What $600M in Growth Equity Actually Looks For in a Consumer Brand | William Quartner | Prelude Growth Partners | Profits on Purpose

Episode Description

William Quartner is a Partner at Prelude Growth Partners — one of the most active growth equity firms in consumer, with a $600M fund and exits including a $400M sale of Bachan's. In this conversation, Nate and Will get into what investors at this level are actually looking for: how they screen founders, why they take a category-first approach to identifying opportunities, and what makes a brand scalable vs. a cash-burning trap. If you've ever wondered how the investment world works — or whether your brand is the kind of thing that could attract serious capital — this episode will give you a clear-eyed view from someone writing the cheques.

Key Takeaways

• Authenticity and resilience in founders are prioritized over skills, as they predict long-term success.

• Investors favor categories with stable advantages over trendy sectors to ensure sustained growth.

• Growth equity focuses on proven momentum and executional potential rather than just innovation.

• Nutrient density and consumer data help differentiate lasting trends from passing fads.

• A category-first approach reduces bias and enables scalable investment strategies.

• Managing growth requires a focus on customer lifetime value and sustainable economics.

• Understanding category economics is crucial for navigating market risks and ensuring success.

See More from William and Prelude Growth Partners

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• Company Website

Listen to the full episode to discover how William's experiences can inspire and guide you on your entrepreneurial journey. Don't forget to subscribe for more insightful conversations!

I hope you enjoy this episode!

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– Nate and the Profits on Purpose podcast team

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Transcript

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00:00 Introduction to Profits on Purpose
05:00 The Journey to Becoming a Growth Equity Investor
08:30 Evaluating Founders: The Human Element in Investing
12:43 The Impact of Female Leadership in Investment Firms
15:02 Navigating the Investment Application Process
19:14 Execution Risk: The Key to Scaling Businesses
22:27 Industry Relevance vs. Founder Quality
24:30 Investing in Diverse Flavor Trends
29:54 Understanding Category Dynamics in Food and Beverage
35:59 Balancing Growth and Profitability in Investments
44:52 Future Trends and Exciting Opportunities in Food

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Nate Littlewood (00:06)
Have you ever wondered what the difference is between venture capital, private equity and growth equity, or what does an investor who's making eight figure investments actually look for in a consumer brand?

Welcome to Profits on Purpose, which is a podcast for e-Comm and CPG founders who are navigating the intersection of purpose led entrepreneurship and the financial realities of running a business.

I'm your host, Nate Littlewood from Future Ready CFO, where I help seven figure e-Com and CPG founders make confident data-backed decisions that drive profitable growth and at the same time help them sleep better at night as well. Anyway, today's guest is William Quartner, who's a partner at Prelude Growth Partners, which is a leading New York City based growth equity firm that has backed some of the most recognizable brands in the consumer space,

including names like Bachan's, Banza Pasta, Sol De Janeiro, Summer Fridays, Blueland and MadeGood. Prelude just closed their third fund at $600 million and these guys typically make investments of $15 to $75 million at a time in high potential consumer brands across food, beverage, beauty, health and wellness, pet and a few other categories.

In today's conversation, we'll be talking about the different types and stages of investors that you may encounter on your quest to build a consumer brand. We're going to be talking about the difference between emerging trends versus fads, why investors like Will take a category first approach in identifying attractive investment opportunities. And we'll be getting an investor's perspective on what actually makes a good investment.

William, welcome to the show. It's so great to have you here.

William Quartner (02:04)
My pleasure. I look forward to hearing these great discussion topics. I'm lucky you got some smart discourse coming your way.

Nate Littlewood (02:12)
Yeah, I hope so. Well, let's get started, I guess. Well, I understand that Prelude is what's known as a growth equity investor. For the folks listening who are perhaps a little bit less familiar with the investment world, could you start off with maybe just an overview of what that actually means and how is it different from say venture capital investing or private equity?

William Quartner (02:38)
Yeah, that's a pretty common question. And it is a nuanced, sort of vague blended line in some cases. I think in general, if you're running a business or building a business and you're looking for a partner to help you grow, you can think of venture as the earliest stage. You're still building out the concept, proof of market, and you're looking for people to help build that vision.

And importantly, venture capital investors tend to make a lot of investments and not all of them work out and they have some great, great outcomes in home runs and that's part and parcel to a venture capital model. Private equity on the other end of the spectrum is typically a control investor later stage. They may or may not be using leverage to buy and sell companies. But these are companies that have been around typically have consistent track records, have cash flow, maybe growing, maybe not.

