Goat Rodeo Capital Founders Discuss Investment Strategy, Upcoming Fund – Forbes

Carlton Fowler, the co-founder and managing partner of venture capital firm Goat Rodeo Capital, doesn’t like to take himself too seriously.

A photo of Fowler dressed in a Hugh Hefner-style smoking robe and holding a bottle of Miller High Life was my introduction to the marketer turned money manager. But don’t let the cozy comfort wear fool you: He doesn’t mess around when it comes to placing bets on up-and-coming beverage and cannabis ventures.

Fowler and business partner James Pelligrini worked together at E. & J. Gallo Winery before launching the first Goat Rodeo fund in mid-2019. Since, the pair has made more than a half-dozen investments into early-stage companies.

“Our hard and fast rule is that you won’t see us investing in brand only,” Fowler said of Goat Rodeo’s thesis. “There needs to be something in there. Ideally that’s a piece of true IP, either liquid or package, or a unique go-to-market model that bypasses one of the tiers.”

Goat Rodeo’s portfolio includes investments in emerging beverages such as DRNXMYTH, which makes cold-pressed RTD craft cocktails that are sold directly to consumers, and One Hope Wine, a Napa Valley winery that has a multilevel marketing twist to its business model.

Meanwhile, in the cannabis space, Goat Rodeo has backed Vertosa, a leading cannabis technology company that is helping pioneer an emerging category of THC and CBD-infused drinks.

I recently caught up with Fowler and Pelligrini to learn more about their investment strategy, and to understand what they look for in potential partners. We also discussed what’s on the horizon for Goat Rodeo in 2021.

Our conversation has been condensed and lightly edited for clarity.

Chris Furnari: How did you go from working at a wine and spirits company to investing in them?

Carlton Fowler: We were working in the spirits division for E. & J. Gallo and were largely responsible for building out their new brands. Over the course of like five years, we put out a bunch of successful products, and as we were going through that process, we realized we were building a team to maximize value for a large supplier. So we started thinking about what would happen if you had a blank sheet of paper. What kind of systems would you build and how would you go to market if there weren’t any legacy aspects of a major supplier. That drove us to start a consultancy and eventually raise a fund to start putting a lot of the things that we’d learned and dreamed up into practice.

Furnari: Where are you guys sourcing capital for your investments?

Fowler: There are a lot of high-net-worth individuals who are interested in this space. We provide diversification as well as industry insider insights. We understand how stuff should go to market and how to unlock a lot of value. The other primary source of capital comes from family offices. We feel we can be some of the smartest money in the space and drive really good valuations as a function of that.

Furnari: And you’re mostly participating in seed investment rounds?

Fowler: Primarily. And to some degree it’s a function of circumstance. We wanted to write meaningful checks and have enough of a corporate governance role, which almost forced us to participate in seed rounds. As the fund went along, however, we found that our counsel was so useful to the CEOs and the board that companies as far along as a series C would approach us and make us massive discount offers just to get our counsel. They didn’t need our capital; they wanted our point of view.

Furnari: And how large was your first fund?

Fowler: When you include the follow-on vehicles, it was around $9 million.

Furnari: You’ve got a pretty diverse portfolio of investments, everything from a direct-to-consumer wine brand, to a nonalcoholic lemon water and even a cannabis tech play. You must see dozens of pitch decks. How do you determine where to invest?

Fowler: We’ve seen enough new product launches to know how incredibly capital intensive they are. Our hard and fast rule is that you won’t see us investing in brand only. There needs to be something in there. Ideally that’s a piece of true IP, either liquid or package, or a unique go-to-market model that bypasses one of the tiers. Take Vertosa — we believe in cannabis beverage and the “share of buzz” thesis, but Vertosa isn’t any one B2C company. It’s a bet that will rise as cannabis beverage rises because of its IP. Take One Wine Company — that business doesn’t require distribution through the traditional wholesale tier at all. In fact, it’s trying to become the Amway of wines and move to market that way. Take DRNXMYTH — there’s an actual patent on that package, which allows us to generate enough demand digitally that we’ve been successful minimizing the role of the middle tier. That’s our overall thesis. How do you get to market more efficiently without primarily using the middle tier and the on-premise.

Furnari: What’s next for Goat Rodeo Capital?

Fowler: We are targeting $30 million or more for fund II, and we have two anchor investors that have come forward with eight-figure checks. We’re still very bullish on cannabis, but Goat Rodeo Fund II will not include cannabis. We’ll either continue to build special purpose vehicles or raise a separate fund. We want to keep those streams separate.

James Pelligrini: One of our competitive advantages in that traditional funds typically have some morality clause. It turns out that a lot of high-net-worth individuals have clauses in their contracts around where they can invest their capital. In the past, we’ve had people who are interested in the fund, but couldn’t participate because of its exposure to cannabis. So, I think we will primarily look at alcoholic beverage, and larger traditional beverage. There will also be a portion of this that will be earmarked for nonalcoholic alternative beverages.

Furnari: And where do you see the alcohol alternative category going?

Fowler: I think people want to reevaluate the role of alcohol in their lives. And I think the short-term — and kind of obvious — win is something like Seedlip. It solves a problem for some of the tiers. The distributor can sell it for a very good margin, and the on- and off-premise accounts can sell it for a very good margin. If you solve some problems for some people in the value chain you’re going to do well. But I don’t know if that product fully solves the problem for the end user. We tend to get a lot more excited about something that fulfills the consumer’s alcohol occasion but isn’t a direct analog. An example would be Hoplark HopTea. Not only do you see people rigorously replacing their beer occasions with it, but they’re also replacing the coffee occasion, and the afternoon pick-me-up occasion with it. It’s an entirely new category that also handles the alcohol occasion. That’s something that can probably grow much bigger over time and has a bigger total addressable market.

Furnari: What about cannabis drinks?

Fowler: I can’t tell you how many times we start a cannabis beverage pitch — whether it’s CBD or THC — by establishing that cannabis beverage is going to be a “thing.” We stipulate that over time, the incremental consumer market is going to be potentially larger than the base consumer. None of that will impress us, now tell us how you’re going to actually be an alcohol replacement. Show us your distribution plan that is going to get you into 10,000 accounts. And I would say a vast majority of them, the pitch stops at that water’s edge. We’ve been in this distribution system for a long time. Why don’t you tell us how you’re gonna master it.

Furnari: So what’s the Goat Rodeo name all about?

Fowler: It’s chaos behind the scenes at every startup. It doesn’t seem like it because they are putting on a face for the rest of the world, but it is a goat rodeo behind the scenes. We tend to be really good at helping herd the goats, advising founders on what they should focus on and what they shouldn’t care about.

Let’s block ads! (Why?)

Source link