The Silicon Review
$750 Annual Portfolio Revenue
Cambridge Companies SPG is an investment management firm that specializes in scaling emerging consumer food, beverage, personal care, beauty, and lifestyle brands. Cambridge SPG was founded in 2010 by Filipp Chebotarev and his sister Polina Chebotareva. Cambridge initially reached financial success acquiring distressed real estate post the 2008 financial crises and subsequently divesting. Over roughly six years, Cambridge SPG raised over $300M of equity and participated in over $1B of real estate acquisitions and exits. The real estate market recovery led to a lack of new distressed acquisition opportunities, and in search of yield, the firm shifted to consumer products. “We like high margins and high-velocity consumable products that can have a positive impact on the daily routine of our customers and society as a whole.” - Filipp Chebotarev. In 2016 Cambridge wanted to invest in branded consumer products in food, beverage, personal care, and beauty. The firm established impact pillars and a set of guardrails around the businesses they would back. Those fundamental principles are reflected across the now vast and fast-growing portfolio. “Everything we invest in must be clean-label (non-GMO, Organic).” Sustainability around agriculture and packaging is also an essential driver in the Cambridge SPG portfolio company selection process.
Today, Cambridge SPG has over 26 portfolio companies and is on track to achieve nearly $750,000,000 of annual gross revenue across the portfolio in 2020. The group owns between 1% and 40% of each portfolio company. The investors that back this strategy as Cambridge LPs are prestigious family offices, founders that have sold their businesses, high net worth individuals, and noteworthy corporate investors. The group has seen some impressive growth with half a dozen companies growing from less than $1M in annual revenue to over $20M in less than twenty-four months. Statistically, less than 3% of all startups will ever reach $10M of annual revenue, less than 1% make it to $20M, and less than 1/10 of 1% make it to $20M in twenty-four months or less. Timing is one of the most important factors in investment. An asset class can make or break a portfolio depending on the time it is acquired and, of course, the price. Cambridge SPG identified consumer products trade at above-average multiples during times of economic expansion, and historically CPG has proven to be defensive sector during times of economic volatility. Covid-19 and the government-mandated shut down of non-essential businesses that followed really put the thesis to the test. Consumer products are generally sold in retail stores (grocery, convenience, food service) and online (Amazon and direct company website), and as restaurants and hotels shuttered, consumers piled into grocery stores to pantry load and plan for the unknown. Cambridge SPG portfolio companies saw a 30% to 300% increase in sales in March and April, which was a validation for the firm and their defensive investment strategy.
Cambridge SPG has established a leadership role in the emerging consumer sector, achieved several high-profile exits, and has built a diversified portfolio of essential companies. The firm has its sights on increasing its position in existing portfolio companies and is in continuous pursuit of new investments.
In conversation with Filipp Chebotarev, Co-Founder and COO of Cambridge Companies SPG
Q. What are important factors to focus on when investing in consumer products?
Our primary focus is on consumer products in food, beverage, personal care, and beauty. The reason for this is the current food/beverage and personal care industry is broken. Legacy branded products offer low quality, mass produced offerings that are misaligned with the modern consumers desire to positively impact society with their purchasing decisions. We invest in consumer businesses that have healthy margins, attractive historical and forecasted growth and maintain corporate responsibility to society. The consumer products sector also happens to be very defensive at times of economic volatility. Our portfolio companies sell essential items, so even during a recession or economic uncertainty people are going to purchase these products. However, in times of economic expansion, CPG brands sell at above average multiples which makes this an extremely attractive industry to invest behind. Emerging high growth consumer products can enter a market quickly and disrupt a large category, get market share, and then become an attractive acquisition target. They are still competing in that very stable sector because they’re taking market share from established players, but they are offering a differentiated product that resonates stronger with modern consumers.
Q. What indicators if any determine if a CPG company will take off?
In consumer products, there are two levers. The first lever is the velocity or rate of sale. The best way to know if a consumer products company is going to be successful in the future when it increases distribution is to see how well it sells on shelf relative to the competition. You could sell your product in grocery stores, (there are 3000 natural, 36,000 conventional grocery stores), Coffee Shops (100000 coffee shops), Airports, Office Pantries and markets, Clubs (Costco, Sams Club) and many other channels. So you look at the products velocity performance in 500 natural stores and 500 coffee shops you see how well it’s performing relative to the other products within that category. If your rate of sale is above average across these channels that is a good indication that you can start to expand within each one of those channels.
The second lever is the margin. If you have a high margin like, let’s say you’re at 45 percent gross margin or higher subscale (below $50M TTM), you’re going to be in much better shape than a company with a 20 or 30 percent margin. I like to spend at least 15% to 20% of net sales on marketing, trade spend, and promotions during the growth equity stage (growing from $10M TTM to $50M+) so healthy margins are very important otherwise that marketing spend is being exchanged for equity. A lot of companies made the mistake of focusing exclusively on topline growth and capturing market share with the thought process that the margins will materialize at scale. Unfortunately, that doesn’t always work, I prefer to dial-in the unit economics before putting growth equity on the balance sheet and extrapolate what is working vs what we hope will someday work.
Q. How do you deal with risks involved with investments?
Risk is something that you never even thought could possibly happen and just comes out of nowhere. The best way to handle uncertainty in our business is to manage it actively. If a problem comes up, you have to approach the problem, find out its root cause, and then find a solution. You just have to go into the deal with an open mind knowing that there’s going to be a problem. There’s going to be many problems. But typically, they have solutions too. That’s the definition of business, finding solutions to problems because every single business, no matter if you’re a technology business, consumer business, or entertainment business, there is going to be a problem. Typically, there’s a solution to the problem too. If you enter a deal thinking that there is no risk, then that is a risk. The way we manage the problem is we’re prepared. We know that things are going to go off plan, so it just requires the investment of time and capital to find a solution. One of the recent unexpected risks is Covid-19. Nobody saw it coming. Some sectors such as Ecommerce, CPG, Health / Wellness, Medical and Healthcare businesses were accelerated by the pandemic, others such as restaurants and hotels have been negatively impacted as people are having 80 to 100 percent of their meals at home and travel less. The key is to have strong fundamentals, low debt, high margins, and a dedicated consumer base because then you can typically bounce back even if you operate in a sector that was negatively impacted by the pandemic. I think consumer products have proven to be remarkably resilient in this time of economic adversity. They’ve proven resilient in times of economic volatility and recessions historically and I believe this sector is going to continue to see a rapid influx of capital.
Leader behind the success of Cambridge Companies SPG
As Chief Operating Officer and Managing Partner of Cambridge Companies SPG, Filipp Chebotarev oversees all daily operations, develops and maintains strategic partnerships, handles special situations and drives initiative for organizational growth. Filipp graduated from University of California Irvine with honors and went on to obtain a wide array of experience in politics, business, revenue operations and organizational development. At Cambridge SPG Filipp also oversees corporate public relations campaigns and evaluates investments for discernable social impact. He maintains strategic partnerships with board members, high value clients and holds key board seats at Cambridge SPG Portfolio Companies. Mr. Chebotarev is a Strategic Opportunity Investor with a focus on Real Estate, and Private Equity in Food/Beverage, Technology, Entertainment / Lifestyle, Fin-Tech, Healthcare / Medical, and other sectors. Filipp Chebotarev is a underwriter and major donor to Harvesters – Food Bank in Orange County, Major Donor to the JNF, and Actively Involved with Shoes That Fit, a 501 C 3 empowering children in low income demographic areas.
The deep expertise of the Cambridge Companies SPG team gives us a base of intellectual capital on which to draw. We don’t have employees, we have teammates, all striving to achieve a common goal.