“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” — R. Buckminster Fuller, renowned architect, systems theorist, author and inventor.
By Eve Gumpel, California Business Journal / Photos by Matt Doheny
Cambridge Companies SPG was launched in 2010 as a strategic opportunity investment company, buying distressed assets that yielded a significant return for both investors and the firm.
As the real estate recovery gained strength in 2015 and 2016, “The upside potential was slowly being diminished. There were no more distressed opportunities; there were no more bank owned properties (REO’s),” says Filipp Chebotarev, Chief Operating Officer of Cambridge Companies SPG.
Almost without missing a beat, Chebotarev and his firm shifted its focus to emerging consumer food and beverage brands. It was a bold move. Cambridge didn’t know whether its investors would follow the company into this new strategy. A lot did; some didn’t.
The gamble paid off. Food and beverage companies backed by Cambridge are now taking consumers by storm.
“There is a renaissance happening in this sector,” Chebotarev says. “Our job is to monetize the generational shift in spending”
Millennials and Generation C – people digital analyst Brian Solis characterizes as the “connected consumer” – are spending money very differently than their parents.
“They are more aware of what’s good for their bodies, and they’re also not at all impressed with nostalgic brands that their parents grew up with. There are a ton of great innovations coming out and gaining a lot in market share. So we felt that this was the right space,” Chebotarev says. “There’s a need for capital and a ton of upside potential.”
Cambridge’s fundamental strategy is to help the companies in its portfolio to scale — “to help them grow from $10 million to $30 million and from $30 million to $100 million in annual revenue,” Chebotarev says. “Each major revenue milestone requires a unique skill set from the portfolio company leadership team and our investment team.”
One way Cambridge Companies SPG helps firms do that is by leveraging two of its portfolio companies: Indi.com and Piñata. Indi does social media marketing, influencer aggregation and affiliate revenue generation for some of the largest companies in the country as well as leading emerging brands. “As investors, we’re able to leverage that marketing platform with our brands,” Chebotarev says.
Piñata is a mobile, fully automated solution for brands big and small to recruit staff for experiential marketing, such as demos and promotional events, and then collect the resulting customer data on a digital platform. For example, a brand might need 200 demos in the next six months across the West Coast. Piñata arranges these events and aggregates valuable consumer insights that are critical for high level growth decisions.
The old-school way to set that up was to make a lot of calls, book appointments, create a spreadsheet and follow up to make sure that at 6 p.m. at a company in California, someone showed up. “So at the end of the six months and the 200 demos, you have 200 different notes to look through,” Chebotarev says.
Doing it through Piñata’s platform, it is all digital — in real time. Once the project is done, the brand has all the data on a dashboard. “Everything is geotracked. It’s a lot more efficient,” Chebotarev says.
So what does Cambridge SPG look for in an investment? It looks for companies that are intriguing and captivating. “What we look for are products that are truly unique and competing in a very large category.” That’s because in a small category – say $100 million to $200 million – you have to have a large market share to be successful. On the other hand, “If you’re competing in a multibillion dollar category, then one percent market share is a very meaningful number,” he adds.
Cambridge was invested in nine companies in 2017, with a total of $42 million in revenue. This year, those companies are on track to exceed $100 million in total gross sales. Today, Cambridge has 16 companies in its portfolio, raising the ante considerably. “Ancient Nutrition alone did $90 million in sales last year,” Chebotarev says.
Cambridge SPG rarely finds an investment opportunity that has everything ready and all the due diligence lined up. More often, a company is making several million in revenue but doesn’t have enough time in the market to have amassed enough data to determine how well the company’s products are selling on the shelves or, if it’s a direct-to-consumer company, what the customer retention rate is.
In that case, Chebotarev says, “We monitor those companies – sometimes for two months, sometimes for six months, sometimes for a year — until they get to the point where they have that data. Then we can determine whether they’re doing better or worse or just as good as the top players in the category.
“We’re not in a rush to invest. We only invest when the timing is right,” he says.
What advice does he have for companies seeking investors? “The No. 1 piece of advice is to make sure you have all of your dots in place. What investors are looking for. They think, ‘If I invest in this business today at this current value, how is this business going to grow and how is the value of my investment going to grow, then when and how do I realize liquidity?’”
When companies make a pitch, sophisticated investors ask lots of questions. “Each one of those questions is a dot you have to make sure you have in place,” Chebotarev says. “You can very efficiently connect the dots if all the dots are there and logically present the opportunity.”
Making multiple pitches is the ideal way to connect the proverbial dots. If the investor isn’t ready to pull the trigger, they will obviously say why. “And that is information you collect to refine your pitch. The investor will tell you which dot you are missing,” Chebotarev says. “With each pitch, you know how to make your pitch more bulletproof.”
He adds, “If you have any problems in your strategy or your business, find ways to adjust those strategies so any risks are mitigated, and then go back out.”
What drives Cambridge Companies is empowering innovation – and people. “To back incredible people who have very innovative concepts and products that solve problems for consumers is something very special that we embrace,” Chebotarev says.
In the case of Foodstirs, “Our investment helped them launch their first retail locations,” Chebotarev says. “Fast forward to today, they’re in over 16,000 locations – including all the Starbucks in the country.”
Chebotarev likens starting a new business – even a business with $10 million in sales – to being inside a pressure cooker. “You’re always behind on your hiring, you’re wearing multiple hats, people are doing the jobs of two other people – and it’s very challenging,” he says. “The people who actually succeed and grow are unique people. We feel grateful to be able to meet these people and support them.”
And while Cambridge’s focus is on better-for-you products, it’s not simply because it sounds good and feels good to say so. “At the end of the day, that’s what the customers are showing the market that they want,” he says. “Over the last five years, these better-for-you brands have taken over $20 billion of market share from established companies that are offering highly-processed, high-sugar products. Our brands offer customers the better products that they are looking for on the shelf and online.”
Filipp Chebotarev, Chief Operating Officer
Cambridge Companies SPG