Growth equity is somewhere in the middle. And these are all general issues. Growth equity is in the middle. And we're firmly in that part of the market, Prelude is, because within consumer, we think that's a really fertile place, an exciting place to live. And it means that we're looking for opportunities in companies where the proof of concept is there.

The company has established sort of whatever the mousetrap is, whatever they're doing seems to be working and they can sort of assess that. And now they need capital and experience and expertise to go execute on whatever the path forward is to build that business. every investment we make needs to be a great outcome. We only make one or two year, not 10 and not one, but a couple of years, so tight what following was.

And we underwrite to good outcomes, hopefully great, but we're not trying to shoot them every time. I think that's the distinction. Every firm is different and people take different approaches, but yes, this is the growth state of companies and we're looking to help them basically capitalize on the momentum they've already been able to sort of establish. And to your point, it is lower risk than I think a typical venture investment would be by design.

Nate Littlewood (04:54)
So tell me a little bit about how you got into this. How does one become a growth equity investor?

William Quartner (05:00)
Yeah, would love to. My career has been always on the financial or investing side of the table, so to speak. I've always been a consumer brand person, always have enjoyed as a general thing, wandering aisles and you looking in the grocery store brands and brands have always been something that resonated with me.

So as you think about, you know, where I ended up, it's there's a sector focus, which is consumer. that was always to me what I wanted to focus on. spent some time in investment banking at the very beginning of my career. Then I went and worked at a firm called Towerbrook Capital, which is a traditional private equity fund. From earlier in the conversation, that would be a later stage, more conventional private equity investment type of style.

I spent some time at Goldman Sachs in what's called the principal investment area after I finished up business school. And that was a private equity role as well and consumer focus to looking across CPG brands and restaurants and retail, any sort of consumer business. And part of what I learned there was, you know, as I looked across all of consumer, where the most interesting dynamic and I thought.

Nate Littlewood (06:03)
Right.

William Quartner (06:20)
Fertile for investment places tended to be in the growth part of the market. There's been an emerging brand narrative within consumer broadly, just an explosion of brands, new brands and surging brands that are catering to the new generation of consumers, what they are looking for. And to me, that was much more interesting than later stage consumer investing, which tended to be more cost cutting, conventional.

you know, brands that needed either to rejuvenate or refresh themselves. Just there was less dynamism. And to me, being a part of the growth cycle was always what I was excited by. So that's how ended up. And I ended up joining Prelude Growth, I should say, at inception, along with two other, with the two founders here.

And so it's been about eight years since 2018, the firm we kicked off and we just closed our third fund, $600 million, and we've made 16 investments like the data at a handful of exits and getting started now. So, busy.

Nate Littlewood (07:28)
Cool. Nice one. Nice one. So coming from the world of finance and banking, it seems to be a somewhat typical background for folks that end up in the investing world. I have a question for you about that though.

Something I've often wondered is, I guess, less so at your more later stage type of investing, but especially when you talk to angel and VC investors, they will so commonly say that they're backing the founder, right? Like the investment they're making is in the founder. They want to believe in the founder and the team and the people. That being the case, I've always thought it was a little peculiar that you have all of these finance people evaluating and presiding over these businesses. Why do you think the, that industry doesn't?

more, I don't know, behavioral psychologists or HR experts or CEO coaches, know, more people who are good at evaluating people talent.

William Quartner (08:30)
I think it's an excellent question. I think evaluating the founder is incredibly important. Certainly at the venture and angel stage, aside from an academic perspective on the market opportunity, the founder is often much of what they get depending on the stage. So the founder is critical. For us, I can tell you anecdotally, and I'll answer your question directly, but it is clear.

authenticity of the founder, how he or she infuses that into the brand and the product. Their scrappiness. Founders will run through walls that often, you know, higher professionals won't. It is the extra, you know, game of inches that very often does make a difference over the long term. And so we love and almost always back and partner. We make minority investments, I should have said, you know, predominantly significant minority.

And we do that in part because aligning and locking arms with founders is so powerful because they are, you know, they've got an extra gear in our, in our view, assuming you assess them, you know, and they're up to the quality you look for. I think you make a great point. It's hard. You know, there are firms that have executive coaches and to help their founders succeed.

