Sonoma Brands, an incubator and growth equity firm, has raised $60 million for its second fund.
Based in California's wine country, Sonoma Brands was founded in 2016 to invest in emerging consumer packaged goods (CPG) brands as well as create its own products in-house. Instead of focusing on what is trendy, the firm's approach to product development and investing has been to identify established sectors that have gone stale. "We tend to try to find big categories that exist already that we can disrupt, whether it be through product innovation or usage occasion innovation," said Jon Sebastiani, founder and managing partner, Sonoma Brands.
Sebastiani knows something about reinvigorating stagnant markets. In 2009, he founded Krave and set out to reintroduce jerky to consumers by offering a premium product with natural ingredients and unusual flavors like black cherry barbecue and chili lime. The company's unique approach to the category combined with consumers shifting behavior towards snacking proved to be a recipe for success, and the company was acquired by the Hershey Company for $240 million in 2015.
Sonoma Brands' first fund was an undisclosed raise from VMG, a private equity firm focused on consumer products, that sought to capitalize on Sebastiani's expertise at developing and launching products as well as growing established companies. "The first fund was in part to demonstrate that the success we experienced at Krave was in fact talent and not in fact luck," said Sebastiani.
In 2016, Sonoma Brands unveiled Zupa Noma, a single-serve chilled vegetable soup, that it positioned as an alternative to juicing, and SmashMallow, a gourmet snackable marshmallow aimed at taking on the $36 billion confectionery space. The firm's sole external investment from the first fund was in the snack brand Dang Foods where it participated in its Series A round.
With its second fund, Sonoma Brands plans to put more emphasis on funding outside ventures and will deploy 80-85 percent of the fund for such investments and the remaining money will be used to incubate one new brand that it will announce in March at the Natural Products Expo. Sebastiani said the firm will only invest in priced rounds and expects the average check size to be $5-12 million. In December, the firm made its first investment from the fund in the beverage company Guayaki Yerba Mate.
As part of the announcement, Sonoma Brands shared that it has invested $10 million from its new fund into SmashMallow and that the brand is being spun out as an independent company. Industry veteran David Lacy has joined the company as CEO. Previously, Lacy was vice president of finance at Plum Inc., chief financial officer at Krave Pure Foods and most recently the chief financial officer at Habit Inc.
Since its launch, SmashMallow has been on a rapid trajectory. Within 12 months, the company is already at a $12-15 million run rate and is expected to hit $25 million by the end of the year. "After a year the results are, candidly, mind boggling," said Sebastiani. "This is the fastest growing non-chocolate confection company in America."
With the new funds, SmashMallow will continue to scale its business, which will include nationwide distribution in Target stores next month.