Rating of Unicorn Universities
04 Dec, 2020
Thiago Rodriges is Senior Partner & Deal Crafter at The Craftory. He worked as Chief Executive Officer of Itaitinga Participações SA, Associate at AIG Capital Partners, Managing Director at GP Investments, Deputy Director at Caianda Participações SA, Director-Investor Relations at BRT Holding 1 SA, and Principal at Fogo de Chão Ltda. He was also a Champ of the Brazilian Fight Club.
My whole career was in the investing world. I’ve been in the investment industry since 1999 when I was 21 and fresh from college. I was back in Brazil, having a degree in engineering. I had some experience in engineering, but then I thought that it wasn’t for me. I’ve started looking for a new job, then I found this job at AIG Capital Partners, the PE firm which was investing in Brazil. I fell in love with the whole business. That was when I structured my career in investment. First, it was AIG, then GP Investments – another investor in Latin America, which later went global, with offices in New York, Zurich, London, and investing everywhere. Later, 2.5 years ago I met Elio and Ernesto, co-founders of The Craftory. I fell in love with their idea of backing mission driven challenger brands, we got together and created The Craftory, which is the VC place where I’m right now. It was created in May 2018, and I’ve been working with them since even before this. So, my whole career was within VC and PE.
I think every startup is unique, and this is what we’re looking for. They all have different angles. Our whole portfolio consists of unique companies. For example, one of our companies, NotCo, is originated in Chile and now present in Argentina, Brazil, and is going to debut in the US this year. They do plant-based products, but they develop it using AI, the algorithm called Giuseppe, that helps the company to replicate mayo, beef, milk, ice-cream with the combination of plants. Giuseppe understands the molecular composition of plants, as well as the products it tries to replicate, creating the recipe that tastes pretty much exactly like the animal-based prototype, unlike, say coconut milk that tastes like coconut or oat milk that tastes like oat. It has the same texture, the same behaviour – you can cook with their milk and get the same result as if you were using real milk. I have never come across a startup in the Food industry that does staff like that. We invested in Dropps, which produces washing and dishwashing detergents, and it also has a unique angle: carbon-free, plastic-free, plant-based ingredients meaning no dangerous chemicals. So, changing “unusual” to “unique,” I would say that all our portfolio is unique.
For roughly 2 years the Craftory operates, we’ve seen about 3,500 companies through our pipeline, which is beating 1,500 in a year. It doesn’t mean that we’ve engaged with all these companies, because when you see such an inflow you start to plan your filters and actually get engaged with much less than that. Still, we review something between 1,500 and 2,000 companies per year.
First of all, it’s a sector – we only invest in fast-moving consumer goods. Lots of deals are filtered by that. Our second filter, which is also very important for us, is that we only invest in challenger brands. Our definition of a challenger brand is that it is a brand that, if it wins, will make the world a better place for the society, planet, or consumers. We are looking for something radical in the brands that we call the righteous cause. If the company is not cause-driven, if it doesn’t have a truly righteous cause behind it and doesn’t express it at the front label of their products, we don’t invest. This is a very big filter, we filtered, maybe, half of those 4000 companies with it. It has to be something that is truly changing the category.
We scout them a lot. Also, you can go to our website and submit your company – we review all of them. We welcome all the entrepreneurs to contact us directly. When we started this business 2 years ago, nobody knew about us at all. And I would say that 95% of our effort was actually going after companies. We have created a bunch of internal tools to scout for businesses. We look a lot at online activities and even public tools like Google Trends, we look at social media interactions, we use sentiment analysis, we use social listening tools – all of these to find what’s trending. This is the main way that we get to know about the company. Another thing is how to reach the company. Here we use our network, send cold emails, or use LinkedIn. We are very active in contacting potential deals.
We only invest in fast-moving customer goods.
Ideally, the company should have at least $10M in sales – this is where it begins to be interesting for us. It is a higher threshold than a usual VC. Our raised capital adds up to $375M, but we have sources to increase the check if we have a bigger transaction. Our usual check size is between $20M and $75M, but if we need to write a $200M check, we can.. Also, we are a small company with only 12 people working here. Out of these 12, only 4 have a financial background, all others have some sort of operational background. Our CEO Elio Leoni Sceti was an important person in Reckitt Benckiser for 20 years and a part of the team that helped it to grow from a rather small company to the huge group it is today. He knows a lot about CPG. My other partner, Ernesto, was a tech entrepreneur who created a bunch of startups. He brings entrepreneurial spirit into the team and helps us to understand better the entrepreneurs and stages of company development. Our Craft Partners have expertise in verticals that we believe are key for the startups to scale up – branding storytelling, digital amplification, scale-up efficiency, and product innovation. The thing is, if we start writing smaller checks, we would end up with a lot of portfolio companies and we could not provide the help that we’re able to provide now. That is why a company has to have some size and we want a larger piece of the cap table. We wouldn’t invest in a business to have a silent 5% of it. We can have anything between 25% and up to 70%. Although we can buy 100% of a business, we don’t want that because we want to backup entrepreneurs, not replace them.
