Sustainability, innovation, disruption will be goals of Walton-backed S2G Ventures foray into seafood

Seed to Growth Ventures, a sustainability-oriented food and agriculture investment firm with offices in Chicago and San Francisco, is expanding its investment portfolio further into the seafood sector, with its managers pledging up to USD 100 million (EUR 84.5 million) in future investments.

The group – backed in part by Lukas Walton, the grandson of Walmart founder Sam Walton – wants to target its investment to companies and projects that will move the industry forward in its thinking both in how it uses technology, and in how it approaches sustainability issues, the two managing directors of S2G’s oceans and seafood fund told SeafoodSource in a recent interview.

“Seafood has been a pretty underfunded, undercapitalized sector for a long time. S2G decided now is the time to invest in this sector. We’ve demonstrated this type of focus works for land-based investments, and we’re looking at parallel types of investments in the water,” S2G Oceans and Seafood Managing Director Kate Danaher said. “S2G has been investing in sustainable food and agriculture for past six to seven years, and was one of the first funds solely focused on food and agriculture.”

Larsen Mettler, who left his position as chief financial officer at Silver Bay Seafoods in August to take up his new position at S2G, said the seafood sector is in need of more capital to drive innovation.

“Institutional investors that have looked at seafood have recognized it’s a fairly complex industry and different than other animal protein industries in many ways,” he said. “We think we can address that need out there for thought leadership and creating change in the system.”

Chuck Templeton, the fund’s managing director and the founder of OpenTable, the online restaurant reservation website, said S2G has a track record of making critical investments in companies that bring radical change to their industries, citing Beyond Meat, Egg Innovations, Good Eggs, and Sweetgreen as companies S2G helped grow into major disruptors in the meat alternative, chicken egg, grocery delivery, and quick-service restaurant sectors, respectively.

Templeton said five core pillars of S2G’s “impact investment strategy” have guided the venture to its success thus far: investing in human talent involved in ideas they are passionate about; investing in companies “doing more with less” when it comes to natural resources; pursuing a co-investment strategy with dedicated partners; avoiding investments that have a negative impact on the environment; and lastly, investing in companies working to improve the lives of consumers and connect them with products that align with their values.

“We’re meeting demand from public markets to do things in more sustainable ways – that’ our mission,” Templeton said. “Our philosophy is, if you’re not building from that impact perspective, you’re at a disadvantage.”

As it has done with other sectors, S2G will be looking out for potential co-investors in the seafood sector, Templeton said. Partners can bring additional funds to investments “that are not capital light opportunities,” he said, and “get the flywheel spinning to get capital flowing into this underinvested space.”

“When S2G first invested in the food and agriculture arena, there weren’t a lot of funds taking a systemic look at it and taking time to build a network of co-investors with interest in the sector,” he said. “That commitment early on a co-investor syndicate formula – we have invested with over 100 firms, family funds, corporate venturing arms, retirements funds, nonprofits, and others like Benchmark and Google Ventures – has been a key to our success. We stand by the view that with co-investors, you get partners, rather than competition, for these opportunities. Not only is it a way to build in some exits through time, because you already have relationships built up, but you can learn so much in terms of pain points, operational efficiencies, and other things to help the company along in its growth.”

Mettler said getting the perspective of those with experience in the industry would be a critical factor in the fund’s approach to the seafood sector, and to its possible success.

“We’re of the opinion that the more eyes we have that are focused on seafood, the better we’ll so,” he said. “This is going to take participation from industry.”

Danaher said S2G’s investments would range from a minimum of USD 250,000 (EUR 211,000) up USD 30 million (EUR 25.4 million), but that the fund would likely start with smaller investments of up to USD 5 million (EUR 4.2 million) to “save some money for follow-on investment,” she said.

“We see some risks as syndication risks, and our investment levels will depend on who else will come in on these deals with us,” she said. “We want partners willing to build ecosystem of investments with us, who will be there to continue funding these firms later on.”

Templeton’s point about cooperation versus competition is important, Danaher said.