I think what you look for in a founder depends on the situation. Often they spike in whether it's brand or product, they're created or sometimes they're extremely commercial and sometimes they seem to have it all. But usually we're looking for just a spark of something really distinct and authentic and a passion with what they're doing. And hopefully, for us, we have a deep enough...

network to help build a team around them that if they're receptive to it, and by the way, coachability and willingness to ask for help and accept help too is important. But we do think we can help them build a team to support them if they need it. probably take your point. I don't know why other than maybe we're not there yet. Maybe that's the opportunity. You should go start your firm and be a firm behavioral science.

Nate Littlewood (10:38)
Maybe, So when you're getting to know a founder, like how, how do you screen for the sorts of qualities and attributes that you look for? I mean, is there specific, you know, standardized questions that you have or the tests you make them do, or is it just a matter of hanging out, spending time and getting to know them?

William Quartner (10:59)
It's definitely not standardized. would say generally speaking, we get to know founders. Usually, we're making introductions and meeting people a year plus before ultimately you make an investment. That's not by, you know, we'd love to make investments sooner if we get that confidence, but tends to be the case. The timing doesn't align and you just sort of love what you see, but it's too early or whatever. So you get to know people is typically what happens, but not always. And in that time, it's really...

Do they show that they have the ability to build a team, retain their talent? Can they convey the story, market whatever they're doing? Are they committed and aligned and high integrity? know, the only test we do, would say, you know, uniformly is a background, a basic background check to make sure that there's not a serious issue. And even if there is, usually, you know, if they told us about it, we could probably figure it out. But it's really, are we the right partner for you?

in terms of cadence and work style. Do we think that you have a vision and a perspective on what you're doing? And it may be that you're not the right founder for the entire next chapter. Maybe you are, and just understanding where your head is and making sure that we are aligned on how we can get formality together. This is all assuming the business and the metrics underlying the opportunity are compelling.

Usually if they've built something that meets our threshold everywhere else, it's hard to see a founder that would fall so far short, you know, having built a remarkable business elsewhere, but it, you know, certainly it's not always the case.

Nate Littlewood (12:43)
Yeah, yeah. Okay, interesting.

And I understand that Prelude is a female founded firm. The other three partners are all female from what I understand. And it's a fairly, you know, male dominated industry. How do you think that has kind of shaped the firm's culture and approach to, you know, working with founders?

William Quartner (13:06)
Yeah, it's interesting. It certainly is part of Prelude Growth DNA. And it was a part of my decision. I wasn't seeking a female founded firm when I left Goldman to go join Prelude, but it was something that was obvious and apparent about,

pre-lucro and in consumer in particular, most of the purchase behavior is done by females. Women tend to be the buyers for households. And so it was always funny at my, my prior roles where, you know, it'd be all male teams and we'd be in meetings talking about products that none of us used or had an experience with. And that always was a funny experience, you know, and you can make the decisions based on data, but in consumer, it does make a difference in many cases.

have, I think, the female perspective to be able to connect with founders or appreciate different opportunities. And so it's not something that we, it's not the only element of our DNA, but it's a part of our DNA for sure.

I over time, we've built up a team and there are other men on Prelude's team as well, but certainly it's part of our core, so as we look in beauty, personal care, food, and having the ability to have a balanced perspective.

Nate Littlewood (14:32)
Well, well, I assume you guys must receive hundreds, if not maybe even thousands of applications a year. You mentioned earlier that you're only investing in like one or two companies a year. Help me understand how we go from point A to point B. How do people or brands actually get to the top of that pile? And what are some of the big steps and filters between, you know, the application process and actually receiving capital at the other end?

William Quartner (15:02)
We do, we look at hundreds and hundreds of companies a year and make two to three investments. So it is, you know, we look at a lot of opportunities and we are very, you know, selective. Typically, you know, I love applications and I welcome applications. Usually it's a combination of a number of ways that they're coming into our funnel.

A lot of it is network based and you get introduced and meet people organically are intermediaries, there are you know, there are conferences and all sorts of ways that you come across each other, but there are some to go from that, you know, thousand companies we'd look at for each investment we make or whatever the number is. You know, there's some easy heuristics and it's size. So the company needs to be doing at least 20 million of net sales, just in terms of scale so that we can have a body of evidence that is big enough for us to get the conviction we need.

