Mesa Venture's first equity investment going to the birds

By Clay Holtzman
NMBW Staff

A 13-year-old maker of gourmet bird food is flying high after receiving a near $400,000 investment from a non-traditional venture capital group that manages a fund consisting largely of state taxpayer dollars.

Albuquerque's Gourmet Pet Supply Inc., which produces a line of all-natural bird food that is made with human-quality ingredients, will use the equity investment to boost its advertising and marketing campaigns and bring more products to market.

"As an entrepreneur, you reach a point where you have to have some capital," says company founder Kreig Peterson. Until recently, the business operated under the name of Beak App?tit Inc., but the chance to establish a similar line of instant food for small mammals convinced Peterson and investors to switch names.

The company's six instant bird food varieties are each made with dehydrated ingredients that are cooked in a microwave after adding water. The food is made for large pet birds like Congo African Greys and Scarlet Macaws, but many customers are feeding the products to their smaller birds like parakeets. The Austin Zoo is even feeding the instant flavors to its wild birds. The various products, which sport names such as Cream of Tweet and Nuts for Alfredo, will continue to be marketed under the Beak App?tit brand name.

For Peterson, the $390,000 investment will also allow his company to add more distributors, both domestic and international, to his already impressive list, which includes pet supply giants Petco Animal Supplies Inc. (NASDAQ: PETC) and PETsMART Inc. (NASDAQ: PETM) as well as much smaller distributors in the U.S., Canada and U.K.

Of the $390,000 invested in Gourmet Pet Supply, $320,000 was committed by Santa Fe-based Mesa Venture LLC, with the remainder coming from individual investors like Dave Roddy, recruited by Mesa to be the company's new CEO. Mesa's investment will come from its New Mexico Growth Fund, a $1.6 million pool that is still open to investors.

The fund is the group's first and is almost entirely composed of capital committed by the New Mexico Small Business Investment Corp, a program that takes money from the state's Severance Tax Permanent Fund and makes it available to third-party entities like venture funds and microlenders, so they can invest in small business entrepreneurs.

The concept is that businesses will benefit from the state's investment, producing not only a financial return for the state but also contributing to job creation and economic development.

Since Mesa established the growth fund in May 2004, the group's partners have been scouring the state looking for traditional businesses that fit the classic venture investment model: established product, high growth potential and good management.

Les Matthews, one of Mesa's seven principals, says the market for high-quality pet food is growing faster than for high-quality human food.

"It's a huge market," Matthews says. "First of all, these are very expensive pets and they live a long time. As a result of that, people aren't afraid to spend more money for premiere products."

In 2003, Americans spent nearly $14 billion on pet food, $741 million of that on bird food, according to market analyst firm Business Communications Co. Inc. of Norwalk, Conn. By 2008, those numbers are projected to climb to $16.7 billion and $932 million respectively.

Peterson developed his line of instant bird food when he owned a pet shop during the early '90s. At the time, he needed a healthy food to feed adolescent birds that weren't yet ready to eat bird seed -- something Peterson calls "birdie McDonald's" because of its high fat content.

Peterson says Mesa's investment comes at a good time for his company.

After taking out a $75,000 loan from the U.S. Small Business Administration in 2000 and tapping out his own funding channels, Peterson watched his business grow between 45 and 55 percent annually for the past four years. He feared that growth would eventually become a house of cards if a new source of capital couldn't be found.

"It's nice to grow. But when you grow too fast it eats up all your cash," says Peterson, a self-taught bird nutrition specialist.

New CEO Roddy, who has a background in finance, says a lack of capital is not unique to Gourmet Pet Supply.

"It's a very typical situation for a small business to be in," Roddy says.

Unlike the SBA loan, Peterson says the equity investment presents a real opportunity for his company because with the addition of a CEO and a chief financial officer, he can focus on what he does best: product development.

"You miss opportunities," Peterson says. "You're not able to research all your opportunities and you can't be fully effective when you are spread so thin."

The investment has also spurred the company into switching from a California packager to Belen-based Prototype Packaging LLC, a move that will save Gourmet Pet Supply about 25 percent on the cost of packaging its bird food into 1 lb containers.

With the increased marketing and advertising efforts, as well as the money to pay for more stock, Roddy says Gourmet Pet Supply should see an annual growth rate of 100 percent for the next few years. The company's new business plan is to achieve liquidity in the next three to five years.

choltzman@bizjournals.com | 348-8324