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Jan 13

Fast Growth - High Risk

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Fast Growth – High Risk

Two recent articles identify risks with raising capital when starting and growing a company. One concerns a small distiller in Waco, Texas – Balcones and the other concerns Chiobani – the company which basically introduced Greek yogurt to the US. Both founders needed money. The money was needed to remain competitive, expand, prevent the loss of market share and possibly to remain in existence.

Balcones founder, Chip Tate, received $8.5 million from Gregory Allen, a private investor. In exchange, Mr. Allen received a majority stake in the company. What happened next is unclear, according to the NYTimes, Mr. Tate claims the board immediately tried to oust him. Mr. Allen claims that Mr. Tate became “suspicious, erratic and violent.” The truth probably lies somewhere in the middle. Mr. Allen probably wanted to control the company and Mr. Tate, after giving up a majority share, didn’t like answering to the board. As for Mr. Tate, the founder, he is no longer involved with the company. He was bought out, fired and is prevented from making Whiskey until 2016. A hard lesson learned: Be aware when receiving money. If you give up majority control, be ready to answer to someone else.

As for Chiobani, the details are a little murky. An article on stated that Mr. Hamdi Ulukaya, the founder of Chiobani, was being forced out. It was later revised due to a letter receive don January 5, 2015 in response to the original article. The revision states that Chiobani has been seeking a new CEO since spring, when the deal was signed. The article also states that the decision has the support of Mr. Ulukaya. also reports the ouster is just a rumor. According and to the WSJ, as part of the deal, Mr. Ulukaya had agreed to step down in exchange for the money. An article in the Huffington Post paints a not so amicable picture regarding this deal. Mr. Kevin Burns, a top executive at TPG, is said to have bragged about the investment claiming Chiobani was on its knees and had about two weeks before running out of cash. The Huffington Post headline sums up the article pretty well: “Private Equity Exec Brags About Sealing Chobani Deal At Easter Mass”. Chiobani needed the money because of its rapid expansion, rising costs and other issues. There was probably not one cause, rather a series of events that negatively impacted the company. In exchange for the money, Chiobani gave up 35% of the company to TPG and Chiobani agreed to replace the CEO within one year. He will still remain the chairman. Suffice to say, it will be interesting how this plays out. Here is a link to a TPG PPT presentation on the deal. It shows the changes that TPG wants to implement and while you may not agree with all of them, the changes to production line and move to improve market share are shrewd and needed. You can decide whether that Mr. Ulukaya is being forced out. Even if he is, the changes TPG are implementing are needed. The question really becomes, “What could have Mr. Ulukaya have done differently?” Mr. Ulukaya was trying to finance the company and its growth without outside help. It worked for a while. The warning to startups, keep an eye on growth costs and get experts to help before it is too late.


Here is a list of articles:


How Dreams and Money Didn’t Mix at a Texas Distillery





Chobani's Big Business Lesson: Fast Growth Has Its Price

Chobani Reaches Deal for $750 Million Investment From TPG


Private Equity Exec Brags About Sealing Chobani Deal At Easter Mass



CNY-based Chobani yogurt says reports of founder's ouster -- and financial woes -- are not true:



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