Consumer VC Raises $20M

2X Consumer Products Growth Partners has raised $20 million for a growth capital fund focused on consumer products, peHUB has learned.

“We’re thrilled, and in this market, doubly thrilled,” says firm founder and managing partner Andrew Whitman.

The firm’s first fund will write checks for $1 million to $5 million in first commitments in branded consumer product companies that may later take an additional $5 million follow-on investment. “We expect that we’re going to be investing significantly more via co-invest from LPs,” Whitman says.

The firm counts Michael Levinthal as a special limited partner. Levinthal is a former 20-year veteran of Mayfield Fund and invested in consumer brands such as Pete’s Wicked Ale and restaurant chain Il Fornaio.

2X Consumer’s focus is on food and beverages, personal care products, home care, pet care and other branded consumer lines. The firm—which recently added Managing Partner Gary Sebek, a former CEO and CFO in various organic businesses—has announced one deal to date, an undisclosed investment in a compostable baby-product company called gDiapers.

The Portland, Ore.-based company is run by a husband-and-wife team that builds eco-friendly diapers. The company says more than 18 billion diapers went into U.S. landfills during 2007 and it aims to decrease the environmental impact of such waste.

Whitman hopes the diaper business will be recession-proof. “Babies are still doing their business, even if nobody else is doing business,” he says.

Venture capitalists have shied away from consumer investing in recent years. But the absence of VCs in the consumer sector has created an opportunity for firms such as 2X Management, Whitman told PE Week in 2007. Whitman said that he and the firm’s operations-focused Partner David Bauserman saw 1,300 inbound opportunities during 2006.

“We are in a space where, quite frankly, few others want to play in,” he said. “There’s a giant gap in the marketplace and our skill sets are relevant, so we’re drowning in deal flow.”

However, not all venture firms are ignoring the sector. Boston-based Highland Capital Partners launched a $300 million consumer fund focused on specialty retail chains in 2007. The 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. Highland already has several consumer companies in its general portfolio.

Highland and General Catalyst Partners have reportedly invested $40 million in Cash4Gold, a precious metals refiner known for its TV ads and for buying jewelery and gold scraps from consumers.

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, he says. The newsletter covers industry innovations and promising new products. A recent issue highlighted organic ghee producing company Ancient Organics and a series of four premium salt producers that have infused the substance with flavors ranging from bacon to ginger and espresso.