AWARD SPOTLIGHT: White Star Capital winner of 2021 VC Global Dealmaker Award for Freshly

June 3, 2021 | By: CVCA

White Star Capital founder Eric Martineau-Fortin remembers the first time he witnessed the scale at which meal-kit company Freshly was expanding.

It was 2015 and Martineau-Fortin and his co-founder, JF Marcoux, flew to Freshly’s operations in Arizona, where they saw a refrigerated truck in the parking lot stuffed with meals ready to ship to customers across the U.S.

“They needed the truck because they couldn’t find enough space to store all of the meals they needed to produce,” says Martineau-Fortin, who is also managing partner at White Star, a VC firm founded by Canadians with offices in Montreal, Toronto, New York, London, Paris, Tokyo and Hong Kong.

New York-based Freshly — founded by Michael Wystrach and Carter Comstock — had expanded from selling about 1,000 meals per week in early 2015 to more than 8,000 weeks later — and the growth has been exponential ever since.

White Star immediately wrote a first seed cheque in March 2015 and by October lead a Series A extension round of $3M to help finance Freshly’s growth plans, adding to its roster of early-stage companies with big international ambitions. It was the first of a total of $16M in investments White Star made in the meal-kit company.

Martineau-Fortin describes Freshly as a “spectacular growth” story. The company ended up raising an additional $100M in the following five years and was acquired in October 2020 by Nestlé, the largest food and beverage company in the U.S. The deal valued the company at US$1.5B, including a deferred uncapped earnouts consideration of US$550M contingent on the continued successful growth of the business.

Nestlé, which invested approximately $50M in 2017 in Freshly in exchange for a 15%-plus stake in Freshly, described the acquisition as a strategic move to capitalize on the rapidly expanding direct-to-consumer prepared meal delivery channel. Freshly stood out among its peers for its healthy meal options as well as standard-setting technology and analytics.

At the time of the deal last fall, Freshly was shipping more than one million meals per week to customers in 48 states with annual sales of more than US$430M, up from $6M in revenue at the time of White Star’s investment. Freshly’s employee base also grew from 35 employees at the time of White Capital’s investment in 2015 to 1,690 employees at the time of the exit.

Nestlé came to the table with the acquisition after Freshly had been discussing taking the company public. Martineau-Fortin says the company was IPO-ready, but the Nestlé offer was a better option and he says the earn-out is “very achievable” for the company.

White Star saw a return of $84M on an investment of $7M made out of its first fund, which was closed on $70M in 2015. The firm also invested $9M in a special purpose vehicle and in 18 months returned an additional $26M.

Martineau-Fortin says White Star Capital and the founding team never viewed Freshly as simply a meal-kit business but rather a food data science company. The menu and recommendation engine were carefully tailored to come up with fresh and easy-to-prepare meals. That hard-core focus on data helped the company grow faster than most of its competitors.

Wystrach says he co-founded the company in 2012 based on his own need to eat healthier, but also in a fast-food-style format. He asked a wellness physician close friend to suggest recipes to be cooked at his parents’ restaurant for him as healthy ready-to-go meals he could store and eat over within the week.

“Fast forward 60 days and I’m in the best shape my life; I feel great,” he recalls. “I really started to appreciate the power of food.”

Friends noticed the results and started asking for the same meal service. Wystrach partnered with Comstock, the son of the wellness physician he had consulted, to come up with the idea for Freshly.

“I wasn’t only the CEO but the first customer trying to solve my challenge of ‘how do I eat healthily?” he says.

Freshly had some early-stage investors including, Toronto-based seed investor BrandProject, which introduced the founders to later-stage investors, including White Star Capital, Highland Capital and Insight Capital Partners.

Wystrach says his team was attracted to White Star because of its ability to move quickly with financing, but also remain supportive and transparent throughout their investment period.

“I felt like I was part of a team, but also the team was kind of working for me as well,” Wystrach says, adding that White Star “really understood the business what we were trying to do” and how to work through any challenges along the way.

“Not everything is smooth,” Wystrach says. “There were hiccups and plateaus along the way: We had months where our marketing costs were not doing well, or where we couldn’t get the right talent… or where we were facing a cash crunch that was very scary… I can cite a few board meetings where Eric’s understanding of business and unit economics helped the board see past some misses in a quarter.”

As for the sale to Nestlé, Wystrach says the food giant not only put forward a compelling offer but also confirmed the Freshly plans to continue building the company.

“Our belief is that we’re in the first inning of making it easy to healthy,” he says.

Wystrach sees a “massive transformation” away from traditional grocery shopping towards online food delivery and meal-kit services, citing research estimating the online grocery market is estimated to be worth US$1.1 trillion globally by 2027. That’s a compound annual growth rate of about 25% from 2020.

“The exciting thing for us is the massive amount of people that are shifting their dollar spend online,” he says. “It really is this shift from the legacy food system to the new food system.”

In the meantime, White Star and Wystrach have continued their relationship co-investing in other consumer startups as well as investing and becoming an advisor to the firm’s pending third fund.

“Hopefully we can continue to do many, many things together in the years to come,” Martineau-Fortin says. “Michael is a true force and, more importantly, a very inspiring mentor to entrepreneurs.”


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