Crafting Change
Venture capital should be directed towards companies that change the world for the better, believes Ernesto Schmitt.
After decades of launching, growing and selling companies, and raising hundreds of millions in financing, US-born entrepreneur Ernesto Schmitt believes the venture capital (VC) industry is ripe for disruption.
“The conventional model of capital is simply broken,” he says, over the phone from his home in central London. “I found, from sitting on that side of the table, the structure of VC funds pits them against founders because the incentives aren’t aligned, they are short-termist. At board level, I found myself surrounded by shareholders who couldn’t add value because they themselves had never run or grown a company and had no empathy for the entrepreneurial process. I thought there must be a better way.”
With his Italian co-founder, Elio Leoni Sceti he set up what he calls a “counter-corporate anti-VC”, The Craftory, which backs purpose-driven, disrupter start-ups or, as he puts it, challenger brands. Most of its portfolio is focused on the consumer-packaged goods (CPG) industry, because, according to Schmitt, CPG is one of the few industries not to have undergone a technology revolution.
“The time is right to bring about creative thinking in consumer goods. CPG has been shielded from the tech revolution of the last 20 years, while those such as hospitality, transportation and media have been completely overhauled. There is a new generation of consumers who care about the consequences of their consumerism, not just the price.” 
He admits that the majority of consumers globally — around 70-80 percent — are still likely to be driven by competitive prices without heeding the consequences for the planet. But for some 20-30 percent of consumers, they have the option to “choose a different way”. This, over time, he believes, will set new standards and force incumbents to follow suit.
The wheels are already in motion. Consumer goods marketed as sustainable generated nearly 55 percent of the industry’s growth from 2015 through 2019, according to a recent survey by Adweek.
CPG megaliths are changing tack according to consumer purchasing choices. Last month, Unilever said it would start to trial paper bottles for laundry detergents such as Persil, Breeze and Skip, instead of plastic bottles; remove plastic from PG Tips tea boxes; and switch to 100 percent recycled bottles and jars for its beauty brand Dove, Hellmann’s mayonnaise and all of its toothpaste brands.
Against this positive backdrop, The Craftory, with a balance sheet of US$375 million, is investing between US$20-50 million per company in challenger brands: those that set out to change something radical in their area. Its portfolio includes Dropps, a range of sustainable household cleaning products; NotCo, a plant-based food producer; Moss, a platform to buy carbon credits; Dyper, which makes nappies made from bamboo; and Loum, which offers vegan and cruelty-free skincare. And the list is set to grow.
“Our powder is still plenty dry to keep building our gang of like-minded brands that offer the consumer better alternatives,” says Schmitt.
Most recently, The Craftory led a series-A financing of US$40 million in an LA-based company called Seed Health, which offers clinically studied probiotics and dietary supplements within an elegant, consumer-facing brand. Its co-founder Ara Katz was inspired to launch the company after her own pregnancy and breast-feeding experience. “It inspired a personal mission to explore the importance of microbes and how they can impact the health of our bodies, our children, and our planet,” she says from her home in LA.
“The definition of wellness has hugely expanded the consciousness of health for a lot of people, but a lot of decisions are being made from the marketing of wellness products, not how your body works,” says Katz.
Seed Health says its biotherapeutic probiotics can help prevent disease, allergies and inflammatory conditions, cutting through much of the pseudoscience ‘noise’ within the health and supplement category.
“What we loved about Seed is that it is taking on two incumbents: conventional pharma, through the latest thinking; and the vitamin and supplements category, with real science and hard facts,” says Schmitt.
There was a time when investing sustainably could mean lower margins, but no longer. For investors, challenger brands return just as much as a conventional CPG, believes Schmitt. He points to Oatly, a challenger brand to the conventional milk industry, which is now worth US$15 billion. The Craftory targets similar returns to a normal VC, which would be at least a 25 percent. “The reality is that it’s immensely lucrative to invest in a well-run challenger brand, and we are expecting to deliver terrific returns to our shareholders.”
He adds: “For the first time in my career, doing well and doing good are the same thing.”
This article originally appeared in Billionaire's Power Issue, Summer 2021. To subscribe contact
