The value of social impact is often perceived as an expense more than an asset among investors. However, sweetgreen has proven that a social mission can drive growth and serve as a differentiating factor in the competitive food industry. Their success counters beliefs about the scalability of social impact, showing how one impact-driven restaurant can develop into a chain that maintains its values even when it spans the country.The value of social impact is often perceived as an expense more than an asset among investors. However, sweetgreen has proven that a social mission can drive growth and serve as a differentiating factor in the competitive food industry. Their success counters beliefs about the scalability of social impact, showing how one impact-driven restaurant can develop into a chain that maintains its values even when it spans the country.
To learn about sweetgreen’s success, I had the opportunity to speak with Evan Morgan (Penn ‘07), special partner at VC firm Revolution, which is backed by AOL co-founder Steve Case. Evan founded his own firm, Radcliff, with fellow Penn grads in 2016. The firm specializes in long-term private equity. Evan brought sweetgreen to Revolution after being involved at the early stages and helped lead many funding rounds. He emphasized the strength of sweetgreen’s underlying unit economics, making the investment attractive from a financial perspective. He was also impressed by the rare dynamic of the founders, who attracted great talent to the firm, translating into a fantastic customer experience and passionate, loyal customers. Here we explore their impressive funding timeline and what makes sweetgreen such an exciting investment.
Founded in 2007 by Georgetown University students Nicholas Jammet, Jonathan Neman, and Nathaniel Ru, sweetgreen is an American fast-casual locavore salad chain that has developed into a lifestyle brand. sweetgreen competes at the $10 per salad price-point, similar to competitors like Chipotle. They are driven by sustainable, local farming, so their dishes vary by location depending on seasonal and regional selection. The founders express a deep commitment to local farmers, the community, sustainability, and company culture, and this mission translates into their product, execution, and growth.
The founders’ funding started with $350,000 raised among friends and family for their first location. This step was supported by Jammet’s parents, who ran the New York restaurant La Caravelle until 2004. Jammet also interned for Joe Bastianich, business partner of Mario Batali, who became an early investor. After the initial funding, they tapped this network for an additional $6-7M raise in their early years.
Funding took off in December 2013 when Revolution Growth committed $22M as a lead investor. Less than a year later, Revolution led another fundraising round in November 2014 of $18.5M from a variety of noteworthy investors, including Daniel Boulud, a 2 Michelin Star French chef and restaurateur, and Gary Hirschberg, former president and CEO of Stonyfield Farm. The company has attracted a variety of other strategic investors since, including famed chef Dan Barber. His restaurant Blue Hill at Stone Barns earned the 11th spot in The World’s 50 Best Restaurants, and he is widely considered an epitome of farm-to-table dining.
Evan Morgan emphasized the importance of finding the right investors, since it is vital they align with the long-term vision of the company. By developing this capital pool, they are “all more interested in building the best company than merely focusing on an exit.” This shift in mindset has helped develop a strong brand over the years of operation, which in turn drives the financial returns investors seek. As they explore new investors, Evan shared a prioritization on long-term capital, which is why the latest round is looking into institutional wealth. A long-term investment horizon is a core differentiating factor of Evan Morgan’s Radcliff, which prioritizes the enduring potential of founders and their firms as opposed to a quick exit, and he believes this perspective builds stronger investments.
Up to now, Crunchbase estimates total funding for sweetgreen at $128.6M up through at least Series G funding, with the latest raise in May 2018. Now sweetgreen wants to up the stakes again. It is aiming for a $1B valuation, which would secure its unicorn status. They are in talks with Fidelity to lead an investment of about $200M, with J.P. Morgan serving as the private-placement agent. This is possible for the company given the strong investment industry tailwinds, with PitchBook estimating private VC fundraising to top $100B in 2018. The industry hasn’t seen this level of capital deployment since 2006, and it could help drive sweetgreen to such a hallmark valuation.
