What Are Beverage Investors Looking for Right Now?


An Interview with Bob Nakasone, Managing Director at First Beverage Group 

In the process of developing and growing a beverage business, many entrepreneurs will seek out external sources of capital. While investors manage their portfolios differently, there are some commonalities in what they are looking for in entrepreneurs and opportunities. Bob Nakasone is Managing Director at First Beverage Group, a leading private equity investing firm focused on helping beverage companies grow. First Beverage Group has taken an active role in the growth of innovative brands like Health-Ade Kombucha, Essentia, and Q Drinks, among others. Bob shared insights on beverage trends and what investors like First Beverage are currently looking for in products, companies, and entrepreneurs.  

Q: How do you approach the beverage space in terms of spotting trends and opportunities? 

We are very active at trade shows and within our proprietary networks. We’re tapping into databases and following trends to understand what categories are attaching best. During the process of looking at a category, we’re also looking at subsegments within it. Take coffee for example. Coffee happens to be a macro-category that has an appealing growth rate overall. It also attaches itself to some broader consumer trends around proactive management of energy – as consumers are looking for an uplift in energy as well as a downshift later in the day. Within coffee, there are a lot of subcategories that are really attractive. While small, cold brew coffee has an extremely high growth rate right now. Single-cup home devices are also an attractive place within the coffee category. We look at how categories and subcategories ladder back up to broader consumer trends that are ruling the day for consumers out there like convenience, personalization and health and wellness. 

Q:  What qualities are you looking for in companies and brands you pursue? 

We have a pretty healthy list of things we look at when we evaluate an opportunity. As early-growth investors, one of the most important things we look at is the entrepreneur themselves. We’re looking for people who are welcoming of the help we can bring. If they are just looking for money, we’re probably not the right partner. “Smart capital” is kind of a buzzword in private equity investing these days, but we truly bring value as investors because we’ve been where these small, fast-growing companies are now. Entrepreneurs and management teams that are willing to take a collaborative approach are a good fit for us. In addition to the team, we also look at everything else from product, brand, revenue and profit trajectory, route to market, and operations, to the ability to scale. We’re also mindful of the exit playing field. 

Q:  How do brands and/or entrepreneurs stand out to you?  

We love seeing second-time entrepreneurs. It doesn’t necessarily mean that they had a great exit the first time around, but that they have some experience and have done it before. Whether it’s in CPG or with a tech start-up or some other industry, some experience that they can leverage is always good. We have an investment in a functional coffee company where the two co-founders had a long 10-year track-record of working together. On top of that, prior business that one of them had started was a highly successful digital marketing company. We knew that they would be able to use their know-how to launch a functional coffee brand, and that experience continues to serve them well now, even as they move beyond e-commerce and into retail. It is always exciting to see entrepreneurs with past experiences that they can leverage in the new opportunity.  

Q: What mistakes do you see beverage entrepreneurs make when it comes to seeking out funding? 

We try to avoid being in a position where we’re meeting someone for the first time and two weeks later they’re asking us for money. We’d love to have known them and followed the story for at least six months, and ideally for closer to a year, to feel comfortable with it. These aren’t forever marriages we’re getting into, but they are definitely not transactional. They are long-term relationships. You’re going into business together and so it’s important that there is a nice period where you’re able to get to know each other. So, I would say failing to adequately engage investors before you need money is a mistake. 

Q: What do you hope to learn about a beverage brand as you follow its growth and development? 

We want to hear their story, why they started their business, what they’re passionate about, and what they’re good at. We want to know what resources they’re working on adding to their team. Then we look for all the right proof points of a growing beverage business. That might be going deep into a couple of key markets in terms of distribution. If it’s an e-commerce-led launch, it might be going deep on e-commerce and developing a direct-to-consumer approach that lends itself to getting to know your consumers intimately and reacting quickly. If it’s retail, it might be getting to know a couple of key markets. A more bleeding-edge product will probably involve starting to test somewhere like L.A, San Francisco, the Pacific Northwest, New York, or Boston. The key to success is being patient enough to learn how and why people in those markets are consuming your beverage. From there, you can find a retailer with a more national footprint to test your product. Broadening your reach lets you see how your brand behaves in the middle of the country in addition to the more trend-forward markets on the coasts. We look for a solid starting point and a steady progression towards growth. 

Q: What is one piece of advice you give to entrepreneurs starting on their beverage journey? 

One piece of advice I give based on all the entrepreneurs we come across is to love what you do. It’s fine to want to create value and exit. That’s what we want too, but you have to have a passion for the process that it takes to get there. It’s a hard road. It’s by no stretch an easy thing to have a great idea, commercialize it, resource it, operationalize it, scale it and then find a buyer for it at some point down the road. It’s tough, and there are the same daunting statistics that are in a lot of other consumer industries. Most beverage companies don’t make it to a million in sales, much less five million. The numbers are stacked against you, so you have to love what you do.  

When you look at the landscape right now and how much innovation has been launched and how many entrepreneurs have gotten into the space, it’s been so much fun to be a part of, but it’s also highly competitive. Low hanging fruit that might have been available four years ago isn’t there anymore. You have to be prepared to run the long race. 

Everyone gravitates towards the extreme stories in food and beverage where the entire process from start to exit happens within three or four years. Those experiences are few and far between. You need to be all in for the right reasons to make it through. Most investors can sniff that out. Have a real passion for what you’re doing and make sure it’s what you love to do. 

Q:  Who is First Beverage Group and what is unique about your approach to investing? 

Bill Anderson, who has a long history in the beverage industry, founded First Beverage Group in 2005. His vision for First Bev was to assemble a team of passionate beverage professionals who could find and then add expertise and support to a portfolio of innovative and transformational beverage brands. In 2017, First Beverage closed our second fund at a total of $64 million. We’re using this capital along with our team’s experience to help bring the next wave of beverage innovation to the world. We’re the only investing platform we know of that focuses exclusively on beverages. That singular focus makes us uniquely equipped to partner with and support beverage entrepreneurs.