Bloomberg Línea — Jeff Bezos-backed startup NotCo has raised $70 million in a Series D extension led by Princeville Capital, and the Chilean non-meat-and-dairy foods producer says the funds will be used toward building a new business unit focused on companies’ deals, as a continuation of the strategy that spawned the joint venture with Kraft Heinz announced in February.
Mercado Libre’s founder and CEO Marcos Galperin also participated in the extension that kept NotCo’s valuation flat at $1.5 billion.
In an interview with Bloomberg Línea, NotCo’s co-founder and CEO Matías Muchnick said the startup wasn’t fundraising, but decided to take the term sheet from Princeville Capital, which was looking to add a plant-based company to its portfolio.
In July 2021, NotCo raised $235 million, and Muchnick says a lot of that is still in the company’s bank account. The startup had “more than 18 months of runway,” he said, and it didn’t make sense for them to seek fundraising.
“But we started to announce things. We announced the Kraft Heinz deal, we announced the Shake Shack partnership, and we announced the Starbucks partnership. That allowed NotCo to grow a lot in terms of real economic value. Many investors wanted to invest in NotCo in Series B, C, and D, and they couldn’t get there in time or the size of the investment was too big,” Muchnick said.
The CEO explains that he accepted the new investor because the board believes 2023 and 2024 will bring a lot of uncertainty and companies will need to fundraise in the next year because they don’t have enough runway since raising funds in 2021.
“Instead of going back to actively fundraising next year without knowing if we can raise the valuation or anything, we said ‘why don’t we secure the cash today and we stay out of the market for the next five years?’,” Muchnick said.
NotCo says it will put its efforts into becoming a profitable company prior to an IPO in 2026.
New B2B options
After the Kraft Heinz announcement, the company says it got a lot of inquiries from many companies to start doing the “NotVersions” of their own products.
Now, NotCo wants to capitalize on licensing agreements. “A percentage of net sales of a brand that can place a product globally from one day to another, why not do it?,” Muchnick asks.
It is not a white-label effort, because it is established that NotCo has to be on the front of the package of every product, but it’s a co-branding strategy, he said.
“The Kraft Heinz deal consisted of two dimensions. One is R&D (research and development) and the other is branding. We were talking as a brand to people that Kraft Heinz couldn’t talk to as GenZs, millennials. They wanted to keep the brand because the NotCo concept made sense to the people that they need to start talking to. They want access to the brand too. So it’s not like we are pushing the brand itself, it is being pulled by these big companies that like the concept.”
Muchnick says the Kraft Heinz deal has exclusivity, only “in certain products in certain regions in the world,” so the company can strike up deals with other corporations.
“What we want to do going forward is not only potentially creating joint ventures, but also licensing agreements, because joint ventures are really complex. You have a share of governance, people coming from one side and the other side, so you need to align a new culture with a whole new company.”
The Chilean startup expects this strategy will bring revenues at a high gross margin.
Defining priorities
Muchnick says NotCo will launch five new categories with the joint venture with Kraft Heinz in 2023, and intends to convert Latin America into a profitable operation.
“We need to make structures more efficient, we need to select products that really move the needle, a lot of product and management as well. That means that we need to grow significantly in Brazil, and Mexico, besides growing the US business significantly.”
In Brazil, NotCo still is very much concentrated in Rio de Janeiro and São Paulo, and it has not announced a large partnership with multinationals as it has in other Latin American countries to allow the firm to enter the mainstream market, but rather has only struck up burger partnerships.
In Chile, the company has teamed up with Starbucks, Burger King, and Papa John’s. In Argentina, it has deals with Burger King and Freddo.
Without providing figures, Muchnick says NotCo is growing revenues two-to-threefold every year and will focus on amplifying partnerships in Brazil to reach better distribution.
The firm says it is not planning any layoffs but rather will maintain the hiring freeze policy even though new money came in.
“It’s important to behave according to reality. It’s not because we raised the money that we are going to start spending like crazy.”
A tough period for plant-based firms
According to Dealogic data, NotCo’s US peer Beyond Meat’s IPO was one of the most successful in more than two decades. However, after nailing a valuation of $10 billion in 2019, the company has been losing money and growing its debt.
Beyond Meat is trading down 83% this year. Asked about how to surf the environment that has been cruel to benchmarks, Muchnick quoted Brazilian racing driver Ayrton Senna, saying: “It is very difficult to outcompete cars on a sunny day. I can only do that on a rainy day”.
“These are rainy days. We need to stay away from the shadows of what our comparables are. And they are not really our peers when you see that the P&L of NotCo looks very different from the P&L of Beyond. We grow, and they don’t. We innovate, but they lack innovation. There are a lot of decisions that they have made because they became a public company and that weren’t very good in terms of the consumer,” Muchnick said.
“I think we are learning what not to do, focusing on R&D and developing technology. And opening this business unit that is driving revenues at an 85% gross margin is definitely what we need to keep on doing which will lead us into a potential IPO in 2026 in a way better situation of all these companies,” he added.
Muchnick doesn’t disclose the expenses tied to R&D, but says that out of the the 415 people working at NotCo, almost 200 are working in technology and R&D.
The market for plant-based sales has been declining, and there is consumer uncertainty about the actual benefits of these products, given the amount of sodium and the fact that it is ultra-processed.
Asked about this, Muchnick said the recession is one of the factors of discontinued growth as the price of plant-based products is always consistently higher.
“In a recessive environment, clearly the products that are going to be hammered are the premium products. People are budgeting for more inexpensive products.”
If the biggest factor affecting plant-based products is pricing, deals like the Kraft Heinz one give NotCo the ability to get to the supermarket with price points that are competitive with products containing animal-based foods, Muchnick said.
“There are people that are concerned about the healthiness of plant-based, but it’s not as mainstream as the media likes to put it. Generally, when you buy meat it doesn’t come with salt. When you put it on a barbecue you add a lot of salt to it. So it’s kind of a comparison that doesn’t make any sense,” he said.
“Getting into the healthiness of things, I sometimes feel like we live in a world that is upside down, like that movie ‘Don’t Look Up’. The consumer might be a little confused right now with the geopolitical thing, politics everywhere are very complex. 2021 was an easier world for people to focus on sustainability, now it’s harder because it affects your budget,” Muchnick said, adding that sustainability didn’t stop being important because global warming hasn’t stopped.
“You can care about sustainability and you can care about health. And when we talk about health, there is nothing more proven by science that eating plants is way better for human health than animal protein. There are a lot of studies that connect the process of aging to meat consumption too. I think it was Peter McGuinness, the CEO of Impossible Foods, that said that we have failed in marketing. We haven’t communicated it as well. I fully agree with that statement, we need to make more evident what is true and what is not,” Muchnick said.
