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Thanks to the war in Ukraine war, unprecedented supply chain challenges, inflation and lingering effects of a global pandemic, operating an organic food business has never been more difficult.
Given these conditions, it should come as no surprise that the once ravenous and seemingly insatiable demand to invest in organic brands has reversed course in dramatic fashion.
One way to measure just how stunning this about-face has been is to analyze how Wall Street has valued publicly-traded, organic/natural food companies over the past few years.
In approximate terms, here is a look at the valuation multiples of Vital Farms, Laird Superfood and Zevia.
VITAL FARMS (VITL:NASDAQ)
October 2020 — 12.1x trailing revenue
July 2022 — 1.7x trailing revenue
LAIRD SUPERFOOD (LSF:NYSE American)
December 2020 — 20.6x trailing revenue
July 2022 — 0.5x trailing revenue
ZEVIA (ZVIA:NYSE)
September 2020 — 10.2x trailing revenue
July 2022 — 1.6x trailing revenue
For most organic brands, going public is neither realistic nor an aspiration, yet this analysis does give us one data point regarding the willingness of investors to own a piece of an organic food business.
But how do venture capitalists, who invest in private organic companies, view the current environment?
“Doing an equity raise is rough right now, and it is a harder time to get capital,” said Genevieve Gilbreath, co-founder and general partner at Springdale Ventures. “We are seeing a lot more bridge rounds (convertible notes) getting done because brands want to ensure that there is extra capital on hand in case of a downturn. However, most VCs are waiting until the end of Q3 to see what is happening in the market and for valuations to compress. And they are compressing. The ‘growth-at-all-costs’ approach has gone away, and tech investors are much less interested in CPG right now, which is also helping to normalize valuations.”
According to Ross Iverson, chief investment officer of Manna Tree, “It will be more challenging for firms without significant adoption levels to receive funding while they are burning cash. New business models, new ingredient types and new brands will struggle the most through this cycle. On the flip side, firms that are getting creative by partnering, merging or building platforms to scale may be more appealing to investors to gain the level efficiencies and correlating profits sooner. We have always been very selective in our approach, and out of the 1,100 deals we have reviewed in the past 48 months, we have invested in 12.”
One segment of the market that has been actively making investments in younger organic brands has been the CPG multinationals. But the manner in which they are approaching deals has changed with the market as well.
“Three to five years ago, the big strategics were sprinkling money around, but you are now seeing more focus from them,” said Jonathan Hodson-Walker, managing partner of Silverwood Partners, an investment banking firm that advises CPG brands. “The strategics are still making minority investments, but they are less interested in buying small brands that are experimental and can’t be $100M businesses. Supply chains and scale are very important to them right now.”
Manna Tree’s Ross Iverson shares this sentiment.
“From our experience, the larger CPG brands would like to see ‘turn-key’ operations versus absorbing into existing infrastructure due to the supply chain pressures. They are also wanting to see larger revenue levels to ensure consumer adoption of a product. I believe they will continue to look for compelling minority investments to ensure they have a seat at the table for acquisition.”
When that potential acquisition comes is a lot more unclear given the current market conditions, and brands need to be ready for what may lie ahead.
“There is a ton of uncertainty right now, and we are telling our portfolio companies to prepare for what might be a downturn. Pull back where you can but still drive growth, and have a very strong point of differentiation. If your supply chain is not really tight, you will get cut off from shelves. Target doesn’t want to deal with anyone who cannot fulfill orders,” put forth Genevieve Gilbreath.
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With gratitude, 
Max Goldberg, Founder |
An excellent analysis of the economic situation in Sri Lanka and what the media, including Tucker Carlson, fail to mention when blaming the country's financial problems on the switch to organic farming.
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