Mark Rampolla: ‘The best time to raise money is when you don’t need it’

ZICO coconut water founder: ‘The first nine years were absolutely brutal…’

By Elaine Watson contact

- Last updated on GMT

ZICO coconut water founder on raising cash & selling to Coke

Related tags: Entrepreneurship, Investment

What are investors really looking for when they assess a food and beverage business? When it comes to gross margins, is there a magic number? And can you really be in decline when your sales are growing strongly?

These questions, and many more, were the focus of one of the liveliest education sessions at the Natural Products Expo West show last week, featuring ZICO founder Mark Rampolla; Coca-Cola Venturing and Emerging Brands’ business development director Matthew Mitchell; and Silverwood Partners’ managing director Mike Burgmaier.

Speaking at the event – hosted by Nutrition Capital Network (which puts entrepreneurial brands in touch with potential investors) – Rampolla said running ZICO, which he launched in 2004 in New York out of his garage, was “absolutely brutal…  for the first nine years​”.

Mark Rampolla on his marriage with Coke: ‘I wouldn’t say we are divorced now, we just sleep in separate beds’

Coca-Cola took a minority stake in ZICO in 2009 and acquired the outstanding stake in November 2013, for “way less" ​than the $4.2bn Coke paid for Vitaminwater in 2007, said Rampolla, who said the partners had “fought and struggled​”, although Coke had “done a great job of keeping the integrity of the brand”.

He added: “We recognized about four years into the deal that the structure wasn’t really working for our rate of growth and there were some ugly moments. I wouldn’t say we are divorced now, we just sleep in separate beds.”

His strategy after Coke took a minority stake in ZICO was to continue to run the business with the same level of discipline, said Rampolla, who now invests in early stage businesses “that are doing at least $1m in revenues in categories that are on trend or totally break-out​ [brands he has invested in include Barnana​ and Runa​].”

He added: “You can’t rely on your investors to solve all your problems, so don’t assume they are going to help you. You have to run the business like you’re going to run it forever. I ran ZICO assuming that Coke might never buy it.  I was very disciplined. I wanted to be able to say 'Hey guys, if it’s not working out for you, I’ve got this.'” 

ncn at expo west
Left to right: Matthew Mitchell from Coca-Cola's Venturing & Emerging Brands team; Mark Rampolla, founder, ZICO; and Mike Burgmaier from Silverwood Partners

I remember when I had raised 500k thinking, I’m done! Now I can go run the company

So what was his advice for entrepreneurs in the audience, many of whom were at the stage where they were looking for investment beyond the friends and family round?

When it comes to money, he said: “Thebest time to raise money is when you don’t need it… I remember when I had raised 500k thinking, I’m done! Now I can go run the company… but that’s not how it works.”

I like to see velocity in a limited distribution footprint

So what does he look for when he has his investor hat on, aside from a great brand, great products and people that are passionate and seem to know what they are doing?

Above all, high quality sales in a limited region or channel, he said. “Focus matters. It’s one thing to be doing a million dollars spread all over the place, and another to be doing that just in New York City.

“I like to see velocity in a limited distribution footprint… Remember distribution isn’t everything. You need to show that you’re shifting the product, that you’re got velocity in the locations you are in.”

Boardroom
ZICO founder Mark Rampolla on marrying Coke: “We recognized about four years into the deal that the structure wasn’t really working for our rate of growth and there were some ugly moments. I wouldn’t say we are divorced now, we just sleep in separate beds.”

Gross margins: Will they really double with scale?

When it came to gross margins, there is no magic number although 50% is a good target, he said, adding that he was “skeptical” ​of entrepreneurs who said gross margins were 20-25%, but that with scale they would get to 40-50%: “When you have gross margins of 20-25%, you don’t have a business, you’re not going to get investment.”

Silverwood Partners: What matters is the quality of your revenue

His comments were echoed by Mike Burgmaier from specialized investment banking firm Silverwood Partners​, who stressed that investors will always drill down to exactly what is driving your growth:

“Is it all from distribution gains? Maybe your velocity is falling, maybe you’ve been discontinued in a few places, so your sales might be going up, but actually, you might be in decline.”

Investors also want to know whether you can grow the category, and whether you have a business that can scale, he said: “Can you sell in the middle of Pennsylvania as well as the heart of San Francisco?”

zico new
ZICO founder Mark Rampolla: “We were under $4m before the deal with Coke but we were on a clear path to about $8m….”

As for distribution, he added: “Entrepreneurs often don’t know how to say NO. But sometimes you’re not ready; you’re going to get two SKUs in the upper right hand corner of the shelf in the dead zone, pay all the slotting fees, and then you’re out. “

Coca-Cola VEB: We don’t have a crystal ball and we’re learning as we go

Finally, Matthew Mitchell from Coca-Cola Venturing and Emerging Brands​ - which invests directly in beverage brands with revenues of around $10m+ but also works with LA Libations​ to invest in smaller, earlier stage companies - reminded the audience how few companies actually make it.

He added: “Only 3% of beverage brands launched achieve $10m in revenues, but if they do, the probability of getting to $50m increases 10-fold. For us, we need to be convinced that there is an ongoing story that will take this brand from $10m to $50m to $100m and beyond.”

Addressing Rampolla’s marital metaphors about their partnership, he said: “It’s tough to design and structure a deal that allows us to anticipate what will be needed in terms of capital, management …

“We don’t have a crystal ball and we’re learning as we go, we’re still changing our model and refining things. Every one of the deals we’ve done is different, so there is no roadmap.”

Related topics: Soft Drinks & Water, Health and Wellness

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