is really where companies do go heavy on DTC in the beginning. And so I’m passing for now. But would love to stay in touch and really really enjoyed meeting you. 

Nimi and Sheel are out. Charles is in for 10K but our hold out is Al Doan. Who has been on the fence this whole time.

Al: Okay, I want to come along for the ride.

Kate: Woo! 

Al: I’ll put in ah... I’m in for like 20, 25.

Kate: Awesome.

Al: Let’s talk. I think, man, I think that there’s a lot of cool stuff we could riff on and come up with. I’m excited to see where you go with it. It’ll just be fun to be in the same, on the same side of the table trying to figure this out. So that’ll be cool.

Kate: Awesome. Thank you guys so much. Oh my gosh. I have to say, I’m just, // the thought of me being a founder never crossed my mind a couple years ago. So even just being here is like... I kind of have to take a moment. This is awesome.

[laughter] 

Kate: So thank you so much.

[thank yous]

Nimi: Thank you.

[byes and thanks]

Charles and Al are IN like Kate Flynn. Anyway, after she left the room with at least $30 grand in commitments, I popped in to find out what it was about Kate, that convinced Charles and Al to invest ... in a strategy that clearly, they were uncomfortable with. 

Josh: On the show it’s often pretty hard for food and beverage companies to get over the line.

Sheel: Yeah.

Josh: What is different here?

Charles: Her. Like, you know me, I’ve been in most of the food and bev pitches. I think some of the other ones I felt like were more conventional in terms of their approach. And I think Nimi and Sheel both hit the nail on the head which is like, those channels are really competitive and so if you’re an inexperienced person who wants to exploit Facebook and Instagram for DTC, I think that’s like running into a buzz saw.

Sheel: No chance. 

Charles: And there are other teams we’ve met before, I’m like you’re going up against way more sophisticated people in the distribution side in the channel that you’re going after. // And I feel like this is mostly a distribution game, and the thing I thought was interesting is she’s picking a distribution channel that I maybe don’t like and know nothing about, but if she’s successful, I think it’s a really unique angle. 

Josh: A more specific question. You may have already answered this, Al, but like... You said you needed more time as you were kind of mulling over her strategy. And then you said, I want to go along for this ride. What exactly changed your mind?

Al: Um… I just had to think through the coffee shop space. Like, I want this to exist where once people sample it and they want to go back and get it, it should be as hard as it is. But the D2C I didn’t think was the right move. I think, like, I want to see this in Wholefoods and everywhere else, so as soon as you make that customer one of yours that they can go and replenish all day long. But I don’t know man. Yeah. It’s her. She’s very self-aware, she’s got a good angle on stuff. I didn’t feel like she was BSing us through any of the we’re gonna market our way to victory here. Very realistic.

Josh: So her distribution strategy of selling it at gyms and boutique coffee shops was both the reason that gave you pause to not invest, and the reason why you ultimately decided to invest.

Al: Yeah.I mean, like literally, I said, I’m just going to go along for the ride. I want to see this. I want to see how it goes. 

When we come back, Al comes along for that ride. But Charles? He’s another story.  

[break]

Welcome back. We caught up with Kate a few months after her pitch. And she surprised us when she said that halfway through her round … interest from investors started to wane and her round kind of stalled out.

Kate: I think the reality is we didn't realize how long it was going to take to fundraise. I mean like this is our first time really fundraising and everyone tells you it's going to take, you know, twice as long as you think it is. But of course we thought we were going to be different and so we didn't really have a choice. Like we didn't have the money to start putting money into digital marketing. We didn't have the money to hire another person. And so we were kind of forced to keep operating really scrappy.

But Kate said, that because their scrappy, plan to sell to corporate offices ... is starting to work. They aren’t stressing. Actually they’re doing pretty well despite being only partially funded. Which is why she was like, why would I waste time raising Which is why she was like, why should I spend anymore of my precious time ... pandering to VC’s when I could just keep crushing it on my own. So she actually stopped pitching new investors.

But before she stopped pitching Kate was able to reel in the dough from AL, the investor from our show who put in 20K. So that’s cool. But Charles Hudson on the other hand…

Kate: Yeah, I tried to reach out to him a couple times. Um, and I just, I never, I never heard back, you know, my perspective is I want them to be excited about working with us and excited about our company. And after I've sent several emails, I just feel like if he's excited about the company, then he'll, he'll remember to reach back out. But I just didn't want to be pushing some someone and forcing someone to do something that, you know, they're not super excited about. 

Kate got ghosted by Charles Hudson... but she had no idea WHY. 