“Our observation is that in the oceans and seafood space, there has been a lot of investment in [recirculating aquaculture systems] and bigger-type stuff, and that there are a lot of people interested in the space who have maybe done one deal or two deals to dip their toe in it, but that lots of people don’t know how to underwrite the risk in the oceans,” Danaher said. “We don’t fully understand it ourselves. Seafood is different than beef, cattle, corn, or soy, and people don’t know how to underwrite for it. So there are lots of people out there looking to trust us to do due diligence on track records … [These are] people who are interested in following on, but not that many [of them] are interested in wanting to lead. Very humbly, we would like to help lead the sector so in five, six, seven years we have another 100 investors and couple dozen funds more heavily involved in seafood.”

Mettler said the fund has yet to narrow its scope to any particular part of the seafood industry, saying they are “still deciding” where the best opportunities lie.

“The seafood industry is worldwide. We’re open to wherever that takes us,” he said. “Sustainability is one idea we’re locked into, and traceability is another, because those are important from a consumer standpoint throughout the value chain.”

Wild-catch fisheries and aquaculture are receiving equal attention from S2G, both globally and domestically in the United States. Likewise, at this early stage, Mettler said the fund is equally interested in finfish and shellfish, seaweed and algae, and even cellular aquaculture, or the culturing of living cells from fish tissue to create lab-grown meat without having to slaughter live animals.

Danaher said the fund has identified a first cut of sectors across seafood and ocean health that hold particular opportunity for S2G, and that she and Mettler are now drilling down on “their opportunity for impact, where their profile matches our fund’s mission.”

“A lot of funds are very narrow and have a very specific investment thesis, because the sector is broad and in a lot of ways very nascent,” she said. “We want a balance. We don’t want to be too specific because otherwise, we will lock ourselves out of opportunities. And the deal-flow is not as robust for being such a new young venture, so we also need to hone in on sectors to build up our expertise and knowledge base.”

One advantage S2G has in moving into the seafood industry is that “its markets are already developed, for the most part,” Danaher said.

“You have to look at your potential market as you build the product, but with seafood, the markets are there, and it’s really about better utilization of natural resources.” she said. “That is one of the reasons this is so exciting to us.”

The COVID-19 crisis has “created a lot of opportunity” for capitalized investors like S2G, Mettler said.

“[The pandemic] has created a push for advancement of new products and ways of getting products to consumers and to market. We’ve also seen a renewed emphasis on food safety practices, and more interest in understanding the quality and safety of products and where they’ve been throughout the supply chain,” he said. “From an investment standpoint, we're seeing some companies going through difficult times. That’s not something we want to take advantage of, but we would like to help some companies that have great potential but maybe going through a little bump in the road.”

One prerequisite of an S2G investment is a sustainability component, Danaher said.

“Every investment we make has to have potential to have significant impact,” she said. “We still have to define thisd, and it may just be a projected impact, because we’re going to be doing some early-stage investment, but we have to believe going to have an impact, whether that’s on climate, social practices and behavior, or other sustainability-related goals.”

S2G feels responsibility to push the ball forward on sustainability movement in seafood, Danaher said.

“We have to prove conscious capitalism works – that we can grow a business and do good at the same time – because there’s just not enough philanthropic capital out there to solve the problems our world faces. If we can’t figure out how to solve this through commercial means, we have no real path forward,” she said. “We do see these worlds colliding, as we’re seeing Goldman Sachs and KKR launching impact funds. Our challenge is, how do we find companies we can get behind that can both create a positive impact and hopefully down the road get larger pools of capital so we can help other companies do the same?”

That challenge was a core reason behind Mettler’s move from Silver Bay Seafoods, which grew significantly in stature and size under the leadership team in which Mettler served beginning in 2016, after a 12-year stint at KeyBanc Capital Markets.

“This kind of opportunity really doesn’t happen that frequently,” he said. “It’s a marriage of my operational experience at Silver Bay and my prior 12 years of seafood investment experience at KeyBanc. This is my opportunity to make a much broader, more systematic change throughout the industry.”

Danaher said the example of what Silver Bay did to the commercial seafood sector in Alaska is one that S2G would like to follow.

“They made so many changes that essentially ended up creating more efficiencies, which led to a better bottom line, and a lot of that is now shared with fishermen,” Danaher said. “We absolutely want to invest in innovation and disruption like what Silver Bay did in Alaska. We’re looking at opportunities to invest in companies that we can help to create behavioral change from the inside-out in a way that will positively affect everyone involved and the world more generally.”

Photos courtesy of S2G Ventures