They need to be able, they need to be raising at least $15 million of capital and we can invest up to 100. But if it's too small, then it's not the right deployment of our, you know, we are a small team. can't deploy our energies against something that's not enough, you know, an opportunity. And if too big, then, you know, it'd be the right one for us either. You know, then there's financial model and performance. And these are easy, easy ones. Is it growing? it, is is the profit model?

where we'd like it to be based on the stage. And we have a great sense of what that should be based on our really deep experience in the consumer spaces. then the more nuanced and I think important considerations are, where does this play in terms of category? Is this a place that we think is aligned with long-term consumer tailwinds and will continue to sort of we think it's a big enough space that is...

that will support the creation of a big business, bigger business. Do we think there are acquirers on the other side that will be interested in purchasing this at some point? Is the product differentiated or the value proposition differentiated and does it really resonate with the consumer and can you demonstrate that? This is more key. So do customers buy it and come back and buy it? Do they talk about the brand? Do they love the brand? Does the...

Do they engage with it on social media or elsewhere? Does the performance on shelf at retail outpace the brand or the products next to it? Because these are all trying to get back to something's working here. Reviews are really good and positive on Amazon or wherever you're looking. And all of these things, and there's all the different dimensions I could go on forever. Is the brand unique? Is it doing something authentic? there...

It all sort of comes down to is the financial opportunity compelling and is the value proposition to the consumer clear? Can it scale? And then ultimately, what are the risks we're taking? And for us, we love execution risk. That's something we can help with. We can go execute against a plan to get from A to B.

Nate Littlewood (18:15)
Okay.

William Quartner (18:20)
If it's something that we can't control, if it's a category we don't like, if the brand is impaired or there isn't evidence where it is where it is, then that's harder for us. But we're trying to figure out whether this is a question of giving them the resources in the capital to execute on what's already working and where we can help augment that versus if it's a rearrangement or a fundamental change versus what they've done or where they are historically, it's probably not the right fit for us. If you fit any of those characteristics in your listening.

Send me a note, because I'd love to know.

Nate Littlewood (18:52)
Okay, we'll have your details in there.

William Quartner (18:54)
I should say we also only looking within consumer. yeah, leverage and beauty and health and wellness and that's obviously broad, but we're not looking at industrials or health care. So it's it is sectors.

Nate Littlewood (19:02)
Yeah.

Got it. Got it. So the value that someone like you provides obviously goes, you know, beyond just the capital. You mentioned, you touched on a couple of points just now that I want to circle back to you. You said that you like execution risk. And I gather that's something that you spend a bit of time helping founders with. the sake of clarity, lay that out for me. What does that actually mean?

William Quartner (19:14)
possible to don't inspire, of course, but yes.

Yeah. So when we think about the ways we're going to, you know, from making an investment to ultimately growing the business from a hundred million of sales to 300 million of sales or 200 million of sales and increasing margins. Well, how do we get there?

And so is it a question of, you're in XYZ retail accounts and to realize that growth is a question of, look, gaining new distribution into Walmart, Target, et cetera, from the Whole Foods where you are today, broadening the assortment on shelf. Maybe there's innovation that's required. You have to think about pricing. You have to do all these tactical things. But the core business, you've got a product that's really unique to you or really working. You've got a brand that you can communicate and all these things we just mentioned where there is proof of, you know, this unequivocal consumer validation. And now you need to sort of scale it.

Those are execution challenges, think. Building the team, scaling supply chain, establishing a playbook in retail, marketing strategy as you get bigger, entering new channels, innovation, the, know, financial analytics, these types of things, managing your customer economics are things we can help, you know, understand put talent against, we have deep networks, we can help you think through strategy, open doors within the ecosystem.

That's where we like to be. And that's sort of executing versus other things where we don't know or the outcomes are less within our control. All this is sort of without a control to some extent, but execution risk, that's how I think about it. And it's imperfect, but...

Our value add, the other way I frame it is these brands that we partner with are always doing something remarkable to get to where they are. And certainly without us, they probably would have amazing outcomes too. We certainly are not, we don't have the mindest touch so to speak, not, but we do, I think help them get from point A to point B faster.

Nate Littlewood (21:57)
Got it. So we've spoken a lot already about the founder and the importance of having a good founder in the driver's seat here, but I'd like to understand how relevant the industry slash product really is. you know, would you go out and say, are you more likely to pick a great founder and then get comfortable with whatever industry or product category they're in, or are you more likely to pick a product category and niche or part of the market that you really like and then try to find the best founder possible that's operating within that space.

William Quartner (22:35)
Certainly the latter and then there's some situations that are a combination, for sure, strategically and from a system, a systemic and repeatable approach to investing, prelude growth in general takes the latter firmly. So we do lots of work to be proactive in developing DCs and picking places that we want to be.

