Healdsburg fund looking for growth in farm-to-table industry

The North Coast’s farm-to-table food industry has seen many deals in recent years, from Cowgirl Creamery being gobbled up by Swiss dairy company Emmi to Hershey buying Krave Pure Foods of Sonoma.

But the July acquisition by a little-?known investment firm of Sebastopol’s Taylor Maid Farms, the beloved organic coffee company going strong for 25 years, stood out from the rest.

InHouse Ventures of Healdsburg was no big private equity group from Boston or San Francisco, out to make a profit on a three- to five-year turnaround. Rather, its website announces as its mission “to provide a balance of healthy financial return and meaningful social and environmental impact.”

The fund has four partners: Ted Robb; Susan Backer, former vice president of Traditional Medicinals in Sebastopol; Robert Brewer and Brian Gordon. It picked up $2.5 million in equity financing from one investor to help spur the Taylor Maid deal.

The fund has a sister company - InHouse, a sales and marketing company - that has done work with regional food producers in the area.

One of those companies is New Barn, an almond milk manufacturer headquartered in Healdsburg. Robb and some other outside investors are owners of that business. That holding is currently outside InHouse Ventures, but the team has not ruled out bringing it inside the fund in the future. Overall, its related businesses employ 56 people.

Robb and Becker sat down recently to provide more insight on what they see as their “soil-to-supper” business approach and what the future holds for the industry. The transcript has been edited for clarity and brevity.

Q: What advantage in the farm-to-table category do you have over others?

Robb: We see a lot of deals before a lot of people do. So they tend to come here and tune up with us and get their brand ready. As a result, we see those deals before anyone else. We see an opportunity to make investments and acquire really great companies.

Q: Why Sonoma County? An investment fund can be located anywhere.

Robb: If we do investments, we need a really clear sense of purpose. We feel Sonoma County is ripe to become a food hub. We feel we can be one part of that next generation. You’ve got Guayaki (yerba mate tea producer in Sebastopol). You’ve got a lot of great companies that are here such as Amy’s Kitchen (Petaluma). You’ve got Revive Kombucha (Petaluma) and a lot of these young upstarts such as Chevoo (marinated goat cheese producer from Healdsburg).

We have the agriculture. Sonoma County is blessed with the landscape. We have the food and we have the wine.

Backer: And the consumers. You have consumers who are looking for innovation and highest quality and organic and beyond. It’s the perfect place to launch products.

Q: What type of companies are you looking for?

Robb: I think the main thing is that we have identified for ourselves that they be good companies. But more importantly, if we can make investments in anything, why would we pick food? I think what we realize is that food is one of those things that connects everyone.

It’s also one the things that has the most impact, when you look at it from an environmental and social standpoint. When we acquired Taylor Maid, we acquired 42 more people. Those are 42 more real jobs in Sonoma County. Consumers buy millions of pounds of beans and that affects the farmers. All of the chain along the way has a component. We think that with InHouse Ventures, the biggest thing for us is we really want to create vertically integrated food companies.

It’s a bit of a throwback. It’s like “Back to the Future.” When a lot of the folks in natural foods first started, that was the goal. You want to own the farm, build the brand. You can really control the farm, the health, the workers, the health, the water.

Backer: We have our own farm-to-consumer because we want to work with those coffee growers in Central America. We want to roast the beans. We want to produce them. We want to have our coffee shops. We want from the bean to the cup, whether you are having it in Sebastopol at Taylor Maid or having it at home.

Q: Sonoma County is a very competitive grocery market, from chains to independents to Costco. How does that affect your strategy?

Robb: You’ve got this dramatically unsettled landscape. It’s unsettled all the time. You’ve got a consumer who wants to know everything and they want transparency all the way through. The sort of older retail establishment is having to deal with that with the younger consumer. Whole Foods is struggling to reach that millennial consumer.

We worry more about the consumer - the end-user. Our positioning, branding, everything we try to do starts with trying to understand people’s behavior and pattern and psychology. It’s worrying less about where they go, and more about reaching them with the right product.

Q: Why create an investment fund?

Robb: It’s one we spent a long time debating. The big thing we are really clear on is that we don’t want to have a public company. The reason is the quarterly performance. It really ruins food. It becomes such a focus on the financial component. When you’ve got the quarterly scrutiny in the public market, I think it makes it very challenging for companies to do the right thing, environmentally, socially at least in the way we believe it needs to be done. Guayaki would be a terrible company to go public. Their environmental practices, their social practices. Those things are incredibly important, but they are very hard to justify in a normal balance sheet.

Q: So the time frame of return for partners and your investors in the fund is much longer?

