H Venture Partners bets on diversity and consumers

Elizabeth Edwards patiently explains why consumer packaged goods are marvels of science and technology. Rather than use computer science to rate the appearance of co-eds, manufacturers and retailers look for ways to optimize supply chains, improve consumer experience, and keep babies drier for longer. Tampons may not be sexy, but they use materials technology in ways that make people’s lives better. H Venture Partners Co-founder Elizabeth Edwards (provided) Edwards is founder and managing partner at H Venture Partners. It is based in Cincinnati, the headquarters of Procter & Gamble and Kroger, the largest supermarket chain in the U.S., as well as the North American headquarters of Kao and Luxottica. It has a population with more average Joes than tech bros, increasing the likelihood of finding something with mass appeal. Being in Cincinnati, “I like to say it keeps us from investing in $500 cupcake businesses,” Edwards said. “It is a very specialized town when it comes to consumer retail, so we love being based here.” Edwards is also a rare creature in VC, because she is not a white man. In 2019, the Knight Foundation issued a report, “Diversifying Investments: A study of ownership diversity and performance in the asset management industry”. It found that only 8% of assets under management in private equity were at firms owned by women or minorities, despite data showing that minority managers were overrepresented in the top quartile of performance. H Venture Partners started business with a pre-fund that included capital from the firm’s founders. It closed its first $10 million fund for outside investors in July of 2021. Most of the partners in it are retired executives of consumer products and retail companies, but a few institutions are involved. The Chicago Teachers Pension Fund allocated $5 million in June 2021, said Carlton W. Lenoir, Sr., executive director of the Chicago Teachers’ Pension Fund and interim CIO. Only about 3% of venture dollars go to consumer companies despite the segment representing 20% of GDP, Edwards said. And yet, it is rich in technology. “Pampers diapers have 100 patents associated with it. There's chemistry, material science, manufacturing technology, and machines that take $10 million to build,” she said. Despite that, many technology funders view this as a low-tech area and pass it by, leaving H Venture Partners with little competition. The network of former consumer products executives in the investor group help generate leads and conduct due diligence. So far, the firm’s investments include Avaline, a line of clean wines founded by actress Cameron Diaz; Kindra, which makes personal care products for people in menopause; and Felix, an online pharmacy for the Canadian market. “Typically, we're investing in companies where they have an experienced management team,” Edwards said. Often, the founders spent time at one of the big consumer packaged goods companies. “We find that in this particular sector, most exits are strategic acquisitions. That creates a great opportunity for investors, who are really taking scientific risks or regulatory risks. The P&G's of the world develop phenomenal products, but they also buy a lot of phenomenal products.” Edwards said that H Venture Partners is beginning to see more interest from institutional investors. They are attracted to the sector, the opportunity to work with a female manager, and the fact that the portfolio invests in companies with diverse founders. “All of our portfolio companies have a founder, or two or three, who is underrepresented in some way,” Edwards said. “Female, Black, Hispanic, LGBTQ.” There is a relative undersupply of health and beauty products for consumers in these groups, creating opportunities for entrepreneurs who understand them. For all the attention of the Knight Foundation report and inequalities in the United States, Edwards said that there haven’t been many changes to investment policy statements. Still, she sees enough interest from investors and opportunity for founders that she is starting the process of raising a second fund. Lenoir, of the Chicago Teachers Pension Fund, said that the fund had 46% of total assets—$4.9 billion—invested with firms owned by minorities, women, and persons with disabilities. “Investing with diverse asset managers that demonstrate outperformance and deliver strong returns is more than prudent, it is wise,” he said, and the Chicago Teachers will continue to look for managers with different perspectives and networks.

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H Venture Partners bets on diversity and consumers

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