Mars is looking to cement itself as one of the largest and most influentialventure investors in the pet care industry.

The pet care arm of the CPG business, which makes an estimated $18 billion inrevenue from pet care annually, hopes the move not only gets pet care direct-to-consumer brands to market faster, but also to share in the spoils. Afterall, the pet care market is forecasted to be worth $202.6 billion by 2026, perconsulting firm Grand View Research.

Mars Petcare created the “Companion Fund” last March with a dedicated $100million investment pot, part of which it has used to back corporate-wideinvestments in 20 startups. Some of those investments skew toward sciencestartups to fuel the nutrition side of the business, but there’s a growingfocus on DTC businesses too.

DTC brands are the envy of CPG businesses like Mars. They move fast, haveleaner structures and generate reams of data from selling directly to people.The closer Mars Petcare can get to DTC startups, the better it can understandthe constantly contorting DTC model, which is a priority in a CPG categorywhere the largest players want to nudge businesses models primed to profitfrom bulk shipments to stores, to ones that also profit from deliveringsmaller-quantity shipments to individuals.

“There’s a lot we can learn from those [DTC] businesses when it comes to theproximity they have to people,” said Leonid Sudakov, the head of connectedsolutions at Mars Petcare and the president of its Kinship accelerator scheme.

Unlike other corporate-venture arms, Mars is what’s called the “limitedpartner” to the Companion Fund, which means the CPG business has limitedinfluence over what the execs running the venture-capital fund do with themoney as they bet on which DTC startup can next achieve unicorn status.Investments can pay off in two ways: Mars profits from its own stake in astartup that eventually floats on the stock exchange, or the CPG businesscould acquire a startup it has helped grow, to branch out into new services asit did when it bought “Fitbit for dogs” Whistle in 2016.

Bets made by the venture-capital fund range from $2 million to $5 million forstartups going through early phases of growth, in exchange for minoritystakes. Marketing support is also offered to chosen startups as is productdevelopment expertise, manufacturing resources, distribution plans andscience. So far, the team at Mars Petcare have tried to back as many startupsas they can including fintech firm Scratchpay, rather than try and pickwinners outright. To date, the fund has seen 1,800 young pet industrystartups, and has only invested in 1.1% of them.

“When we started the fund, it was clear that the startup ecosystem in petcarewas underdeveloped. There was not enough venture money,” said Sudakov.

Finding those businesses isn’t easy. Between 2004 and 2013, 65% of 10,000 U.S.businesses that received venture-capitalist funding failed completely,according to venture capital outfit Correlation Ventures. Mars turned to thestartup world to make sure it could function as a real venture-capital fund.Ben Jacobs, an investor and co-founder in the Whistle pet tech startup Marsacquired, leads the fund, alongside Sudakov and two other partners JeannineTaaffe and Kay O’Donnell who previously worked at the Banfield Pet Hospitaland Pet Nutrition parts of Mars Petcare.

The search for DTC businesses is also backed by a larger spread of dataexperts that Mars has been on a tear to find over the last 18 months. “It’sbeen a challenge because we’ve had to bring in a lot of outside expertise fromcompanies like Twitter and the agency sector in order to really understand thevalue of data to our business,” said Sudakov. In the last nine months, MarsPetcare has hired a data and analytics lead as well as a data engagement lead,while other senior roles within its global solutions team have been poachedfrom data specialist firms like Merkle. The partners behind the “CompanionFund” are also aided by Digitalis Ventures, a separate venture-capital firmfor startups focused on human and animal health, that manage the fund day-to-day. Potential investment opportunities are also sourced through the LeapVenture Fund, an accelerator scheme launched by Mars Petcare last March.

“There is logic to generating growth by starting new things — but the mostestablished businesses in our experience find this incredibly hard, given theodds,” said Blackett Ditchburn, strategy director at innovation consultancyFearlessly Frank. “Whatever the outcome, a well-run VC fund should beat — orat least equal — the returns made from a conventional stock market investment— so Mars should get their money back in due course — over the next 10 to 20years.”

Brands acting like venture capitalists isn’t a new trend, but there are fewsuccess stories. Capital invested in large, successful brands is there for adependable, low-risk return. Investors will not be pleased if they look aroundand find their capital exposed to venture capital-type gambits, even if thatstable business is not showing stellar growth.

Source: Global Pets

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