Natural products industry can do more to connect investors with BIPOC entrepreneursNatural products industry can do more to connect investors with BIPOC entrepreneurs
Following a summer full of Black Lives Matter protests, the natural products industry has become increasingly more conscious of systemic racism. But BIPOC entrepreneurs wonder when this awareness will turn into funding from investors.
August 31, 2020
Claude Tellis thinks of himself as an insider in the dietary supplement industry. The Naturade CEO attends NBJ Summit. He exhibits at Natural Products Expos East and West. He’s familiar and social with the names in the C-suite spectrum. “We know these people,” he says. “We’ve partied with these people.”
He thinks of them as friends, supporters even.
What he doesn’t think of them as is investors.
“We haven’t been able to raise a penny under that scenario,” he says.
Tellis is Black and hopes to market Naturade’s products and solutions to communities of color that are also communities of great nutritional need. He won’t call it a case of racial discrimination in every instance, but the pattern is obvious, shocking even. What he and his partner Kareem Cook, chief marketing officer at the company, have been able to do to build the brand has been a matter, they say, of “entrepreneurial hustle” on all fronts and against all odds, with generous encouragement from the natural product industry investment elite.
But little equity funding. Very little.
“We brought our own capital to the table,” Cook says.
Recent events, however, have led both Cook and Tellis to notice a change of sentiment that could shift the investment picture for more entrepreneurs of color.
Only time will tell if that sentiment turns into deals.
Seeing the unseen
As a Black woman, Alisa Williams is confident she brings something very valuable to the table at VMG Partners. Named a partner in the natural-products-focused private equity and venture capital firm earlier this month, Williams is not the only person of color on the organizational chart, but she says she helps the team see opportunities and challenges in up-and-coming brands that a less diverse team might miss. “As a Black woman, I am, hopefully, bringing a diverse perspective,” she says.
And that matters, she says. Black entrepreneurs might succeed in a market and with a message that is unfamiliar to investors who lack her experience of race in America. They might not understand what can work and why it can work. “I want to elevate the voice of the black consumer,” Williams says.
Seeing those opportunities is harder for somebody who is, by circumstance, blind to the experience. Williams also says firms like VMG need to do more than just make statements—and even more than bringing diversity into the executive offices. They need a plan for how diversity and inclusion can transform the dynamic so that more people can see more potential in more brands. Hiring is extremely important, vastly more important than making a public statement in a year when the realities of the Black experience are on shocking display, but detailed plans are what make change happen. Plans have legs, she explains. They persist after the headlines fade.
VMG is creating that plan thoughtfully, and with structure and expected outcomes. “Take it on as any other project you’d be tackling internally,” she says. “Make a plan. Set goals. Set metrics.”
That’s what is needed, she says, to transform the investment cycle in natural products. She is an optimist, a believer in change. “What is so amazing about the natural products ecosystem is just the level of community,” Williams says, “the level of genuine people who are passionate and possess a level of passion that doesn’t always exist in other places.”
Investment in the natural products industry, and perhaps in any industry, has always been a matter of connections. Different people travel in different circles, and until those circles overlap the exchange of ideas and equity might never happen.
Dianna Tremblay wants those circles to expand and intersect.
Tremblay is the program director at ICA, an Oakland-based accelerator organization that helps entrepreneurs of color gain business expertise and, when possible, funding. From Tremblay’s vantage point, the circles don’t overlap nearly enough, and the natural products industry has historically not done enough to tug minority founders and mainstream investors into intersecting orbits. “Even if folks don’t think they’re putting barriers in the way, there are barriers. We don’t even see that we’re doing it,” Tremblay says. “So, until that changes, the investment activities aren’t going to change, or they’re just going to be very surface level.”
Tremblay spoke at Nutrition Capital Network’s June virtual gathering, and she calls that an example of what needs to happen more often in more circles. Tremblay was joined on the digital stage by Chef Chew, a Black man. She says attendees might have been eager to hear her message, but they need to hear it more often. A minority speaking in a keynote spot should not be a novelty. It should be expected.
When more investors interact with more entrepreneurs from different races and different backgrounds, a different trajectory can play out for the natural products industry. The affluent and predominantly white communities are well served. There is one Whole Foods Market in Oakland. There are seven across the Bay in San Francisco, where the household median income is 52% higher. The natural products industry and the investors who helped build it have created enough brands to sell out the Anaheim Convention Center, but not nearly enough brands that penetrate the markets where health challenges are large and quality products are few. “Communities of color have so much buying power, but they’re often just ignored,” Tremblay says.
If more brands were able to connect with more investors, that could change, Tremblay said. But nobody can wait for that to happen on its own. “We’ll see this influx focused on entrepreneurs of color, and Black entrepreneurs in particular, because of everything that’s happening, and then it’ll kind of die down because all the systems are still the same.”
