HU Kitchen: Self-Funding and Strategic Investors to Stay True to the Company Ethos
Like so many people in the health and wellness industry, Jordan Brown, Jason Karp, and Jessica Karp, the founders of HU Kitchen, came to the decision to start their company start their own health food company through personal experience with healthier eating. For them, a healthier diet and lifestyle was all about “getting back to being human.” Recent estimates find that at least 60 percent of the American diet consists of highly processed foods, including a combination of products that intermix sugar, salt, oil, processed grains, and several chemical additives. As health surveys show, this has been the perfect recipe for the myriad of epidemics decimating the American population, including obesity, heart disease, inflammatory autoimmune diseases, and diabetes.
Finding nutritious and real food, however, can be close to impossible for people whose weekly trip to the grocery store offers limited options beyond the boxed, canned, and otherwise highly processed food that dominates our national diet.
The founders of HU Kitchen say on their website that “before industry, food was minimally processed and nourishing. Demand ingredients with that same pre-industrial standard. Humans evolved to eat whole foods that exist in nature, not ingredients made in labs. If you don’t recognize an ingredient, there’s a good chance your body won’t either.”
Today, HU Kitchen has grown into a multi-million dollar company that besides operating a successful Paleo restaurant in New York´s Greenwich Village, distributes a unique line of Certified Paleo and gluten-free snacks through Whole Foods grocery stores and online. Learning about the gut-brain connection, the causes of systemic inflammation and the impact of certain foods and additives on our health, immunity, and performance was the first step in developing the health food brand. Today, the company is focused on continuing to grow in order to offer consumers real food items that replace weird, industrial ingredients with simple and healthier ones.
Who is HU?
Hu Kitchen (pronounced “hue”, like in human) started in 2009 when Jason, Jessica, and Jordan came up with the idea to start a restaurant that offered a menu based on the Paleo and primal food diet. After three years of research and planning, the company developed its own line of chocolates and opened its flagship restaurant in Greenwich Village in downtown New York City. In 2013, HU Kitchen began to distribute its chocolate bars to Whole Foods locations in New York City. By the end of 2018, and after raising money through partnering with strategic investors, Hu Chocolate was being sold in roughly 3,000 stores with a team of 15 people. Just last year, the company partnered with other intentional investors and released a line of grain-free crackers made from a unique blend of almond, whole cassava, and coconut flour.
The flagship restaurant continues to flourish in its original location, offering fresh breakfasts, lunches, and dinner, food by the pound, baked goods, and bottled juices and smoothies all made from natural and real ingredients. For people wanting to eat healthy in New York´s fast-paced atmosphere, HU Kitchen offers an enormous variety of healthy and nutritious food options, including 100% grass-fed/finished pastured beef, organic eggs, and poultry, wild fish, organic fair-trade coffee, among others. The company’s mission states: “the words healthy and natural used to mean something before the food industry hijacked them. We are taking them back.”
Through their restaurant, Amazon store and other online e-commerce platforms, and distribution at over 3,000 retail stores across the country, HU Kitchen offers two incredibly valuable lessons in how to strategically and tactically grow a health food brand in order to bring the benefits of the health and wellness food industry to ever wider segments of the population.
HU Kitchen Lesson #1: Maintain Your Independence
For millions of potential entrepreneurs, the first step in building a brand is securing the necessary funds to get the business off the ground. While having capital is certainly important for almost any business venture to succeed, small business owners are often too eager to search for investors to fund their business, and understandably so. Rejection rates for new business loans at traditional banks can sometimes be as high as 73 percent.
For HU Kitchen, however, maintaining their independence as a newly launched health food brand was of paramount importance. Founder Jessica Karp says that “we didn’t want to be in a position where, as we were trying to grow and establish the brand, somebody would come out and say, ‘Well you can cut corners here with the ingredients.’ We did not take outside money until our brand was strongly established, and we knew we wouldn’t really get pushback. People love our brand for our guardrails and for how meticulous we are, and we didn’t want to have to change that.”
Finding investors for your business obviously means that you will be relinquishing control and ownership of a part of your business. Typically, angel investors will demand a 20 to 25 percent return on investment for the money they put into your company while venture capitalists may want up to 40 percent of the business shares due to certain risk factors.
Losing a percentage of control of your startup doesn’t just affect your future earnings, it can also influence important business decisions. Whoever puts in the cash generally wants some sort of input in calling the shots. In the case of HU Kitchen, had Jessica and the other two founders sought out investor capital from the get-go, their steadfast dedication and commitment to the ingredients “guardrails” that define the brand might have been called into question by an investor wanting to see quicker economic growth or larger profit margins.
However, the founders of HU Kitchen understood that there was growing consumer demand for healthier, unprocessed, and more nutritious food options. A recent survey by Whole Foods found that up to 70 percent of Millennials are willing to spend more on high-quality foods. While creating healthy foods from wholesome and real ingredients does imply higher manufacture costs, Jessica, Jordan, and Jason believed that their pledge to put up rigorous ingredient guardrails would find resonance with health food shoppers and thus develop that all-important customer loyalty. By refusing to take investor money when launching the brand, HU Kitchen was able to maintain their independence and freely choose the direction, ethos, and guiding values of the brand.
HU Kitchen Lesson #2: Find Investors that Fit the Company Ethos
In 2018 and 2019, HU Kitchen did decide to bring in investors to help take the company to a new level. A 2018 series A round of venture capital financing allowed them to partner with like-minded investors, including Krave Jerky founder Jon Sebastiani and author Tim Ferriss. They found another strategic partner in Sonoma Brands, a specialist growth equity firm with a portfolio that brings together dozens of thriving health food companies and brands.
At the time, Jason Karp, chairman and one of the co-founders of the company, believed that “with the support of Sonoma Brands, along with several other highly strategic investors, we will accelerate the conversation around the need for more vegan, paleo and unprocessed foods and bolster our platform as a mission-driven health and wellness business.”
Another round of financing last year allowed HU Kitchen to partner with Mondelēz’s venture and innovation arm, SnackFutures, one of the leading cookie and cracker manufacturing companies in the world. This partnership has allowed HU Kitchen to branch out into the world of gluten and grain-free crackers in order to diversify its product offering.
When announcing this new partnership with SnackFutures, Karp said that “the reason for the partnership is much more about the intangibles than the investment dollars. They are the global snacking leader and they are the largest player in organic chocolate. With this investment, we believe that our probability of success and our probability of scaling faster, reaching more people and making our products more accessible goes up.”
HU Kitchen also believes that this most recent partnership with Mondelēz will allow them to influence the direction of the cracker and snack industry. Their experience of creating healthy, minimally processed snack foods could help to inspire Mondelēz’s own innovation, while Mondelēz obviously will allow their brand to advance in terms of operational efficiencies.
Despite these impressive recent investment partnerships that will surely take HU Kitchen to new levels, it took nine years from the time the business idea was first put forth for the founders to accept their first capital investor. This allowed the company time to firmly establish their brand, hone their entrepreneurial skills, and prove to the world that their approach and guiding ethos would be supported by the growing consumer demand for healthier and wholesome food products. When they were ready to reach out to investors (or have the investors reach out to them), the discussions related to the brand ethos, the importance of limiting ingredients, and other important product details could be had on their own terms.