Following on the heels of Highland Capital Partners’ recent launch of a consumer-focused venture fund, another small consumer-centric fund has hit the market. 2X Management of Chicago is raising $60 million from family offices and former consumer product entrepreneurs to invest in small, revenue generating consumer product companies poised for growth.
The venture firm, led by Managing Partner Andrew Whitman, planned to close its first deal in August or September. Whitman hopes the firm’s first fund will write checks for $1 million in first round deals involving consumer product companies that may later take an additional $5 million follow on investment. Consumer companies typically do not raise more than $15 million, Whitman says.
The firm’s consumer focus is on food and beverages, personal care products, home care, pet care and other branded consumer lines.
Venture capitalists have shied away from consumer investing in recent years, opting instead to back information technology and life science companies. But the absence of VCs in the consumer sector has created an opportunity for firms such as 2X Management, says Whitman. He says he and the firm’s operations-focused Partner David Bauserman saw 1,300 inbound opportunities last year. The companies looking for financing were what most consumer-focused investors would call “little, dinky companies,” Whitman says.
“We are in a space where quite frankly, few others want to play in,” he says. “There’s a giant gap in the marketplace and our skill sets are relevant, so we’re drowning in deal flow.”
Not all venture firms are ignoring the sector. Boston-based Highland recently launched a $300 million consumer fund focused on specialty retail chains (see Fund Profile, August VCJ). Highland’s fund—led by Thomas Stemberg, the founder of office supply store Staples—expects to make between 15 and 20 investments over the next three to four years. It has already has four consumer companies in its general portfolio, including Lululemon Athletica Inc., a Vancouver-based maker of yoga apparel that recently launched a succesful IPO
Whitman and Bauserman were previously with Kraft Foods, one of the largest food manufacturers worldwide. Whitman managed brands, such as Kool-Aid, while Bauserman handled operations and manufacturing. The two have worked with consumer-focused buyout shops on transactions, such as their partnership with Greenwich, Conn.-based Catterton Partners in the deal to acquire Wellness Pet Food.
Whitman also publishes “2X Trend Watch,” a consumer industry newsletter that he distributes to more than 10,000 people five times a year. A recent issue highlighted a company that has built a self-mixing milkshake machine that makes preparing the dessert less time intensive. —Alexander Haislip