Arno Hesse isn’t waiting for a plan. He’s helping build one, more than one in fact. Hesse is a co-founder of Slow Money Northern California and now a co-leader in the JEDI Collaborative. JEDI stands for Justice Equity Diversity and Inclusion and consists of natural products leaders who want to make the industry more diverse and involved in collective change. Hesse says he wants to see the impact investment community grow, but he also wants a new model that helps build opportunities for minority entrepreneurs.
The model Hesse is excited about is a crowdfunding variation he describes as “community investing.” When people in a community, sometimes as local as the city in which the founders are building their brand, can buy a piece of a startup-stage company, they become ambassadors for that brand; Hesse adds that, as an investor himself, it’s the kind of groundswell backing he wants to see. “If you have 700 community investors, you basically have 700 evangelists who will help you in conversations out in the world, to get your name out there.”
By lowering the investment threshold, Hesse says, community investing expands the opportunity to back a company with mission and diversity—an opportunity typically available only to high-net-worth families and impact investment funds. Big investors might not even know about the brand down the street the way the community will. It’s a whole new circle, and it’s a wider circle. Hesse is involved in an “All Checks on Deck” event next month. “There’s basically a funnel for us to start talking. Then you start looking. You start curating. You start doing due diligence. And then you start writing checks.”
Community or not, Numi Organic Tea CEO Ahmed Rahim is quick to say that the impact investment niche needs new energy. Rahim founded his company 20 years ago and remembers the years before the great recession as a period when impact investors were more interested in smaller brands with environmental concerns and racial justice front and center to their business plans. After the recession, Rahim says, that energy never came back.
“Because the tech industry has gotten so big, people are putting a lot more focus on that,” Rahim says.
As an advisor and board member to multiple brands, Rahim, also a JEDI member, now helps entrepreneurs raise money. It isn’t easy. His experience has been that COVID has stalled the enthusiasm and money is short. At the same time, he is confident that the investment picture for minority-owned brands may be changing. Black Lives Matter, he says, matters to investors.
It may even bring back some of the energy he saw in the early 2000s. “I think by the end of 2020 we are going to hear some shifts,” Rahim says, “and I think its going to be loud.”
William Hood, the well-connected investment banker behind William Hood and Company, says he is already hearing from investors who want to see their money help make change. They are talking about funding companies that exemplify diversity and inclusion and make racial justice part of the program.
Hood says he has not seen companies turned away because of the leadership’s skin color but says that more firms need to focus their due diligence inward. “All investment organizations need to look at their own situation and find out how they can promote justice both internally and externally,” he says.
The awareness may have been there, but there is a sense that it has more fully awakened in the wake of the Black Lives Matter protests, Hood says. Investors aren’t waiting for the circles to intersect. They are actively looking for opportunities. “Many of the private equity firms and venture capital firms are having internal discussions at the most senior levels right now about how they can do more to promote and invest in businesses that do reflect diversity and inclusion,” Hood says. “I believe that we are at a time in history where there will be more action and not just talk.”
Creating a future
What Rahim, Hood and Hesse are saying is music to the ears for Tellis and Cook at Naturade. Tellis says he has a “best of times, worst of times” take on the summer of Black Lives Matter. While the reality of systemic abuse is not unfamiliar to Tellis and Cook, the recent brutality is horrifying, nonetheless. At the same time, buyers are more receptive. The investment equity hasn’t shown up yet, but the roster of retail accounts is set to grow. “We’re getting meetings,” he says,
But he also says meetings won’t be enough.
Naturade got picked up by Costco via a connection Tellis cold-called through his fellow alumni at the Wharton School. Costco, Tellis says, is making admirable efforts to bring in minority-led brands, but when they joined the vendor list for the warehouse chain, they were able to point out how the structure within the Costco universe keeps out smaller entrepreneurs, many of whom might be the founders and brands the company is seeking through the diversity campaign.
“They were, in effect, keeping businesses out,” Cook says.
What comes to mind for Tellis and Cook is the need for a system that not just connects minority-owned brands with investors and buyers but does a better job of fostering their business skills and helping them make the right decisions on the infinite number of choices brands of all sizes make. “They’d say ‘You may not be big enough to play in the big leagues, but we are going to create a space for you.'”
Ideally, investors and chains like Costco could come together, and the natural products industry is the ideal community to make that happen according to Cook and Tellis.
“Here is place where the natural products industry can lead,” they say.
Tellis can be frustrated that the dollars didn’t show up when they were needed. He can worry that the supplement industry isn’t seeing the needs he sees in communities of color, where diseases like diabetes are a direct consequence of poor nutrition. But he can also see the potential. Whether it’s the summer of Black Lives Matter or it’s the tenacity of voices like William’s, Tremblay’s, Cook’s and his own, Trellis is betting the natural products industry’s good intentions can create good results far beyond the mostly white expanses of the Natural Products Expo floor and all those Whole Foods Markets in mostly white communities.
The best of times and worst of times can lead to better times.
“The revolution is not going to be televised,” he says. “It’s about CEOs making systemic change.”
Don't miss the Spotlight BIPOC Brand Podium, a must-attend event for retailers focused on supporting diversity within the natural products industry, at Spark Change on Sept. 16. Register here.
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