FINANCIER Ben Thomson and former Scottish & Newcastle chief executive John Dunsmore have joined forces to launch an investors’ club specialising in food and drink businesses.
HotHouse made its maiden investment last month, taking a 5 per cent stake in Kent-based wine maker Chapel Down, with Thomson hailing more deals “in the pipeline”.
Dunsmore will become chairman of Chapel Down, having already taken a seat as a non-executive director on the board of Edinburgh-based gluten-free bread maker Genius Foods, in which he bought a 10 per cent stake this year.
HotHouse has so far raised £2.5 million from 25 investors in its first six months of operation. The five principal players will invest alongside members and then take a cut on the value of the sale of the business.
Investments will be made in small start-up businesses that turn over up to £10m.
The five principals of the club also include: Andrew Knowles, a product packaging specialist and a former marketing manager for Heineken and Stella Artois; Alex Masters, a former managing director of Rothschild; and Stella Morse, current chief financial officer of Genius.
While wine isn’t considered by all to be a health food, the group is currently eyeing investments in food brands that can be marketed to health-conscious consumers, those who shun dietary no-nos such as fat, salt and sugar.
Dunsmore said. “The core theme is health and well- being. The biggest single problem coming down the track is obesity and type 2 diabetes.
“If you take America, 70 per cent of medical costs are being incurred on weight-related issues – that could be hip replacements or high blood pressure. It is a phenomenal expense. And the trends in the UK and Europe are lagging America but heading in exactly the same direction.”
Dunsmore also points to the increasing popularity of small brands among consumers, where marketing is driven by world of mouth and through social media.
“There’s been a long-term trend away from ‘deference to reference’ – rather than authorities telling you what is good for you, you now use your peers or social media or the groups you respect to tell you about things,” he said. “It is much more under the control of the consumer.
“It has lowered barriers to entry. It used to be when you created a food brand you had to spend £10m a year advertising on Coronation Street. Now it is much easier to do it through word of mouth.”
The enterprise investment scheme structure allows investors to take 30 per cent income tax relief on capital.
“Our value added is there are five of us,” Dunsmore said. “We can provide money through our investors but the reason why we will get an investment away is that we will provide support to help the business succeed.
“We look for products that replace the need for high salt, high sugar and high fat – that is what we are looking for.”
But he adds: “It doesn’t matter how worthy stuff is, it has to taste great. If it doesn’t taste great it is not going to get a second hearing.”
Dunsmore said the company was aiming to make only a few but significant investments.