FROM SOUP TO INDEPENDENCE
By Douglas Raggio. Julia Dopp, Contributor and Editor
The healthy food and beverage (F&B) industry is booming, and that’s not entirely a good thing.
While venture capital (VC) has gone up by a factor of 10 since I entered the industry a decade ago, the number of successfully independent businesses is dwindling fast. In fact, today the majority of the world’s food supply is owned by just 11 corporate giants.
Between the incredible power wielded by these companies and the recent swell of VC, entrepreneurs in the food and beverage industry usually have two options — grow fast and be acquired, or stagnate and be written off. I want to shake up the establishment, and this particular establishment desperately needs shaking.
I grew up on the periphery in many ways, and as a result I have always looked at existing systems with the outsider’s eye for change and critique. I was born into a small Catholic town as one of the first artificially inseminated babies in the United States. The community was not inclined to accommodate me, so I was raised on its edges and blocked from its traditions. Unbaptised, unconfirmed, with an individual recess and a neverending sense of difference, I was shown as a child that what is conventional is not always right, or even logical.
Bias & Blind Spots is my chance to go beyond what’s conventional, and create iconic companies that last for generations. Piece by piece, we are challenging consolidation in the food supply by creating a dominant generation of individual brands with the freedom to prioritize integrity over constant growth. In other words, I envision a world where independent brands have equal, if not more, power than the consolidated public companies that they challenge.
To create that world, the tables need to be turned, and we have to stop meeting long-term problems with short-term capital. When investors expect to see 25x returns in 3–5 years, preferred returns take precedence, which generates an unflattering waterfall effect that adversely affects founders. By the time a company reaches an exit, founder shares have been diluted so much that the windfalls outsiders imagine are hardly ever the case.
We are losing far too many of our F&B pioneers to mid-level management positions after acquisition, while the corporate parent institutes “best practices” that are really the same industrialized protocol the founders set out to antiquate in the first place.
I know this process of value extraction well, in part because I was a contributor at one point. My F&B roots began when I could not find any decent-tasting healthy but hearty stews, gumbos and jambalayas in my local grocery store. So I founded a company, Stews & Such, to remedy that. I had come from the tech industry and had no idea what I was doing in F&B, so I went down a list of farmers’ market vendors and called asking for advice. Each of them were experiencing issues around capital, and I thought to myself, “Well, that’s a definite market gap I should address.”
So I gathered textbooks, and started learning about the F&B and finance industries. I talked to a lot of people, heard a lot of “no,” and raised a venture fund anyway. A couple of large transactions (AKA exits) happened, and soon enough money began to flood the space. I started to notice that consolidation was forcing me to pressure our portfolio companies to grow way faster than was natural or even feasible. So, here I am, with limited professional investor experience, looking at these industry titans and thinking, “Something is fundamentally wrong here, and we are headed towards a bust.”
Still, thanks to the fact that I had been one of the first people to put my VC shingle out a decade prior, I had built solid relationships with founders. Largely because I had entered the space without enough money or influence to be threatening, they were able to be honest with me, let me learn alongside them and vice-versa. Similarly, I had naturally gravitated towards family offices in my early days of fundraising, finding them to be more personable (and frankly, more interesting) than most corporate financiers. One of these individuals is a man I met in an airport lounge back in 2011, who ultimately shifted my worldview.
We initially started chatting to kill time before our flights, and it turned out he managed a large family office in Texas ($6B, in fact). We stayed in touch, but 5 years went by before I learned that he managed things in a completely different way than I had anticipated. He employed a slow and steady equity line sponsorship approach that emphasized stability over growth, rather than traditional investment structures. It is something that has been in use for more than 20 years in the oil and gas industries and more importantly allows large patient capital to invest at earlier stages without entering the zero-sum VC game. Once I understood the possibilities of that method, my disdain for the time-pressed value extraction that VC demanded was amplified even more. So, I dissolved the venture fund, passed all portfolio shares to the limited partners, pulled my personal money out of the public markets, and created Bias & Blind Spots to rewrite the map.
Bias & Blind Spots operates by doing the inverse of VC: as we see returns, we ratchet back our ownership. As revolutionary as it is in theory, in practice it’s just boring old business — it’s just math. In fact, founders receive larger long-term returns than investors under the Equity Line, but what investors do receive is a lower-risk upfront investment and ongoing cash flow distributions in perpetuity. A profitable long-term enterprise is the most stable investment out there, and when I talk to founders about their goals, security and ownership are almost always at the core.
I like to ask people, “How do you intend to change the world?” I want to see more individual companies able to make better decisions for themselves and their communities and focus on creating value, not just resign themselves to having it extracted by financiers. The fundamentally different underlying structure to Bias & Blind Spots has everything built in to achieve that, and allow us to actually do what we say we will do. Ultimately, the equity line structure allows for the redistribution of wealth in America, as more and more founders are able to reap the financial benefits of their businesses.
After years of pushback and incredulity, it is amazing to see others adopt a more long-term, value-retentive mindset. I didn’t always fit in growing up, but right now, doing what I’m doing, it feels like the perfect fit.
Thanks for your time.
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