CAPVEE Equity Crowdfunding Pick: TaDah! Foods
After a successful Shark Tank appearance and quick national expansion, TaDah! looks to build on its momentum.
CAPVEE Equity Crowdfunding Pick: TaDah! Foods
Summary:
Company: TaDah! (https://tadahfoods.com/)
Platform: Wefunder (https://wefunder.com/tadah.foods)
Minimum Investment: $100
Structure: SAFE ($12.5 million valuation cap)
Funding Status: >$0.6 million ($1.0 million target)
CAPVEE Call: Buy (4-6x Return Potential by 2026)
Management Team: ★★★★★
Business Model: ★★★★☆
Traction: ★★★★☆
Macro Tailwinds: ★★★★★
Valuation: ★☆☆☆☆
TaDah! is a fast-growing plant-based food brand in the U.S. The food startup makes and sells frozen eastern Mediterranean entrees and snacks. Its product line includes four flavors of falafel street wraps and three flavors of gluten-free stuffed falafel poppers. The company generated $1.5 million sales in 2020 with products sold in Whole Foods, Target, Kroger, and other major retailers.
The Problem TaDah! Solves
Consumers today are busier and more discerning than ever. They want a balanced diet that reflects their lifestyles, they seek inspiring flavors and authentic culinary experiences, and they want it all to fit neatly into their daily schedules.
TaDah! touches on all of these trends. The products are all plant-based, draw from multicultural flavors and forms, and are ready to serve in just a couple of minutes.
These items are not like the frozen “snacks” we grew up on, they’re ingredient-driven and designed to delight. It’s part of an ongoing reinvention of the frozen aisle that’s disrupting legacy food makers.
The Team
John Sorial, Chief Executive Officer: John is 45-years old and a first-time entrepreneur. He grew up in New York City as the son of Egyptian immigrants, where he was inspired by the cuisine his family loved to cook and he loved to eat. When asked why he started TaDah!, he says, “The problem is my grandmother doesn’t ship nationwide.”
John has a degree in Chemical Engineering from Johns Hopkins University, but according to himself he never wanted to be an engineer, he just felt that he had to fulfill his duty to his immigrant parents to work in a respectable field. He first worked as a chemical engineer and then as a marketing executive in the telecom industry.
After climbing the corporate ladder, John decided in 2011 that it was time to follow his heart, so he founded TaDah!. He has since gone through his fair share of trials and tribulations. For example, when a production partner became insolvent during the brand’s national expansion, John had to quickly maneuver. John says, “During that time, we only had four people on the production floor. Usually, the process requires dozens of people. I would stay all night with the staff. I would suit up and shovel the chickpeas myself!”
We believe that John is an excellent brand ambassador. He is soft-spoken and his unique story, passion and stamina give him a lot of credibility.
What We Like
- The plant-based food market is booming. Health and wellness, climate change, and alternative protein sources are some of the major factors spurring the growth. The U.S. market generated $5 billion in sales in 2020 and it is expected to grow at a CAGR of 50% to >$38 billion by 2025. For a historically slow-moving industry, that is incredible growth!
- TaDah! has the potential to become a category-leader for plant-based frozen food in the U.S. Its products are sold nationwide in more than 3,500 retail locations at marquee retailers like Target, Whole Foods, Sprouts, Kroger, Publix, Harris Teeter and Wegman’s. National account exposure is one of the most difficult hurdles to cross for a food startup, and TaDah! seems to have captured the interest of nearly every major grocer in the U.S.
- The company’s product line of falafel street wraps and gluten-free stuffed falafel poppers has gained a loyal following amongst Generation Z. This is promising as this demographic is the most ethnically diverse and likely to try out new, ethnic cuisines. Assuming TaDah! continues to engage its fan base, the company should have a promising pipeline of line extensions.
- TaDah! has generated impressive traction since appearing on Shark Tank in 2019 as it leveraged its exposure to gain >146 million online impressions in >40 media outlets. The company’s 2020 sales increased as a result by >250% in 2020 and the momentum is expected to carry into 2021 where the company expects to double sales to $2.7 million.
- TaDah! isn’t your average crowdfunding startup, John has his operations under control! The company is growing and it has a fully audited supply chain. The company’s production partner can handle 5-10x the current monthly case volume without additional investments.