So we think a lot about, if you can imagine like a two-byte, you know, a matrix of product categories across the top. Maybe there's salty snacks, there's refrigerated entrees, there's skincare, there's, you know, there's all sorts of it. You can get very, very specific, but product categories across CPG. then down the bottom, there are consumer tailwinds that cross categories are things that we think are in the early innings or that are compelling and that will drive growth and create

opportunities across all these product categories. So for example, anti-aging touches all these places, right? Everyone's focused on how can you longevity anti-aging, you know, gut health, clean ingredients, you know, there are things that don't change all that often, hopefully, or they're not by definition, I think long-term tailwinds. So once we can sort of figure out, and this is not such a guide, but there are intersections in this matrix we just talked about where

There are tailwinds that intersect with product categories. There are categories that we like just structurally, and there are ones that we are less excited about. And if we can find interesting intersections where, look, this category is large, growing, you can build nice, profitable businesses, we do go deep and try to find the right opportunities. One, for example, is flavors and authentic ethnic condiment brands. We spent a lot of time five years ago

looking at different opportunities in that space because we liked what we saw from a demographic perspective. Consumers wanted bold, ethnic, know, flavor options. It's a wonderful place to build a business in terms of product category. And so we invested in a brand called Bachans, which, you know, we proactively reached out to and found. It was a Japanese barbecue sauce brand that was decent.

And incidentally, we announced yesterday we sold it for $400 million to a public company, is a wonderful outcome, which we're proud of. Another investment we made is called Fly by Jing, which is a modern Chinese condiment brand. And so we had a thesis about this space and we went out and found those founders. It's not always that simple, but that's an example of pursuing this category first strategy.

Nate Littlewood (25:21)
Yeah. So you have a view that the population is getting more diverse as a result. We're going to be, people are going to be shopping for more interesting and ethnically diverse flavors. So I want to go find brands or sectors that are kind of exposed to that. Yeah.

William Quartner (25:40)
I think both that, there's definitely a more diverse population is where the demographic trends are. But it's also the millennial and Gen Z consumers who are becoming a bigger share of purchasing like these interesting flavor profiles. They want bold options than prior demographics did.

Nate Littlewood (25:59)
Yeah.

Got it.

William Quartner (26:05)
That's one way we thought about it. And then you can sort of think about, well, what does that mean? And what's the evidence of that? And it should bear out in the numbers, but that was the thinking.

Nate Littlewood (26:16)
Okay, makes sense. You mentioned just now that there are some categories which are structurally attractive or unattractive. What did you mean by that? And can you give me some examples of each?

William Quartner (26:31)
Yeah. And it changes over time. But one that I think a lot about in food, least, or food and beverage, I should say, is just beverage, ready to drink beverage categories in general is a place that gets a lot of attention from consumers and press and ultimately investors and sometimes strategic acquirers. But it is a very hard place for Prelude. Not impossible. We actually have made

really successful investment, but it's rare in a beverage category. And the reason for that is it tends to be that this category, in my experience, is much more conducive to a venture style investment model, like from the beginning of our conversation, than it is to a growth equity style. that's because usually in this category, what happens is there's a ton, I mean, walk the beverage category, the aisle grocery store.

There's so much innovation is not wanting for, new ones. There's ton happening, lots of innovative flavors, products, brands, bold colors, lots of marketing dollars spent behind grabbing your attention. And it's the case that in beverage, there's a significant amount of capital investment that's put behind a lot of brands. A lot of brands can get the $10 million in sales.

It's very, very hard and very, very expensive to get from 10 million to 200 million, 300 million along the way. Usually in this category, you would spend significant money on marketing on gross margins tend to be lower. It's a heavy product. It's not conducive to e-comm. It's you're competing with extremely powerful Coke, Pepsi, Keurig, you know, incumbents. There are gatekeepers.

And so it tends to be the case that in this category, the people that win raise significant capital, spend significant capital, but then they do have amazing outcomes. So look at Poppy or look at any number of, know, there are huge billion plus dollar sales. They happen, they're rare and there was significant capital put to achieve them, but there's a huge, you know, trail of brands that didn't make it out at all.

Not from zero, sort of akin to this venture model, right? So they have some huge winners and they have a lot of ones that just don't make it. For us, that's hard. We don't like to invest behind brands where there's not a profit, know, sustainably profitable path that doesn't necessarily require ongoing investment outside the business to build it. You usually these should be more capital efficient and a lot of categories, most categories within the beverage, beauty, personal care, VMS tend to be much more capital efficient.