We can invest everywhere, although our main focus is in Europe and the US. Our first investment was in Chile, and we made 6 more investments – 1 in the UK and 5 in the US. I believe this would be a nice split, to have about 50% of the portfolio in the US, 40% in Europe, and the rest around the world.
I don’t think we should focus on multiplications, but on delivering the business plan and the mission behind the brand. We are much more interested in the company’s execution because when you do it properly, the x’s come.
As I said, anything between 25% and 70% is good for us as long as we have a voice, as long as we can contribute. If a company is looking just for cash, we might not be the best partner, because we want to make sure that our portfolio companies will succeed and bring our expertise alongside with the money.
We can do it very fast, but I don’t like it. Our due diligence is about getting to know the company, the founders, and, unlike financial or commercial due diligence, it takes more than 2 or 3 weeks. Our commercial DD is done together with the entrepreneur to identify the weaknesses and the strengths of the business, and how are we going to tackle them. Because as we are dating in order to get married, we like to identify all of that to see if we have an alignment in where this company should go to. We can close a transaction in 2 weeks, but ideally, it would take 2 months. Even if we end up not investing, an entrepreneur will benefit from our knowledge and expertise during this interaction.
The first thing is an entrepreneur. We only invest in mission-driven companies, created by mission-driven entrepreneurs, righteous cause entrepreneurs. If we have a founder or founding team like that, we can help to build the team around.
It’s harder for us, because one person startup is, usually, a small company, and we don’t invest in smaller businesses. But we had invested in a business having 1-digit number of employees at the time of our investment.
I, definitely, would like to hang out with Chuck Norris, but if a had to choose between them, I guess I would rather invest in Steve Jobs.
All our relationships are based on trust. Everybody can make a mistake, and we have no problem with companies that commit mistakes as long as they are open about it and try to correct it. We are here to help them to correct mistakes. If anything breaks this trust, we won’t invest. But other than that, everything is fixable.
We have lost business to other investors, but there wasn’t a situation when we regretted that we didn’t invest. At least, yet.
We only invest in fast-moving consumer goods, and, frankly speaking, I really enjoy investing in consumer goods. It’s such a huge industry, it touches everybody in the world because everybody in the world is a consumer. And the way we are approaching it, trying to challenge the status quo, trying to impact the industry, is very important for me. We make small changes in the huge industry and believe that, in the end, these small changes will make a big difference, lead to global changes. I’m passionate about this industry.
No. Of course, you have to be very diligent about many things. In consumer goods, some sub-sectors have backwinds, some experience headwinds, and you have to try a filter to understand the real underlying values of the business. We didn’t stop, we are investing and conducting due diligence. Of course, covid impacted us as a part of society, but we are working. Our portfolio companies have some challenges, and we try to help them to pass this situation with minimal losses, to rethink their model, their brands, and businesses. I don’t really think that COVID is changing the underlying value of the business: there might be some bumps, but as soon as it’s gone, the underlying value will be there again.
There are so many! I’d like to name all of our portfolio, but those companies are too early. Let’s name these. I really like Tesla and the way they are rethinking the whole auto industry. Speaking about the UK, we have BrewDog that is bringing carbon negative great quality craft beer to everybody and treating its customers as partners. I really like them. But it is hard to name just 3 – it is unjust for many-many very good companies.
My whole career was built in the investing world. I’m doing what I really want, what I like, and what I’m passionate about. I believe it’s time to challenge the whole industry. My goal now is to prove that the Craftory’s way is not just another way to do it – it’s the only way that works now and will work in the future because the consumer’s mindset is changing and everybody is or will be worried about the consequences of their consumption. We’re here to drive and help that change to happen. I don’t think, I’ll be doing something else, at least not in the short-term future.
You have to be strategic and put a lot of attention in your moves, so I would go with chess.
Focus on the business and don’t get distracted by raising capital all the time. Pick wisely your investor: it’s not just about money, it is who you’re going to have a long-term relationship with, so do your proper due diligence on investors. And again: focus on your business, focus on your brand, listen to your consumers – this is the biggest weapon a startup has to fight the big conglomerates. You have access to your customers – listen to them, and they will tell you exactly what to do with low risk. Otherwise, we’re just going to be fighting the big groups on their playfield..
Look what we’re doing – we are challenging the industry. Join us o the challenger revolution!