Episode 16

Season 2: This Is S2G Ventures SHOW NOTES


Aaron Rudberg of S2G Ventures

Website: https://s2gventures.com/

Recommended Further Reading:

Drawdown: The Most Comprehensive Plan Ever Proposed to Reverse Global Warming

Check out: https://www.drawdown.org/

The Third Plate by Dan Barber

Habit Change:  Shop in the perimeter of the grocery store and buy plant-based foods.

Episode Summary by the Minute:

Minute 0:35:  Aaron gives us the 30,000 foot view on S2G Ventures and describes their mission and investment thesis.

Minute 1:15: Aaron explains what is driving the change in the sustainable food and agriculture system right now, and the corresponding investment in that space. There’s a new focus on “clean label”, fresher and local ingredients.

Minute 3:00: What does “clean label” actually mean? Less ingredients that noone understands. Sir Kensington’s is one example-- very straightforward ingredients.

Minute 4:45: Under the Edelman Trust barometer, CPG companies were below Congress. People don’t trust what they are putting in these processed foods. The problem is that they have very complex supply chains and have a hard time innovating.

Minute 7:00:  S2G is investing in brands that are innovating to make foods fresher and healthier, like Once Upon a Farm, which is creating fresh, refrigerated baby food snacks.

Minute 8:45: S2G is not just investing in healthier foods, but also those with a lower environmental footprint. S2G is also investing in companies that are better for soil health, use less water, regenerative agriculture, etc.  They have 37 companies and sustainability and impact are key metrics for S2G.

Minute 9:55: Impact can mean different things to different people.  Aaron describes how they don’t want to discount on market-based returns because of impact. They want to drive top quartile returns.  It helps that there is huge consumer demand for disruption in this industry, but they also think they can drive down the costs and help scale up these products and generate strong returns.

Minute 11:45:  There is a shift in impact investing in the sense that investors are starting to see that you can have an impact without sacrificing returns.

Minute 12:15: S2G sees the supply chain, not as a cost center, but as an opportunity to leverage relationships and partner companies to add more value.

Minute 13:00: Consumers are paying attention and they will call you out if you’re doing something bad in your supply chain.

Minute 14:00: The US has been very efficient at creating a supply chain with mostly safe food that tastes good. The question is whether millennials and consumers are looking for that type of value today.  S2G is always looking closely to see whether changes in the market are “trends” or “fads.”

Minute 14:45: What’s driving the change for millennials? Health, environmental consciousness, rejection of the big box company?  The majority of marketing from CPGs is targeting the millenial mom, focused on health, some focus on sustainability. People thought that millenials would change their behavior when they “grew up” and bought homes/took on debt. But the data is showing that millenials are continuing to purchase clean label and healthier products.

Minute 17:00: The millenial mom is the main target demographic for big CPG companies, and that makes sense if you think about how much control women typically have over buying products for the house.  

Minute 19:00: Is “local” a fad or a trend? Aaron thinks its a fad, partly because local is really hard to scale. What definitely seems to be a trend is the focus on trust and knowing where your food comes from.  One recent example of this is Annie’s including the farmer who grew the organic wheat on the box of macaroni and cheese. The result was an increase in sales.

Minute 21:30: S2G views this as the beginning of the food and ag boom.  They see about 700 companies a year, and that’s accelerating, not declining. Alot of top tech executives are leaving their tech companies and are moving into the food and ag space. That gives them more companies, more co-investors. S2G is competitive because of how they support entreprenuers and help them grow.  They offer more than just capital.

Minute 24:30: Yellow peas is a new ingredient being used more, and S2G is investing in tools to help support the growth of that supply chain to unlock more value there. Yellow pea is a pulse that can be used in place of green peas, or lentils.

Minute 26:00: To drive more change at the farmer level, you have to be patient because its very seasonal. Are consumer products the best way to drive change for farmers? S2G thinks that does help.  The average farmer in the US is 58 years old, and S2G sees farmers as innovators, adopting new technologies, and caring alot about their land and the soil. In his experience, farmers are focused on sustainability. The challenge is that solutions to drive yield are not biologics, they have been more chemical and synthetic.  

