Q&A with Todd Woloson of Greenmont Capital

I spoke to Todd Woloson, managing director at Greenmont Capital, recently to get a sense of the current investment climate for nutrition companies. Greenmont is a well-known and well-regarded venture fund staffed by industry insiders and focused on wellness and sustainability. Woloson comes to the organization after many successful stints as an entrepreneur, most recently as co-founder and CEO of IZZE Beverage, the maker of all-natural sparkling fruit juices sold to PepsiCo in 2006. NBJ reports more extensively on the complex topic of finance and investment in our current issue.

NBJ: How do you view the current investment landscape?

Todd Woloson: The current environment for early-stage funding in this industry is confused. We’ve been a little bit out of cycle for awhile now. I look at the performance of two stocks—Walmart and Whole Foods—during this downturn. Smart money went long Walmart and short Whole Foods, and smart money was wrong. This is great news for us. The natural & organic consumer is making decisions beyond trade-up or cache. These are real lifestyle decisions, and that leads to a sticky consumer.

NBJ: Is deal flow holding up well?

TW: We’re clearing through the questionable inventory right now. The good companies were able to weather the storm—mostly out of market, with internal rounds of financing. We’ve been calling it a “Darwinian flush,” which is a little harsh but true. Struggling companies are going away. We’re coming more into balance with the market right now. Companies that did weather the storm well have a much more realistic understanding of the capital markets and are far more flexible about how they bring in new capital. We’re excited about the near future. Greenmont just closed on our second deal out of the second fund, with a couple more at turnsheet phase right now. We haven’t seen that in two years.

NBJ: What do you see for the growth prospects of potential investments coming out of the recession?

TW: Slower is the right way. I say that because I have a job, but just think of the Internet bubble going right into the housing bubble. The piper was never paid. You can’t go from one bubble to another and expect any notion of sustainability. Profitability and thoughtful growth are key components to any sustainability story. I kind of believe that the way we’re coming out of this feels right.

NBJ: How do you view current valuations in the marketplace?

TW: Our industry, on the branded side, is worth about 1.3 times sales in the long-term. In the run-up to this last market correction, stuff was going for 4-5 times sales. We were arguably more out of market then than now. We still look at about 1,000 deals a year, but we have to come in at the right time for this flood model to work. Venture funding is only good for a pretty thin sliver of the marketplace. We’re typically the first institutional investor and our typical exit is a strategic acquisition, but I’m hopeful and believe that market conditions are presenting a more viable IPO market. Sustainability is such a hot topic that we could see the public markets getting interested.

NBJ: Any recent industry deals outside of Greenmont that seem especially meaningful?

TW: Carl Icahn coming into Hain Celestial. I view that as big, smart capital moving into this space, which means there’s an increasing understanding that this is where the future lies.

NBJ: Where’s your focus going forward?

TW: Natural products are a stickier market than many predicted. It’s an information-based, logical progression. The more people know about what they’re consuming, the more they want to consume products like these. The best news of this market correction is that this thesis was proven out. To me, it’s fact now. At Greenmont, we’re interested in following this consumer adoption cycle. It starts with basic ingestibles, maybe even with the kids, then starts moving in and around the house, and pretty soon everybody will drive a Prius and have a little windmill on their roof.

Related NBJ links:

Current Issue: Finance & Investment in the Nutrition Industry

The Hain Celestial Group’s Irwin Simon Talks Acquisitions with NBJ

Uptick in Deal Activity Fuels Cautious Optimism for Buyers and Sellers