So what is the value proposition? How has a salad company attracted such massive investment and public interest? Their success is multi-faceted, but the answer is in the impact. Not only are they promoting the healthy eating trends that are increasingly popular, but also they are doing it at a reasonable price point while maintaining dedication to values of local, sustainable production that are increasingly prioritized by society. As the founders put it, “the greater point is proving we can build an economic model that doesn’t rely on soda [sales] but on small- and medium-size farmers.” This has tapped a nerve not only among consumers, but also for employee talent. Employees seem to be drawn to the value-driven environment the founders have cultivated which maintains a focus towards sustainable innovation and tech applications.
One true marvel of their success is the supply chain, which their employee talent has truly optimized. They are disproving the belief that local sourcing is not scalable to a national network of restaurants. They are now working with over 250 farmers nationwide. As they grow, they are not only building locations but also developing a surrounding network of suppliers. They have had to recruit additional growers willing to raise crops ethically and sustainably, which is inevitably more expensive. But this is a core element of the business that contributes to the brand consumers love, and sweetgreen takes this commitment seriously. For example, when they wanted to find a local substitute for Chilean salmon, they took a yearlong dive into seafood ethics before landing on steelhead, a trout with flavor similar to salmon, farmed sustainably in Washington state.
And they don’t find the price point limiting on food quality, as many fast food chains claim. Though it creates challenges of food safety and seasonal variations that the company has worked to mitigate, they keep prices centered at $10 a salad. Another extraordinary example of food quality commitment is their falafel. They manage to prepare falafel in stores, breaking from the tradition of canned chickpeas used in industry, even in upscale restaurants. Their commitment to good food is the core of the business, and consumers have proven it to be a shared value.
But commitment to sustainability doesn’t stop at food. They value sustainable business practices and ethical treatment of both employees and consumers. They have developed a company focused on relationships, with incredible dedication put into employee treatment. In the same way good ingredients make good food, employees are an ingredient of the sweetgreen experience. They find that by treating employees well, this gets reinvested into an enhanced experience across consumer touchpoints.
Their commitment to employees has helped attract outstanding talent as they explore new avenues for the intersection of food and technology. sweetgreen moved its office from DC to LA in 2016, developing a modern office with a startup vibe of white walls and natural light, much like their restaurant locations. The move helped them bring on President and COO Karen Kelley from Drybar and Pinkberry. She has been instrumental in developing back-end processes to manage expansion, including employee-scheduling software and a new purchasing program.
They have also been using the new LA location to expand their tech development. They have an aesthetic and navigable mobile app that makes ordering in advance quick and simple, allowing customers to bypass the lines. This has proved exceptionally useful as they have gained traction, since they are no longer risking the customer experience by having a long wait in line. Today, mobile orders are nearly 50% of the business. Their tech development has also helped create more touchpoints with the brand, including a loyalty program that is part of their larger “The Sweet Life” lifestyle brand.
Investor Evan Morgan considers the technology opportunities with mobile to be one of the most exciting avenues for sweetgreen’s continued success as it expands. With clear enthusiasm in his voice, he described how “it has allowed us to reimagine store footprints and how we curate the customer experience.” It has been a core driver for operating efficiency, dropping rent costs with shifts towards mobile delivery and take-out. These new efficiencies are not only appreciated by customers, but they drive better returns on capital for investors and ensure sweetgreen’s long-term competitive sustainability. With an unwavering commitment to their original mission, sweetgreen has proved itself as a successful impact investment on an immense scale. They have maintained a commitment to sustainable business practices and local food sourcing while ramping up growth to the national platform, developing a network of local suppliers as they grow. The founders have proven an impressive level of commitment to all of their stakeholders, which has helped attract the top talent who have promoted stable growth and technology development. With the long-term focus and value alignment of founders, investors, employees, and customers, sweetgreen shows promise to evolve into one of the great food brands of our time, synonymous with the likes of Starbucks and Chipotle, as they grow to dominate the healthy fast-casual space.