Nate Littlewood (29:24)
Yeah.

William Quartner (29:25)
and less ventury in their sort of outcomes. And that's sort of that's one way that it can be structurally interesting or not. Others are it may be that there's not a lot of innovation. There's not a lot of strategic appetite for acquisition of these brands down the other end of of the investment horizon. It could be that the categories are declining. It could be that an outpaw there are consumers that are just not drinking anymore. So that's not where the trends are. Regulation.

any number of reasons why, but having a lens on category is a good sort of guiding, I think, mechanism for us. And Warren Buffett, I think, had a quote, something to the effect of he'd rather take, you know, a great category or he'd rather have a category over a manager any day of the week because you can never sort of change the dynamics of the category or an industry. It's too, great industry will be, you know, a bad manager rising tides lift all ships, something that he said much more eloquent.

Nate Littlewood (30:20)
Yeah.

Yeah. Yeah. Okay. So there's a lot to unpack there in terms of, you know, looking at the structure of the industry, looking at the economics of scaling these businesses. And to your point about, you know, millennials and food tasters and food tastes and, you know, more interesting flavors. These are like, you know, multi year, if not multi decade sorts of trends.

How do you think about some of the shorter term trends or fads that pop up in the food industry? Just over the last few years, we've had plant-based, there was regenerative. I think at the moment, it's all about protein. Are these the sorts of things that you would get excited about or spend time on? And how do you look at a thing like protein?

And say, hey, this is going to be enduring and we expect this to stick around in five or 10 years or in 2027, this is going to be gone and everyone will have forgotten about protein.

William Quartner (31:24)
It's a really good question. That's something we spend time thinking about, certainly. And usually, if it's super specific and it feels, you know, I think there's a gut reaction often that tends, more often than not, tends to sort of indicate the right approach here. if it's sufficiently, if there's something inherently more generalizable about this trend, I think it can be.

underwritten and sort of you can extrapolate from it. So what I mean is protein. We have always thought that nutrient density, whether it's high protein and high fiber and low carbs or it's the Atkins diet or it's keto or keto is an example. We didn't invest on keto. We thought that was not a 10, 20 year trend. That seemed to be a moment of a diet. But what's not a diet is nutrient dense foods.

You know, Banza is a chickpea pasta brand that we invested, partnered with in 2019 and it's high. It's traditional pasta that tastes great, but it's higher from chickpea flour. It's higher protein, higher fiber, lower carbs than traditional pasta. You got to taste great. so that to us, that was, all right, this is a nutrient dense product. That's not going to go out of style. People are always going to want nutrient density, whether they want high protein or they want

to be keto friendly is up for debate, the more lasting thing is nutrient density. So that's one way to think about it. I think there's a plant-based or the CBD or right now we're going through a creatine frenzy. Those, I think, are harder to know in the moment. It tends to be, again, if you can...

take a step back and say, OK, creatine is more about longevity and wellness. And maybe creatine by itself isn't enough to build a brand on, but it should be part of the assortment or part of the aperture. That's more how we would think about something to that effect. Fads can be dangerous. And at a certain size and scale, they're not fads anymore, but the lasting power.

There are other analytical and I'll stop, but we do a lot of consumer work, you know, when we make an investment which is to say, can surveys or panels or insights to assess, you know, is this, are we seeing in the broader panel what we think we're seeing because ultimately the data should drive the decision, not, you know, our N of one opinion. we, you know, look at consumer work, we look at data, we look at all sorts of things to basically tease out whether it is a fad. If it's a fad, you know, certainly you should be wary of it.

Nate Littlewood (34:10)
Yeah, yeah, totally. What would you say is the biggest mistake that you've ever made as an investor?

William Quartner (34:20)
Not investing in some of those fads. It's hard to know.

I think certainly there are the anti-portfolio or the opportunities that we looked to invest in that we really, really thought hard about and didn't invest behind. Some of those have gone on to be great businesses and those are obviously mistakes, so to speak, that you should have but didn't. I'm happy that that's the case. Usually I can look back and say, well, we didn't make that investment, but there was a reason why.

Nine times out of 10, maybe it doesn't work out so well, but in this one out of 10 case, was a home run so great for them. And that's how you can kind of rationalize it, process over outcome. I think there are investments you did make that didn't go to plan. And I would not say that we haven't made any mistakes in that sense. Certainly along the way, are there times when we as a partner should act faster or be more...

uh, prescriptive and what we think should be happening. And we're usually, as I mentioned, minority, a significant minority, we're usually the principal capital and strategic partner of these brands, but we're not controlling the companies often. Well, you have to sort of form a consensus and you're partnering. So you don't always get your way.

