Q&A with Gurdeep Prewal, Rocana Venture Partners

Gurdeep Prewal, Co-Founder: We launched the fund with a very mission-driven approach to supporting brands that we felt were going to make a transformational change in the food and beverage world. When we started zeroing in on the better-for-you CPG space, we started to uncover a lot of problems that exist in the food system today.

Growing up, I never questioned anything that I was eating. I blindly ate a lot of the big legacy CPG brands, cereals, chocolate bars, soda, and I had no awareness of what was inside of those products. Decades later, I realized that many of those products have created systemic issues with respect to health and environment. So our mission at Rocana Ventures is to support brands and entrepreneurs that are going to create systemic change. We are the enablers; they have the vision, and we invest in them to support their mission.

GP: The two mega trends that guide our selection process are plant-based and clean label. For us, clean label means natural ingredients, no preservatives and low-to-no sugar. Beyond these main categories, we focus on sub-themes like alternative proteins, alternative dairy, functional beverages, and healthy snacking. We also mainly focus on DTC brands. Investing across categories in category disruptors and category creators is really what we aim to do.

GP: We invest relatively early-stage compared to most VCs. For us, it has to start with absolute conviction in the product and founder. For product, we have to believe that every brand we’re investing in is either going to be a cate- gory disruptor or category creator.

We don’t look for incremental innovation. For example, we haven’t invested in a bar company because there are a lot of options for bars out there, and typically the innovation that we see is marginal. We try to zero in on categories where we think there hasn’t been a lot of disruption and there is potential for dramatic change.

One example is a brand in our portfolio called Three Wishes cereal. When you look at the cereal aisle, there’s been very little innovation in the past few decades. Three Wishes is really disrupting a sleepy category. Another example is Kettle and Fire, a brand in our portfolio that we feel has really created the category of bone broth, which didn’t exist 10 years ago.

Because we take minority positions— we don’t look to acquire or control brands—the character of the founder and ability to work alongside them is an important piece of our selection criteria. We want to see how much conviction they have in their business, what kind of vision they have in building the brand, and how they plan to take this thing from product to brand to platform.

It’s a really fine balance between having total conviction in what you’re doing, but also having humility and a collaborative spirit to make those small pivots when necessary. Small pivots in a founder journey may not be what a founder initially envisioned, but they may end up being the most important decisions they can make. At the same time, you can’t make too many changes all the time — you have to be confident in your vision. So we really look for that balance in a founder.

GP: We typically don’t do pre-revenue; we need to see some consumer validation in the market. But that doesn’t mean we can’t build a relationship earlier than that. We talk to a lot of brands that are still pre-revenue just to build knowledge and a relationship, and it can be months before a check is actually written.

Brands also should be dialed into their gross margins and can demonstrate that they can get to 40+ percent gross margins. It can’t just be about top-line growth. It has to be a business that can be sustainable over a long period of time. We know in early years, many brands have very low gross margins, even negative gross margins. But we have to be able to see a path to get to 40+ percent.

GP: Data-driven velocities are so important. If they can show that they’re achieving velocities that are top of their category relative to competition, that gets me really excited. Also, if they can show me a high repeat purchase rate, that is really exciting for early-stage brands. But typically, we really do start with the mission. We’re always most interested in seeing that a brand is doing something transformational. That, for me, is the number one thing that gets me hooked and having a conversation.

GP: I’m fascinated by gut health, and one of our brands is doing something really unique and exciting. Olipop has disrupted the soda market with a digestive health soda, rich in prebiotics and fiber. What get me excited about Olipop epitomizes exactly what we like to see in a brand. It’s visually dynamic packaging, it tastes great, and it’s disrupting a massive category in soda. When you look at the formulation, it’s deeply rooted in science. They’re doing a lot of independent research and studies with the world’s leading microbiome experts to validate the efficacy of their formulations. This sets a new standard in CPG — rarely do CPG companies back their claims with real science and independent studies, which is exactly what Olipop is doing.

GP: If you look at our portfolio, every one of our brands is based in the US. But we have a truly international network: 75% of our investors are international. We really see this as a global movement. For many entrepreneurs, the US market is a massive market opportunity. But we are looking to connect the dots to other parts of the world. We really believe that a lot of these trends move West to East, and our brands have potential to succeed in other parts of the world. We bring this unique international approach to this space because we really believe that it is a global movement. Even within the US, we don’t like to focus on brands that are solely bi-coastal — we really like to think about the rest of the country.