Portland entrepreneur Matt Michaelson secured $19 million from investors for his direct-to-consumer cat food brand, Smalls.
The money will be used to start marketing the product and building a full brand around cat ownership, Michaelson said. This includes potentially opening a cat café in New York City and television advertising. Until now, the company has been focused on refining the product and getting the sales funnel right.
Smalls was started in 2017. The company makes fresh high-protein, human-grade food for cats. It is sold online direct to consumers. Since it started, the company has fed more than 100,000 cats and generated eight figures in sales. It has raised $34 million from investors.
This latest round was led by Companion Fund and included Left Lane Capital, Valor Capital, General Mills venture capital arm 301 Inc., Ohio State University’s endowment fund and existing investor Founder Collective.
Michaelson grew up in Portland. The family cooked its own food for their pets, he said. He left his hometown and lived and worked in New York, where he initially started Smalls. When the pandemic hit, it became clear that investors were willing to look at companies outside major financial and tech hubs and remote work opened new avenues of hiring and working. Michaelson decided to move back to Portland.
He now runs the company out of his home in Northwest.
The company was five people in 2020 and is now 46 people, all working remote. Michaelson plans to add 25% to the company’s headcount. The team works a four-day week and employees are paid based on the value they add to the company rather than on cost of living where they are located.
“In a world with Zoom, why is your work less valuable if you are based in Argentina?” he said. When the decision was made not to adjust salaries for location almost the entire team saw their pay bumped with some as much as doubling.
“We felt it was the right thing to do,” Michaelson said. “Now if we can take what we think is a more modern, fair approach we have a huge advantage in hiring.”
The product, which was developed in Michaelson’s kitchen, is now made by a co-packing partner.
How Smalls was built
He has experience working in and growing a direct-to-consumer brand. Prior to Smalls he was an early employee at period underwear brand Thinx Inc., where he went from operations manager to director of growth marketing.
As he wanted to start his own business he found that pet food and pet ownership fit what he was looking for.
“I was looking for something that was head and heart,” he said. “I couldn’t be opportunistic and make a plastic do-dad for millennials.”
This round was raised in the summer of last year. Michaelson had relationships with the lead investor already. Part of why he lived in New York to start the company was to get investor relationships.
“Once you are in you are in. From an ethical and fairness perspective, it’s a problematic dynamic,” he said. It’s a dynamic many founders struggle to get into and something the PBJ has covered extensively.
“We had a laundry list of VCs on the cap table and relationships,” he said. “We were building trust for five years and (were) able to get great intros.”
As he was raising this round, he noted that investors had more questions about profitability and the timing of profitability rather than the previous conversations of growth at all costs. He noted that the company also benefits from selling a product that people are less likely to cut back on — feeding their cats.
“What set Smalls apart is their unwavering dedication to improving feline health and well-being,” said Cindy Cole, technical partner at Companion Fund, in a written statement. “Cats are notoriously picky customers, but Smalls has cracked the code on creating fresh, minimally processed meal food plans that cats love, and we are excited to be part of their growth story.”
Michaelson said the company will always be focused on cat products since he sees cat owners as being underserved by the $277 billion pet industry. According to Smalls' research, 25% of U.S. households have a cat.
This round will also help with building out the team. Michaelson is hiring a COO. He is looking for someone with experience in the food business and consumer packaged goods. A big strategic choice that is upcoming is how to plan for scaling and possibly building their own manufacturing facility.
