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Coca-Cola's Focus On Innovation: How the Coca-Cola Company's VEB Group Is Fueling Disruption in Consumer Products

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This week's post is a Q&A with Coca-Cola's internal venture group, VEB (Venturing & Emerging Brands). As we continue to explore issues of crowdfunding, entrepreneurship, and disruptive forms of finance, I thought hearing from the venture group of a world class consumer brand would be interesting. As an investor and entrepreneur, I think hearing what a strategic thinks is helpful.

One of the many reasons The Coca-Cola Company has been well respected for so long is that they are always looking for innovation, inside and outside the company. While crowdfunding is one form of disruptive innovation for early-stage fundraising, another interesting trend is the growth of internal venture groups such as Coca-Cola's VEB. They realize that some of the most exciting innovation in consumer is happening at high-growth, smaller companies. Understanding what VEB, and other internal venture groups of large consumer brands, look for in these smaller brands is valuable whether you are a consumer investor, an entrepreneur or simply interested in the consumer landscape.

Who is VEB and why does it exist at The Coca-Cola Company?

The Venturing and Emerging Brands Group (VEB) is a unit of The Coca-Cola Company that was created in 2007. We consider ourselves part venture capitalists, part brand incubators and all business builders. Although we are part of The Coca-Cola Company, we see ourselves as intrapreneurs, bridging the gap between big companies and entrepreneurs. Our stated mission is to be a significant contributor to our North American business growth and to ultimately develop the next series of brands with billion-dollar potential.

What types of investment opportunities is Coca-Cola's VEB group interested in?

In order to determine the best investment opportunities, we try to anticipate future consumer needs and emerging beverage trends. VEB has adapted proprietary insights into a "hunting ground" that we call our "sweet spots". Our goal is to find future-oriented products and brand categories that have the potential to develop into large volume and profit generators -- and to boost the Company's innovation in the non-alcoholic ready-to-drink beverage category.

What are the set of criteria that Coca-Cola's VEB group use to evaluate brands?

Each year there are close to 300 new beverage brands launched. In order to evaluate brands that are a good fit for VEB, we use the following criteria:

Proof of Concept: What metrics of success has the brand achieved that validate its probability of long-term growth? An example of a metric we use is revenue levels. We know from extensive beverage industry analysis that only 3 percent of new beverage brands launched ever achieve $10 million in revenue. The brands that achieve this milestone have typically gone on to significantly higher sales levels.

Competitive Advantage: What is the point of differentiation? What makes the brand stand out from the others in the marketplace? One reason we chose to partner with Honest Tea is that for a while they were the only organic ready- to- drink tea in the market. While this alone may not have provide a competitive advantage, they used this time to connect with consumers to tell a story about sustainability, environmental consciousness, and health. The combination of these strong intrinsic and extrinsic brand messages provided consumers a story of integrity and believability and won them some very loyal fans.

Brand Building Doctrine: What actions is the entrepreneur taking to create an effective and sustainable business? When ZICO Coconut Water was launched, they quickly realized that hot yoga enthusiasts were passionate about all natural hydration. So, rather than expanding their business in a broad way, ZICO decided that they would focus their sales efforts where their consumers already knew and loved the product. Not only was this a cost efficient way to build the business, but it also showed strong strategic direction and they were able to create brand ambassadors to sell on their behalf.

What is VEB's point of differentiation from private equity or venture capital firms?

VEB brings a unique set of capabilities to the table. Our team members all have long-term beverage business experience, including some of whom have run their own businesses -- we understand the challenges facing today's entrepreneurs. One of our main advantages is that we have access to The Coca-Cola Company's marketing and distribution assets.

We also go into all of our partnerships thinking in a long-term direction. It is not our mindset when we negotiate a deal to make it successful and then sell it off. Instead we are living the journey, with the goal to grow brands for a lasting commitment, and the hope to eventually graduate a brand into the broader Coca-Cola brand portfolio.

Are there any similarities between CircleUp and VEB that you see?

CircleUp is a unique model that's on the cutting edge of crowdfunding. Similar to VEB, CircleUp is working on new ways to innovate a traditional process while helping to fuel innovation in consumer products and disrupting traditional fundraising channels for consumer companies.