Robb: We felt the fund was an opportunity to attract more like-minded, patient capital (from people) who believe in the same things we do. Ultimately, it’s our job to steward their dollars to make this happen.

Raising capital from funds is another reason why we choose to do this structure. It’s incredibly frustrating to raise capital for a food entrepreneur. Typically, the funds that are out there - a lot of the professional money – they look at your gross margin, your topline revenue, basically how much they can get back and how fast. There is nothing wrong with returning investor capital. At the same time, if we are going to make meaningful change in any way, we are going to have to lengthen the timeline a little bit.

We are targeting more like a 10- to 15-year timeline. Our structure is built for the long haul. Like any system, we have some we hold, some we sell. Our goal is (raising) somewhere between $50 million and $70 million for initial funding.

Becker: We just see it being a beautiful thing that an investor would want to hold on, or reinvest as we go along, for their children. We are working with our families and other families to create some meaningful businesses that offer consumers lovely products, but also take care of the environment and social needs.

Q: So why is organic so important?

Backer: We have mentioned several times about being good stewards of the land. There are a lot of people out there who can invest in just any food. We just want to be in organic.

Robb: Everything in our portfolio will be organic. Taylor Maid was and some of the other things we are looking at are.

Q: What types of food products?

Robb: We tend to lean toward commodities because commodities are the staples in your house. Milk. Eggs. Wheat. Bread. Coffee. These are simple to understand. We are probably not going to invest in things that are really trendy.

We would look for a business that would reach a profitable scalability. There are a lot of companies in natural foods that will never be profitable, ever.

Backer: Coffee and dairy are the two things. We feel we could be busy for quite some time in those two areas.

Q: The coffee business is really tough and competitive. What is your strategy?

Robb: We are really clear now on coffee. We want to organize around communities. We want to organize around specific communities in particular. We see a coffee portfolio of smaller, community-based coffee shops. The aggregate of that portfolio will provide that return. So Taylor Maid is one and Sonoma, Marin, Napa counties are the focus.

We have another one we are in a deal with in the Central Valley. We feel we can go from Sacramento down to Fresno. It’s a good brand to grow. Taylor Maid sort of stays here, and the other ones go there. As we assemble that portfolio, it will be consistent. It will be organic. It will have similar values. It will have similar practices. We can do a much better job focusing on that community.

Q: How do you handle the growth in plant-based diets?

Robb: We have done a lot of work with dairies here. New Barn, candidly, was born out of that work. We started to look at the end user. They are shifting. They are not drinking as much (cow’s) milk.

Almond milk is an area that hadn’t been innovated for a long time. It was all sort of almond water as we call it, full of chemicals and emulsifiers. The thought was how do we go in and do something really simple, really clean, really organic with more almonds.

We think the consumer is shifting that way and that almond milk, in particular, is a very important household staple. It’s a disruptive brand. But it’s sort of one of those sleeper disruptors. We just didn’t go in with some big fire-and-brimstone approach. We went in and said there are four ingredients. It’s organic. It’s simple. Tastes great.

Q: How about cannabis?

Robb: That industry is very similar to what natural foods was 30 years ago. They have a growing-up to do. They don’t have distribution. They don’t have retail. They don’t know how to market to consumers. It’s a total mess when you think about it.

But there is opportunity in that. I would say for us, we have sort of come to the conclusion that there is going to need to be a first generation of pioneers in this. That’s not going to be us.

Q: Will kombucha grow or will it still be considered as a niche category?

Robb: From our standpoint, kombucha is under the category of probiotics. It’s one sliver of that umbrella. People love it. It’s very popular. I could see a company like Revive Kombucha doing really well in the long run. My feeling is those companies are going to have to expand into other categories; sort of subcategories of the beverage category. For example, I think one of the reasons dairy is declining so much is because people have so many other choices to drink. You don’t sit down and drink a glass of milk anymore because you might be drinking kombucha.

Q: Starbucks has ventured into offering wine and beer later in the day. Would you do it at Taylor Maid?

Robb: There’s that age-old thing of what do you do after 2 p.m.? For a lot of coffeehouses, how do we pay for the afternoon? I don’t think beer and wine are a magic bullet. I think it’s going to be location specific. If you are in a metro location where people are getting off of work, and they’re single and in downtown San Francisco, beer and wine make total sense.

If we pick a location, what offerings can we do beyond coffee that can draw people in? I think beer is one of them, for sure, given the amazing beer we have. No question wine would make sense. I think food is equally, if not more, of a driver for folks to come in and spend additional dollars.

It could be tacos, it could be bread making, it could be pastries. There are a lot of possibilities.

Rach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com.