- The company is backed by billionaire Daniel Lubetzky, founder of Kind Snacks, which he sold to Mars last year for $5 billion. Daniel is one of the smartest minds in the food business. His guidance and connections are invaluable to a food company at this stage.
What Makes Us Nervous
- The company has $0.9 million debt on its balance sheet. Even though TaDah’s expects to repay its debt by 2024, we prefer fast-growing companies to be debt-free as it gives them flexibility to maneuver as difficult situations inevitably appear. Last year, the company posted a gross profit margin around 20%. It anticipates improving to 35% this year. At 2021’s projected sales of $2.7 million, that’s $945,000 before SG&A. Operating expenses are around $936,000, annualized. So, the company is breakeven assuming a 15 point margin expansion and nearly doubling revenue. We hope they can hit those numbers, but it’s by no means obvious that they will. It’s clear that TaDah! still needs to fund growth with outside capital.
- TaDah! has a classic food startup conundrum: when and how to grow. While it’s undeniably good that major grocers have taken a liking to the product, it looks as though the quick national expansion has created a cash crunch. When a new brand enters a grocery chain, it isn’t simply a matter of delivering the product and walking away with a check. Grocery stores charge slotting fees that can run well into six figures for a national launch. On top of that, the brand has to promote like crazy. Those buy-one-get-one deals you see at the grocery store are almost always paid for by the manufacturer. On the other hand, if you underinvest in the launch, products won’t sell and grocers won’t keep them stocked for long. TaDah! needs the resources to fuel the positive response to its products.
The Investment
John launched TaDah! in 2013 with $300,000 raised from friends and family. Until his appearance on Shark Tank in 2019, the company did not raise any additional capital. John’s appearance on Shark Tank is worth watching. He walked home with a $500,000 investment for 25% of the company (implying a $2 million valuation) from Daniel Lubetzky after turning-down an offer from Mark Cuban.
The company is now offering future equity at a valuation cap of $12.5 million. For those new to private market investing, future equity gives you the right to buy common stock in the company at the next financing round. Unlike a convertible note, future equity is not a loan. As such, it does not accrue interest, have a maturity date, or have a legal obligation to be paid back. You should therefore only invest in future equity if you believe that the company can and will raise financing in the future.
TaDah!’s $12.5 million valuation cap is the number to focus on. You are essentially betting that the company will be worth more than $12.5 million in the future. We find that the valuation is a bit rich, as the company’s 5x sales multiple ($12.5 million / $2.7 million in sales) is above the 2.2-3.9x that you typically see for food startups of this size. It should also be noted that Daniel Lubetzky invested at a sales multiple of 2.9x only two years ago.
Assuming the company can get a shelf presence in ~50% of U.S. grocers, that’s about 20,000 doors. 2020 revenue per door (assuming 3,500 doors) was $440. With no growth in sales velocity, revenue at 20,000 stores would be around $8,880,000. Beyond distribution, savvy marketing and smart line extensions would increase revenue potential significantly.
The CAPVEE Call
TaDah! has already achieved milestones that most food startups fail to hit: shelf presence in major grocers, national press coverage, and product specs that align perfectly with the industry’s overall trends. The company has the potential to become a category-leader for plant-based Mediterranean food in the future if it can provide the resources necessary to support its big head start in shelf presence and brand awareness.
With John as the brand evangelist supported by industry superstar Daniel Lubetzky, the company can build on its impressive start and prove to be a great seller in the refreshed frozen aisles of grocery stores around the country. As the company grows, we’ll look to see new hires with deep food sales and marketing experience.
TaDah’s goal of $21 million - $24 million in sales by 2026 is ambitious but achievable. The brand has strong category tailwinds, which in itself should grow 7-8x by 2026. A product line extension and increased distribution is likely to accelerate growth further. If the goal is achieved, TaDah! could be valued between $ 50-70 million, which leads us to issue a buy recommendation with a return potential of 4-6 x by 2026.
Further Reading:
Website:
Platform:
https://wefunder.com/tadah.foods
Pitch Deck:
Form C: https://www.sec.gov/Archives/edgar/data/0001802345/000167025421000297/xslC_X01/primary_doc.xml
News:
Foodnavigator (14 October 2019): Self-awareness is key to winning negotiations, TaDah founder says after landing $500,000 on Shark Tank
Inquisitr (18 July 2020): TaDah Foods See 'Off-The Charts' Success After 'Shark Tank' Episode, Founder Says