So we called Charles. Turns out, he was sorry that he left Kate in the dark.

Charles: Oh, it feels awful.

Josh: Yeah?

Charles: It feels awful. 

Josh: Why?

Charles: Historically, you know, this is, I think in 200 some-odd investments, probably the first time I can think of where we made a commitment to somebody, had every intention of fulfilling it, and haven't been able to, and it's one of the things we pride ourselves on, is sort of not making commitments that we can't live up to, and this is the first time some circumstances in the portfolio put us in a position where we couldn't do that. 

Josh: Yeah. Do you want me to get Kate on the phone right now?

Charles: Sure. I'm happy to talk to her live.

So I texted Kate, and told her Charles wanted to talk …. 

[ringing]

Kate: Hi this is Kate.

Josh: Hey Kate. Okay, Kate, Charles, are you both there?

Kate: I'm here.

Charles: I'm here.  

Josh: Charles, I'll let you take it from here.

Charles: Yeah, hey look, I just wanted to apologize for not being responsive to any of our outreach. And uh every time I heard from you I was like, "Oh, we're on the cusp of being able to write a check." and I should have just told you what was going on, but we got into a bit of a jam after the show where we spent a bunch of time trying to forecast which of our portfolio companies are going to come back and ask for more money. 

Kate: Yup.

Charles: We had significantly more companies come out of the woodwork than we had modeled, and every day I thought we'd sort of reached a steady state, and I said, "Okay, now I know where we are, I can give Kate some guidance," and another one came out of the woodwork. So the dust has finally settled on our end.

Kate: No worries. Charles, honestly, I'm the same way sometimes. I never take it like offensive. I was like Charles will get back to me when he can get back to me, so no worries. I know how crazy things are, and I totally understand.

Charles: Yeah, and so I think we're going to have some proceeds coming back from an acquisition that would allow us to make good on our commitment to make an investment and work with you, and try to get things back on track if it's not too late.

Kate: Totally. No, that would be amazing. I'm around the next couple weeks, so just touch base when you're ready and we'll go from there.

Charles: Sounds great.

Kate: Thanks, Charles.

Josh: Before you guys go, I feel like I'm the startup whisperer here or something, like mending founder and investment relationships here umm I'm thinking about this from a customer perspective. In a way Charles, like Kate is your customer, right? 

Charles: Not in a way. She is. It's not in a way.

Josh: Okay, so she is your customer, but if you were thinking of any other industry, there's a place where the customer can go and like rate and review the service they're getting, and so then word gets out that like this company doesn't have good customer service, or like whatever.

Charles: Yup.

Josh: But I feel like in this industry, in venture capital, this happens all the time founders don't hear back from investors and they don't know why and they don't know if they'll get the funding. And I think it's a problem. I feel like it should be fixed, but like I don't know what the solution is. So, Kate you weren't bothered at all that Charles hadn't responded to three of your em ails? 

Kate: So, this is something I think happens commonly with founders and entrepreneurs, like this has happened to me before, it's better to just have like a, "Yes, I'm in," or, "No, I'm not,"  but I don’t personally get offended or upset about it, because I think it happens all the time. 

Josh: Yeah

Charles: I assume that if I do a bad job in terms of responsiveness in treating people well, that when they're friend says, "Hey, I'm thinking about pitching this person," they're going to go, "Phew, I had such a bad experience, like don't waste your time. I assume that that will be the consequence of not doing a good job. And the reason I know this happens is we have 300 founders in our portfolio, and I know sometimes they'll come to me and say, "Hey, I've heard this person isn't good," or, "I've heard that this firm isn't responsive." "I've heard this firm wastes founders' time."

Josh: Huh.

Charles: That's coming from somewhere. The answer's with other founders.

Josh: Yeah. 

Kate: I think for me like, it's so much dependent on how you connect with an investor. There's been people who've us, "Hey this is like the best person for you. They're going to be right." But if the connection's not there, and like for me, it's like you need to see how you feel. How does your gut feel when you talk to the person, when you meet the person? [fade in Know Glow Simp] I'm sure the investor feels the same way. 

Josh: Yeah, okay. Cool. 

Charles: Thank you for this. All right, talk to you soon.

Kate: All right. Thanks Josh, thanks Charles. Bye bye.

[scoring in the clear]

All in a day’s work. Jk I can’t take any credit.  Actually this reminds me… I have some emails that I really should respond to … oops!

Credits:

The Pitch is hosted by me, Josh Muccio. Produced by Kareem Maddox and Heather Rogers. We are edited by Sara Sarasohn and Blythe Terrell.

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Lisa Muccio planned the recording of this pitch. 

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