Minute 30:00: General Mill is transitioning 34,000 acres to organic, the largest contiguous transition in history. Financing mechanisms can help farmers cover that transition to organic when you can’t spray, but also can’t sell at an organic premium.

Minute 32:00: Alot of our grain is exported. We are importing organic products and exporting our conventional grain to other countries.

Minute 33:00:  They are focused on how they can get more US farmers to take advantage of arbitrage in selling price of conventional and organic grains.

Minute 33:30:  Aaron Rudberg is one of the managing directors, along with Matt Walker, Chuck Templeton, Sanjeev Krishnan. Aaron also functions as Chief Operating Officer. They recently hired professionals around corporate development.

Minute 35:00: S2G is growing! They’ve added 8 people this last year and built up their advisory board. They added Walter Robb as Executive-In-Residence, former CEO of Whole Foods. That makes them more compelling as a partner for entreprenuers too.

Minute 36:00: S2G is impact-oriented, so they would walk away from a target investment if the founders weren’t aligned with the goals to have a positive impact on society and the environment.  They don’t have to be an experienced entreprenuer, but they have to be aligned and have a good business model.

Minute 38:00: Women have historically had a hard time getting venture capital investment. Less than 3% of firms that received venture funding had one female co-founder, and less than 1% had an all-female team.  Diversity is something that is really important to S2g, and they talk about it alot. They are taking steps to address unconscious biases.

Minute 39:30:  Kathleen Merrigan is one of their advisors, former number 2 at USDA under the Obama Administration. She did an analysis of their diversity and shared the results recently.  S2G is doing significantly better than the industry, but they still want to do better, bringing in more diversity to their team. It is difficult at the senior level because senior partners at another venture firm are incredibly competitive. They also try to have internship programs to bring people through internally.  Finance, tech, and science fields are white male dominated, so it is hard to find diverse talent from those fields.

Minute 42:00:  They are seeing alot of female entrepreneurs in the food field, but ag tech tends to be more male-focused.

Minute 43:30:  Aaron tells us about the innovation in the food and ag space he is most excited about --alternate proteins and plant-based products. Plant-based yogurts are up while regular yogurt is down in market share. Cellular meat is of great interest to them-- Future Meat is one of their portfolio companies.

Minute 46:00:  Indoor agriculture is also taking off and of significant interest.  Vertical farming, greenhouses, hydroponic, etc. using LED lighting focused on leafy greens. Shendoah Valley is the largest herb country in the US and also lowest cost.  There have been major advances in lighting and power systems to unlock the value there. There will be more growth in that space on berries, produce, etc. More local, less water use, less carbon footprint from shipping, etc.

Some of the largest players in the produce space are investing in indoor agriculture--Driscoll, Taylor Farms, the Wonderful Company--they are very aware of access to water in the long run and thinking about how to future proof their business.

Minute 49:30: S2G’s initial investments are starting to exit, so they are excited to see that and prove out their model. They are also continuing to invest in resources that help their companies achieve success, like back-office support. Also building knowledge and focus on data.

Minute 52:15: Aaron spent the last 18-19 years in venture capital/private equity at Baird Capital, worked as an entreprenuer to build a venture-backed software company.  Aaron became friends with Chuck Templeton, who is very socially conscious and helped found Impact Engine.

Minute 54:45: Aaron had a few reading recommendations: Drawdown: The Most Comprehensive Plan Ever Proposed to Reverse Global Warming edited by Paul Hawken, and The Third Plate by Dan Barber.  

Minute 56:00: Producers are leaving 25-30% of product on the ground in California because they do not have enough labor to harvest and process that.

Minute 57:00: Shop in the perimeter of the grocery store and buy plant-based foods. You can get a Beyond Meat burger at EPIC, A&W, etc.  Try these products and show the big CPG companies that this is a trend, not a fad.

Erin DelawallaComment