Um, but usually anything, any mistakes, I would say the biggest mistakes that we make are if ever not really investing behind great talent at these companies early and making sure that team is set up for success. Most challenges, I think, can be traced back to not having the right or enough resources to execute. So I would say talent is the most important thing and making sure that you're on top of those things helps avoid mistakes.

Nate Littlewood (36:19)
Yeah.

Interesting. Okay. We all have. I've certainly made my fair share over the years. There's been a lot of talk, especially in the earlier stage end of town, where I spend most of my time, about the very dramatic shift in the eyes of investors going from a few years back, it was growth at all costs and all about revenue, revenue, revenue, and their business is being valued off even top line revenue multiples.

And now we're very much in the day of profitability and it needs to be financially sustainable. When you're working with founders, how do you help them find the right balance between growth and profitability?

William Quartner (37:06)
That's a great question. My advice to people or companies or operators that are thinking about raising capital and trying to figure out what do people want? And I feel like the message is always shifting. They're right, because there is a lot of noise out there. And I would advise them to just ignore all that. They should build their businesses based on a customer economic or a unit economic model that is logical and sustainable.

There are exceptions to this. If you are a venture backed, if you're a tech business, if you're a family owned and you're doing it for cash, there are different reasons why you would do it another way. by and large, founders in CPG should think about what are the customer economics or the union economics of their business, and how to grow the profitability plan to that. for example, Blueland is a business we've partnered with and with direct to consumer with Ecom channels, it's an easier

math equation to see them in retail, but often high growth digital brands will have to decide, are we going to spend more money on marketing to acquire new customers? Or are we going to grow slower and show more profitability? And the question really is one of, if we spend that incremental hundred dollars to acquire a customer, what can we expect?

to generate in revenue and profit from that sale. How often do they come back? What's the repeat cadence of those customers? And over what time period do we earn back that amount of money that we spent to acquire them and ultimately, hopefully profit further. And we have all sorts of benchmarks and rules of thumb and ways to sort of assess what's good, what's bad. And that's the lifetime value of customers in a nutshell, but.

If that lifetime value of customers is not at a place where you are able to support your growth and you need outside funding, you know, and sometimes that's good and fine, but if it's too much, you know, like in beverage, as we talked about, it's usually the case that that sort of equation doesn't balance because it takes too long to recoup whatever you're spending to require those customers.

Nate Littlewood (39:28)
Yeah.

William Quartner (39:30)
Our advice would be that's probably not a sustainable economic model. You probably should grow more slowly or you should be changing your margin structure or pricing or something to that effect. But there is a balance and with BlueLand, for example, we helped and spent a lot of time with the founders to calibrate that. And, you know, over time there was an iOS.

14 change where the ad spend metrics overnight changed dramatically for a lot of these brands and they had to totally think about what all of sudden, what does this mean? And so it may mean, and in that case, we advocated slow down the growth, don't grow so quickly. Let's make sure that these are good customers, good cohorts, that they actually are ones we want to keep. And then we can lean in later and be sort of about our ad spend and make sure the cash is where we want them to be, the cost to acquire.

But my view is that it should be a sustainable level of investment for growth while harvesting an appropriate level of profit to support that growth. operators should not vary that based on the wins and flavors of the month from public companies or cost investors, because that's such a function of interest rates and all these other things that it's not worth worrying about.

Nate Littlewood (40:30)
Yeah.

Okay. Okay. I mean, looking at and thinking about things like customer acquisition costs and comparing it to lifetime value or lifetime gross profit. I mean, it sounds so logical. Like, of course you need to able to acquire a customer for less than the profit you can generate from them. And, know, here and now we can look at things like that and like, duh, like, of course you need to do that. As someone who was kind of

On the investor side of the fence though, through the COVID boom, when investors were not doing that, help me understand how the investment community kind of justified that to themselves at the time. I mean, how do you justify investing in a business that cannot make money through acquiring customers and delivering products?

William Quartner (41:34)
Well, we did not. We've been pretty, you know, steadfast in this perspective and, know, it's never really varied for us. So that's been one of the things that we've done well. But I think the way you would do it or rationalize it is let's say there's a company that doesn't make money on their first sale, but it's a baby food company or it's a subscription business.

