Unilever's Liquid IV acquisition a proof point for CircleUp investment fund

For CircleUp, the Sept. 1 acquisition of Liquid IV by Unilever wasn’t just proof that the highly technical concept of enhanced hydration science can grow a consumer base. It was proof that the Bay Area investment group’s data-centric model is working.

Liquid IV, makers of powdered drink mix sleeves that promise to optimize hydration, got picked up by Unilever for an undisclosed sum after exhibiting accelerating sales growth and significant direct-to-consumer distribution. It marked the first exit for a company in CircleUp’s Growth Partners Fund—the Fund put money into the company in 2018—and CircleUp Managing Director Ben Lee says the deal bears out the group’s Helio data harvesting tool. Helio picks up information on sales, distribution, social media mentions and other data to identify early-stage brands with market potential.

In the following interview Lee talks about the Liquid IV deal, what it says about investment in the year of COVID-19 and what CircleUp has learned from using the Helio data model.

What does the Liquid IV deal tells us about the investment landscape for natural brands right now?

It shows that there's just a continued interest in overall health and wellness. As a brand, they've been able to really get home on the message of how important hydration is not just to the single issue of hydration, but to the overall health and wellness. It supports CircleUp’s contention that innovation continues to be driven by entrepreneurial brands—the brands that look at the broader landscape and want to disrupt the category and that is happening with small entrepreneurs. These large CPGs recognize that and they’re growing through acquisition.

What does it say about CircleUp’s strategy and the Helio data gathering program?

I think is absolutely a great proof point around the objectivity and the ability to surface unknown brands. This was a company that would not have been on our radar had not shown up in a data-driven screen that was calling out interesting signals around things that were happening or the distribution growth in terms of customer enthusiasm around the brand. That allowed us to become aware of the brand. It's kind of what allowed us to be the only institutional investor that the company was talking to at the time, and it picked it up very early in the in the growth stages of the company. We were fortunate enough to be alerted to the brand by Helio and to be able to partner with them.

What made Liquid IV stand out?

A couple of signals in areas that we really care about as investors–a differentiated brand building a strong and loyal customer base and really growing distribution. It was a standout on on all those categories. It was also in what seemed on the surface to be kind of a sleepy category that was not ready for disruption but a lot of the signals gave us confidence that they were on to something and were able to have a brand that was trying to throw a great deal within a large category.

How important was the powdered format? Could this have happened if Liquid IV was an RTD (ready-to-drink) beverage?

I think that it was pretty important. The brand actually launched seven or eight years ago, originally as an RTD brand, and they quickly transitioned into the powder format. I think that that was important because of the convenience factor, the ability to drive a strong online business, through their own website and through Amazon, were all kind of made a lot easier by the fact that it was an easy on-the-go product. If you're selling on Amazon, shipping 16 or 32 sticks of powder is much easier than shipping 32 bottles of a beverage.

But also, when you look at the brand, they had a very broad positioning. It was not just 'drink this when you're at the gym.' This is about fueling every day for everybody and recognizing that dehydration was an issue for 75% of Americans. The convenience factor of having a stick rather than having to carry a bottle was an important differentiation here. The core functionality and the ability for users to build this into their daily routine, rather than it being an impulse purchase when you in the convenience store was certainly a part of how they thought about building the brand.

Did travel limitations and other factors related to COVID-19 impact how the deal happened?

I would say that it generally went very smoothly. I think that certainly, the biggest limiting factor was just the inability to meet. There's a certain level of communication and relationship building that is a little bit easier when you're doing it face to face, rather than over zoom or Skype or Google Hangouts. So, I think that that extended the relationship building time period. But at the end of the day, Brandin Cohen, the CEO, and the leadership team overall made the business continued to perform exceptionally well throughout the pandemic. That really put them in a strong position to continue to get to a successful transaction.

Do you think that the pressure test that's going on right now is going to come up in the future when investors are looking at companies?

It’s a great question. It is certainly something that like no one has the exact right answer to. Whether it is a challenging time or an exceptional time for the brand, it will put an asterisk next to the time period. There'll be brands where demand is artificially driven throughout the time and there'll be brands whose demand was artificially suppressed. Investors will need to determine which side of the equation the performance of the last six, nine months has been.

How important is it for CircleUp that Unilever was the acquirer? Does that cachet matter?

I’ll be candid. I don't think as much about from the perspective of CircleUp. I think about it from the perspective of the company. We invested in Brandin and Liquid IV, because they have a very big vision for what they think they can do and how important this goal is to try to impact everyone's lives. And the benefit of a platform like Unilever is obviously that they have that global reach. They have the global resources and that puts the brand in a position where it can now really go out and even further execute on its goals.