Private Eye: Startup JMK Consumer wants to stick to $100 mln funds

JMK Consumer Growth Partners, an investor in skincare-product company Supergoop, could be heading out soon to raise a debut fund earmarked for growth equity investments.

In an interview with Buyouts, co-founder John M. Kenney said he’d like to raise $100 million — and no more than that — for the fund.

In fact, Kenney said, should the first fund succeed, he anticipates raising a series of $100 million funds, flying in the face of the current fashion among private equity shops of raising successively larger funds. “We think this is a vein, in mining parlance,” said Kenney. “We think we can mine [it] for some time to come.”

Kenney said that he’s had discussions with two organizations about becoming anchor investors. “Once you get an anchor in your corner, then you can really push to the next level,” he said.

Sponsors with consumer focus

JMK Consumer Growth joins an expanding wave of sponsors that have made consumer goods a focus. They include San Francisco-based TSG Consumer Partners, where Kenney helped build a New York office from 2008 to 2013; Alliance Consumer Growth; Encore Consumer Capital; VMG Partners; and Tengram Capital Partners. 

Those particular firms, Kenney said, generally invest upstream of JMK Consumer Growth, which seeks to invest $1 million to $5 million at a time in companies generating $2 million to $10 million of revenue.

Only a handful of firms, among them CAVU Venture Partners and 2x Consumer Products Growth Partners, are likely to compete directly for deals with JMK Consumer Growth, Kenney said. “We’re purposely swimming in a pool that’s not particularly crowded,” he said.

Kenney developed a taste for backing fast-growing consumer companies in the early 2000s. As a partner at AEA Investors, he co-led the 2003 buyout of personal-care-products company Burt’s Bees.

That deal, which generated a big return for AEA Investors after a sale to Clorox in 2007, led to a number of calls from bankers wondering if buyout specialist AEA was interested in providing growth equity to other consumer companies.

Kenney said he pitched the idea of raising an ancillary fund earmarked for growth equity but the firm decided to pursue other strategies.

Later, at TSG Consumer, Kenney felt more in his element, making both non-control and control investments in fast-growing food, beverage, beauty, fashion, luxury, restaurants and retail companies.

But TSG Consumer was raising larger funds, following a $900 million fund in 2007 with a $1.3 billion fund in 2011; this fall Buyouts reported the firm was eyeing $2 billion for a seventh fund.

And Kenney, who enjoyed working on smaller deals, noticed that he and his partners were often at a loss when bankers asked for referrals to sponsors looking to make investments in the $5 million range. That “crystalized my thinking,” said Kenney, who left TSG Consumer in mid-2013.

For much of 2013 to 2014 Kenney laid low, pausing his career to help his quadruplets navigate the transition from high school to college. In spring 2014 a mutual friend introduced him to Sarah A. Woelfel, who had been an associate on the mezzanine investment team at Audax Group.

The two shared a common view of the opportunity and by April they had launched JMK Consumer Growth. To date they’ve done two deals with co-investors through special purpose vehicles. Both are skincare companies: Supergoop and babo Botanicals.

The firm takes ownership stakes of 10 percent to 30 percent in food, beverage, fashion, beauty and personal-care companies that are “bouncing near and around” break-even on a cash flow basis, Kenney said.

The money is not earmarked for cashing out shareholders. Rather, on day one, Kenney said, the money sits on the company’s balance sheet, available for working capital, building out the management team, and related growth initiatives. The ultimate goal is to triple the firm’s equity investment.

No shortage of opportunities

The flow of opportunities has been robust. Year to date the firm has talked to owners of some 225 companies, with 55 percent of those opportunities generated through outbound and inbound calls and the rest through introductions from bankers and others.

Kenney pointed to Supergoop as a representative deal. Kenney knew Supergoop  from his days at TSG Consumer, when he made a personal investment in the company (with the firm’s blessing).

Along with online, the San Antonio, Texas, company sells its skincare products through retail chains like Nordstrom and Sephora and through QVC on television.

Since investing in November, JMK has helped Supergoop’s field sales team become savvier in how it allocates resources, Kenney said. It has also helped recruit a new head of sales and a new head of operations.

JMK Consumer Growth is one of their first phone calls “when they’re thinking through an issue,” said Kenney. “We’re a sounding board.”

Should Kenney stick to his self-imposed cap of $100 million on its early funds, his firm would remain a sounding board for $2 million to $10 million-revenue consumer-products companies for years to come.