We know that by the third purchase or the fourth purchase, then we'll be in the money and it'll be just, you know, thereafter you're sort of all upside and profit. But the longer, you know, there's a lot that can happen between, you know, the initial sale and then month 12 when you think that you're going to finally break even or whatever. so, you know, you can justify investing behind a company that's growing so fast that we need to raise a lot of capital, a spend.

way faster than our earnings would support because we haven't yet gotten to the point of the cohort curve where we're harvesting those profits is one. And the issue is that often it never comes to actually pass because repeat rates are as expected or whatever. There are supply chain reasons, we just need to these volumes up and then we can realize a whole different level of cost economics. that's concerning too. you should, in our case,

I think that's a problem with pricing. products can be priced differently. Otherwise the traction you're seeing isn't really traction. If you're selling something that's at a price that you can't really support and the price probably should be higher. And then there's other ways, any number of ways, but I think usually, and it can be that it's a venture style. If you, if you raise money from a venture fund and they, know, if you, if you sometimes, and this is sort of

Nate Littlewood (43:11)
Yeah.

William Quartner (43:28)
asking the barber if you need a people, operators are too good at raising money. They optimize for the last dollar of valuation and they raise an incredible, rounded to high value. There's a cost to that. The dilution's lower, but you also are sort of forcing investors to underwrite against a much bigger outcome for them to make their return. What that means is that the things that you have to do to perform require significant

Home run, so if you raise money at a $50 million valuation from investors, maybe you only have to try and sell the company for 200 million, and that's a home run, you have to be really happy. If you raise money at $500 million valuation because the company or the investors just love what they saw and you promised them the moon and they were through venture, investors often, they're gonna need a $2 billion valuation at exit to really.

make it worth their while. And that's just a different way to build a business, right? So you're taking big shots. It's a land grab from the beginning and damn the economics because if it works, it works and it doesn't matter. it's different and I'm generalizing, but we certainly saw a ton of those types of funding stories during COVID and thankfully we didn't make any investments.

Nate Littlewood (44:52)
Okay.

Glad to hear it. to hear it. One final question for you before we get to wrap things up here, William. What are some of the things you're most excited about looking into 2026? Like are there specific themes or industries or product categories that you're spending a disproportionate amount of time on it?

William Quartner (45:12)
Yeah,

Well, we just made an investment. The last investment I led was into an amazing business called Amylu. It's a chicken sausage, chicken burger, chicken meatball brand. It's delicious, high protein. It's really exciting, full of flavors. It's in Costco and Whole Foods and go buy it you haven't. we love this like, it's high protein, it's nutrient dense, it's cleaner than beef. It's really bold flavors, tastes delicious. So we love refrigerated.

At the moment, category-wise, we think refrigerated and fresh are interesting because a lot can happen on Amazon, but those are sort of areas of the food store that still remain hard to disrupt. So I love candy right now. I have a sweet tooth. I think candy is a massive category.

It's been largely, you know, stale and there's been much less innovation and in this world of Maha and ingredients, know, hot clean ingredients and ultra processed food, huge opportunities for brands that can deliver a great tasting product that's also a little cleaner. I think, look, you can't ignore GLP-1s and what that means. And I haven't quite figured out what the second order, you know, impacts of that in terms of brands that will win. But thinking about that and whether it's high protein or

You know, it's high fiber, certain product categories have been much less affected by the GLP-1 craze. And that's thinking about longevity across not just food, but also VMS and beauty and personal care. So we're excited about a lot of stuff. You can see what we're excited about by checking out our website and see our portfolio. That's what we're excited about.

Nate Littlewood (46:51)
Okay, very cool.

Speaking of which, probably a good time to plug the website and where people should go to connect with you. What's the best way for folks to reach out if they want to get in touch?

William Quartner (47:08)
Well, they're welcome to email me, which is [email protected]. They're welcome to LinkedIn me or, you know, check out our website, which is Prelude Growth Partners. But, know, I'd say if you have any of the characteristics, if you're running a company or you're in any part of the ecosystem, I'm always happy to chat. And, we're on LinkedIn website and we're based in New York.

Nate Littlewood (47:31)
Amazing. Well, thank you so much for coming on today. I've really enjoyed the conversation and learning about your perspective on the space and all the exciting stuff that you and the team are up to. It's been a treat to have you on and thank you again.

William Quartner (47:47)
This is my pleasure. Thanks for the questions and I really enjoyed it.

Nate Littlewood (47:50)
Of course, take care.