Designing the Moneyball Algorithm For Food

A conversation with Ryan Caldbeck

The food industry is changing. A number of ecological, economic, social, political, and technological forces are driving this change. Tech gadgets from the 90s that once filled garages have moved to kitchens. Digital natives (millennials and Gen Z-ers), who now outnumber baby boomers, are cooking, canning, fermenting, and dehydrating all kinds of unique foods to feed their insatiable appetites for new food experiences. This environment is creating opportunities for a new breed of entrepreneur to emerge: the foodpreneur.

Digital natives shop differently; they’re wary of Big Food brands – unlike their parents, who took refuge in the comfort of a trusted brand. Millennials and Gen Z-ers are more likely to ask where their food comes from, are curious about who made it, and search for a compelling reason to take a bite. Today’s consumers’ desires are vast. They may be looking for a cognitive boost, mood- enhancing effect, functional health benefit, new flavor, or personalized experience, or they may just hope to align to a brand’s values. Whatever the case, expectations are high. Their needs are highly segmented and rooted in a deep craving for authenticity.

Foodpreneurs have taken note. Understanding these needs, foodpreneurs have been quick to bring new food and beverage products to market, upending categories and disrupting the entire food ecosystem as we know it. Foodpreneurs are paving the way for opportunity and stealing market share from Big Food companies that have been idle for decades. Now, venture capitalists have begun pouring their money into the food and beverage space at record highs.

Ryan Caldbeck, cofounder and CEO of CircleUp – an investment platform providing funding and resources to early-stage consumer packaged goods (CPG) brands – has been using technology to shape how foodpreneurs get access to funding in this emerging market for the past five years. CircleUp has helped over 160 food and beverage companies raise more than $180M in growth equity. Data-centric and mission-driven, CircleUp continues to forge ahead in its pursuit to help foodpreneurs thrive by
giving them the capital and resources they so desperately need.

I sat down with Caldbeck to discuss the changes in the industry and to learn about how CircleUp’s recently announced technology system, Helio, is using data science to find the top early-stage CPG brands and thus disrupt the venture capital model in the consumer industry, making them more efficient and active.

Helio has been dubbed a “moneyball” for investing in consumer companies – and its algorithms are revolutionary. The company uses a series of machine-learning algorithms to find and evaluate consumer companies, identifying those with the greatest potential for breakout success. Helio tracks billions of data points on over 1.2 million retail and CPG companies, feeding the algorithm that predicts which brands and companies have the greatest probability of success. Caldbeck’s approach is similar, to some degree, to Billy Beane’s successful use of sabermetrics while managing the Oakland Athletics baseball team. He was able to identify the stars before they became stars.

Caldbeck explains that there is a lot of available data in the consumer space, making this space ripe for data science analysis. However, all the data is unstructured. Helio’s algorithms are built to make sense of it all, through the lens of an investor’s mind. It tracks a number of data points across relative strength of brand, team, distribution, financial performance, and product quality – all from afar, without CircleUp having to manually uncover the information. Thus, Helio understands where a company’s products are sold, how many stock keeping units (SKUs) certain retailers carry, how its products have been reviewed, its retail price points, the strength of its management team, its social media growth, and more. Helio’s algorithms make sense of all the data collected and allow the attractiveness – that is, the performance, potential, and likelihood of breaking through – of the company to be gauged.

Caldbeck believes that one of the challenges in the consumer space is how hard it is for entrepreneurs with good ideas to get access to capital. “It’s challenging and inefficient,” he says. Helio, which takes its name from the Greek word for “sun,” illuminates the promising brands and entrepreneurs that might otherwise be obscured based on where they’re located or who they know. Helio makes sense of the big, complex, and difficult-to-navigate road to raising capital in the consumer space. Essentially, Helio
is “shining light” on access to capital for breakthrough companies, helping entrepreneurs and investors alike.

Despite the challenging path to funding, foodpreneurs have tapped into the rise of consumer desire for real, authentic, mission- driven brands by serving up new products, genuine and authentic entrepreneurial startup stories, and new innovative brand personalities. And consumers are eating it up! Startups have experienced a disproportionate amount of success in the food and beverage space. This success has been largely attributed to the newfound consumer desire for authenticity, coupled with decreased distribution costs, decreased marketing costs, and advances in technology.

Caldbeck predicts that we will continue to see large brands rapidly lose market share to smaller brands in almost every category. Big Food companies have already lost $18B worth of market share to smaller players since 2011, and they continue to lose share and shelf space at an unprecedented rate. As Caldbeck explains, “That shift is fundamentally changing the landscape.” He believes that many larger companies will continue to see their core brands shrink dramatically over the next 10 years, with Big Food brands being reduced to half the size they are now.

“What used to be a quest to find the next $2–3B brands is now the quest to find the next $20–100M brands,” Caldbeck explains. “Big brands will not be replaced by one or two new big brands, but hundreds of small brands! There will be fragmentation in the consumer industry which caters to the specific preferences and authenticity people are demanding.”

Caldbeck continues, “The reality is, many of the past barriers to entry for the small brands, which existed for the past 80 years, disappeared over the past 5 or 10 years. Historically, consumers were okay buying the same products over and over. Today, there is a fragmentation: The personalization of the consumer [has come to the fore]. Consumers want products that meet their own specific needs and tastes, and it’s hard for big brands to adapt to that, since they’ve historically offered mass-market, one-size-fits-all products. So, big brands are investing through their own corporate venture capital arms in small companies, and buying companies earlier and earlier. The average acquisition target used to be around $75–100M in revenue. Today, that’s come down to about $25M. That’s all been in response to the drop in barriers to entry and the pressure big brands face to keep up with the market.”

In Caldbeck’s view, two “beautiful” things work together in the consumer industry to make Helio a powerful solution. First, the business models of consumer companies are all fairly similar. These companies make a product, ship it to a retailer, and sell it to people on a per-unit basis. Second, there is so much data in the consumer space. Information is available about what customers think of the product, where it’s sold, the number of SKUs it has, its price point, and the management team behind it – and changes to these variables are inputted on a monthly basis. The breadth and accessibility of data is the perfect recipe for data science. The result is Helio, a powerful lens into the performance of companies in an otherwise opaque market, which effectively matches rising stars with the right investors.

Caldbeck describes the most difficult aspect of Helio as finding the companies to analyze, like “finding the companies that are
only in the bodegas in New York City, or in the beauty shops in San Francisco.” The CircleUp team dedicated to building Helio works hard to build the algorithm in such a way that it can find those exact companies while they are in the early stages of distribution – that is, they are still small and undiscovered – yet on trend.

A big part of this is taxonomy. What Caldbeck and his team have discovered, which many marketers reading this would attest to, is that there isn’t one consistent taxonomy in the food and beverage industry or across CPG more broadly. Everyone can label Kombucha as Kombucha, but how Nielsen, IRI, SPINS, or Whole Foods categorize Kombucha can vary greatly. Today, Helio has established 200 different product categories, which are continuously updated. Helio evaluates many different factors laddering up to success, putting brands and investors in a position to successfully come together. This is a machine-learning form of matchmaking.

“We’re not suggesting Helio replace human judgment,” Caldbeck explains. “It is an additive to it – a superpower to help investors, buyers, retailers, or strategists to make better decisions.” In 2017, the network alone is not enough to be successful. Now, entrepreneurs are starting to get a leg up as Helio shines light on capital, illuminating the zoo that is the CPG space.

the author

Maya Oczeretko

Maya Oczeretko is a senior innovation strategist at Idea Couture.

the author

Anita Nagra

Anita Nagra is story producer at Idea Couture.