Hampton Creek Can Use a Paddle

How do you know if someone is a vegan? Don’t worry, they’ll tell you.

There is a drama worthy of HBO’s hit Silicon Valley playing out with Hampton Creek. Hampton Creek is a Bay Area plant-based food tech darling backed by big VC’s and over a dozen billionaires including Bill Gates.

Unfolding elements of the drama are:

  1. The discovery of the facts — including investigations by the SEC and Justice Department;
  2. Crisis communication from the CEO and the company;
  3. How the events impact a pending Unicorn conferring round for Hampton Creek;
  4. Debates over the ethics, values, and acceptable practices (beyond legality).

The story contains many spicy ingredients (sorry/not so sorry):

  • A mission driven company in the space of “doing good while doing well”
  • A damning report from Bloomberg which alleges fraudulent practices occurring during a key period leading to the company’s 2014 funding
  • An outspoken media savvy investigative reporter at Bloomberg
  • A charismatic CEO — now on the public stage in crisis management communication mode
  • A growing federal probe which now is reported to involve both the Justice Department and the SEC and include the possibility of criminal fraud charges
  • Disgruntled ex-employees who are coming forward to damage the reputation of the company — both to Bloomberg and in this report on Business Insider which also cites Glassdoor

Watching how this unfolds is riveting and instructive — a worthy case study.

Given Hampton Creek’s mission and underdog status, many are hoping the company comes clean and we discover that the facts are forgivable. Is it possible that this is just growth hacking and hard nosed competition for shelf space gone a little too far? This Fast Company article essentially represents the pro-Hampton Creek / “nothing too big to see that can’t be course corrected with apologies and mea-culpas” argument.

However, with the growing cloud of allegations surrounding the company, and answers from the CEO that raise more questions, I’m skeptical. We are unfortunately growing accustomed to tales of fraud, hype, greed, and misrepresentation in the tech/disruption space. It’s a bit more galling when it comes from a company with a truly good mission — Theranos comes to mind.

Here you have a mission driven cause at the root of a capitalist enterprise, and a magnetic leader. There are true believers and people who want to believe — it’s a great story. But, as we have seen in other cases, it also opens the door for exploitation, and rule breaking through “means justifying the ends” thinking. Hampton Creek’s “growth hacking” also fits the fast growth Valley ethos of “it’s easier to ask for forgiveness than permission.”

The coming weeks and months should reveal where Hampton Creek sits along the spectrum between truthfulness, exaggeration, and fraud. The questions center on transparency with investors and range from the allegations that Hampton Creek falsely inflated sales by buying up its own product during a crucial funding period, and even, given the rumblings cited in the Business Insider piece, to fundamental claims about their science.

Reputations, (Tetrick, Hampton Creek employees, and Olivia Zaleski), and a lot of investor money, are on the line.

The main characters:

The CEO: Joshua Tetrick has laudable academic and social justice/reform credentials. As an entrepreneur, Hampton Creek is his first company. Its mission is to create plant based foods that are cheaper, tastier, and more sustain-ably produced than their factory farm competitors.

Hampton Creek foods promote healthy diets, while its inputs and production methods attack the global food problem and global warming, and prevent animal cruelty. The idea is enormous and admirable. Link and click on “our manifesto” to hear the mission in the founder’s own voice — it ends with “that’s how we fundamentally change the world.”

As you read about and watch Tetrick, Steve Jobs comes to mind in terms of confidence, salesmanship, grand vision, and the “reality distortion field.” It’s not hard to see how he attracted investment. At the same time, we’ve all seen how charisma can hide and package other faults.

The Reporter: Olivia Zaleski is the Bloomberg reporter covering Hampton Creek (this links to all of her articles). On August 4, 2016, she broke a story revealing that within eight months of the close of a $90M 2014 financing, Hampton Creek purchased a significant amount of its own products.

*Recommended** This week she was a guest on the August 23 episode 668 of Jason Calacanis’ “This Week in Startups.” where she details her investigation of Hampton Creek including what led to her article. (Joshua Tetrick is scheduled to join Calacanis on This Week in Startups on Tuesday 8/30.)

Ms. Zaleski also said that there is more to the story coming soon — another shoe to drop. She may have been referring to a subsequent article which reports that the US Justice Department is now involved in a criminal fraud probe of Hampton Creek.

The Allegations:

Bloomberg alleges that contractors were instructed by senior executives to aggressively buy “just Mayo” directly from store shelves. The story includes Hampton Creek giving tips on how to remain anonymous and avoid raising questions from cashiers about the bulk purchases. Product evangelists were also told to call stores and pose as consumers looking for and excited about Hampton Creek’s products.

As the facts surface — about the extent of the buybacks, how they were accounted for, what was transparent to investors, and how the company represented its progress — we will learn where this behavior sits on the scale of growth hacking and spin vs. outright fraud.

The Company:

Hampton Creek was founded in 2011 and its main product is called “just Mayo” — an eggless, vegan substitute for mayonnaise that comes in a variety of flavors. The clever “just” brand has a double meaning conveying both simplicity and justice. Well done.

just Mayo” replaces eggs with a species of yellow pea sourced in Canada to provide protein. The company also produces vegan cookie dough and cookies under the names “just Cookie Dough” and “just Cookies” along with a variety of other foods.

The company is no stranger to controversy and rumors, having weathered events like the sudden departure of investor and extremely brief C-level executive Ali Partovi, a lawsuit from Unilever (which bolstered its underdog cred), and orders from the FDA to modify its labelling.

The Response:

Thus far, Tetrick has explained the internal purchases as primarily driven by quality assurance/quality control. At the same time the company has left the door open to the motivation of giving products a kick start in the marketplace. He also defends the company by stating that the buybacks accounted for a financially insignificant % of sales.

There will be more to this story, the question is whether it ends with a meaningless thud or a resonating crash.

Originally published at www.hartpressed.com on August 26, 2016.

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