Vegan Food Startup Hampton Creek Used Venture Capital To Buy Its Own Products

Tyler Durden's picture

Call it the perfect pyramid scheme for the "new normal."

In the latest example of the venture capital euphoria that has dominated the US in recent years, not to mention potential fraud, Bloomberg reports that vegan food startup Hampton Creek, had a novel idea of how to spend the venture funding it had raised: by buying up its own product.  To wit:

In late 2014, fledgling entrepreneur Josh Tetrick persuaded investors to plow $90 million into his vegan food startup Hampton Creek Inc. Tetrick had impressed leading Silicon Valley venture capital firms by getting his eggless Just Mayo product into Walmart, Kroger, Safeway, and other top U.S. supermarkets within about three years of starting his company.

 

What Tetrick and his team neglected to mention is that the startup undertook a large-scale operation to buy back its own mayo, which made the product appear more popular than it really was. At least eight months before the funding round closed, Hampton Creek executives quietly launched a campaign to purchase mass quantities of Just Mayo from stores, according to five former workers and more than 250 receipts, expense reports, cash advances and e-mails reviewed by Bloomberg. In addition to buying up hundreds of jars of the product across the U.S., contractors were told to call store managers pretending they were customers and ask about Just Mayo. Strong demand for a product typically prompts retailers to order more and stock it in additional stores.

Wait is that legal? Well, technically it is not illegal, although it is extremely unethical (imagine if, gasp, Facebook was using click-farms to fabricate users - it's the same concept) however it underscore the money printing culture permeating the VC community, which through its generosity may be implicitly enabling fraud. Case in point: Theranos, and now Hampton Creek.

“It is highly questionable for a company to purchase its own goods,” says David Larcker, a professor of accounting at Stanford Graduate School of Business. “Revenue is an important number for evaluating growing companies, but the companies need to be transparent about the source of that revenue. They also need to be transparent about their growth. If the sales are not generated from legitimate customers, that needs to be disclosed and is important information for investors to evaluate.”

Bloomberg stumbled on the company's illicit practices by reviewed expense reports which showed contractors buying back jars of Just Mayo from Safeway stores. Former workers say Hampton Creek also purchased its own products at Kroger, Costco, Walmart, Target, and Whole Foods locations across the country. While a November 2014 e-mail from the corporate partnerships team said the company would stop store buyouts, three former contractors who worked for the company in 2015 say the practice continued, and directions were given verbally.

“We need you in Safeway buying Just Mayo and our new flavored mayos,” Caroline Love, Hampton Creek’s then director of corporate partnership, wrote in an April 2014 e-mail to contract workers known as Creekers. “And we’re going to pay you for this exciting new project! Below is the list of stores that have been assigned to you.” Love’s memo also referenced a key competitor: “The most important next step with Safeway is huge sales out of the gate. This will ensure we stay on the shelf to put an end to Hellmann’s factory-farmed egg mayo, and spread the word to customers that Just Mayo is their new preferred brand. :)”

Tetrick, Hampton Creek’s chief executive officer, was ready to spin the finding, saying the primary purpose of the purchases was to check the quality of the mayonnaise. “Because of this, we now understand the impact of trucking and shipping our product and enabled the system we have today that mitigates the risk of extreme temperatures,” Tetrick wrote in an e-mail. “Assessing the product from the customer perspective, more than anything, gets us out of the bubble of typical manufacturing. This was and always will be the primary purpose of it, which is why we’ll continue doing it.” Melanie Myers, an executive who worked in the company’s corporate partnerships team, says in a statement that the program was primarily for quality-control purposes but “we also thought it might give us a little momentum out of the gate.

A little momentum, and a little "profit" which could then be shown to more VC investors who would then hand over even more cash to the company, and so the entire pyramid scheme could be repeated. Sure enough:

Earlier this year, Hampton Creek was looking to raise additional funds to help pay for an ambitious vision that imagined as many as 560 new plant-based products, which could include vegan “oysters,” “blue cheese” and an egg-substitute product it calls “Just Patty,” according to an investor presentation reviewed by Bloomberg. The company is still trying to close the round and is seeking investors in Asia, according to two people familiar with the matter.

In light of these revelations, it may have to put its expansion plans on hold.

Read the full article here.

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GadExp's picture

New normal?  Didn't they start this program in 1913?

wee-weed up's picture

Hell, the FED prints its own money... why shouldn't a company buy its own products. Same faulty reasoning.

GadExp's picture

 

 

The power people live by some sort of alternate morality.  It’s not shocking when it spreads to the normal market.  The civil unrest that will result from this corruption will hopefully result in a lot of "NOT ILLEGAL" things happening to the banker tyrants!

Bunga Bunga's picture

Own products or own shares, what difference does it make?!

BKbroiler's picture

God I hate Vegans.  And I know who they are since they tell you the first chance they get.  Just Nasty.

NoDebt's picture

Hey, maybe they just REALLY like their own mayo and can't get enough of it.

 

Ralph Spoilsport's picture

The old lady tried a jar of their eggless mayo because she had a coupon. It doesn't taste anything like Hellman's (or Best Foods West of the Rockies). We wasted a big can of tuna trying it since both of us spit it out at first taste. The dogs probably enjoyed it but it gave one of them diarrhea. 

californiagirl's picture

It is accounting fraud if they did not account for the purchases as a reduction/offset of revenues. And even worse if they accounted for it as SG&A. Auditors, did you catch this??? I would have. Similar to other roundtripping balance sheet and income statement inflating fraud I caught when I was an auditor. 

cheka's picture

ha ha!  reminds me of the l ron hubbard book, dianetics

twas a best seller for many weeks because of same

Automatic Choke's picture

fun vegan lines:

"If God wanted us to be vegan, He wouldn't have made animals out of meat"

"  "Vegan" is an old native american word for "bad hunter"    "

"I have no problems with vegans, all the animals I eat are vegan."

 

10schisms's picture

Your ignorarnce is astounding.

Jeffersonian Liberal's picture

And Mrs. Bill "The Rapist" Clinton's memoir.

No actual customers bought it. But someone found rooms full of them "purchased" and stacked.

DarAdder's picture

Did you ever wonder why your career was cut short?

 

knukles's picture

Hah ha ha
Classic.
I sit it out, the dogs gnash it down and puke.
Listen.  You got a gold mine on your hands
Your dogs are a minority and disenfranchised at that, no?  (For this sake, yes)
Class action suit....

BuddyEffed's picture

 

It would be revolutionary if they could buy back their own products without even removing them from the distributors/retailers possession, and then selling them back to them a 2nd time without the product moving one inch.  That could really fatten some bottom lines for the whole supply chain!!!  What's to prevent a 3rd or 4th resale?    If they could just get that deep in bed with the distributors/retailers and at the board level now with cross promoting players, there are many who might just be that deep in bed with themselves.  Why they could even do that while the products are on the shelf for sale.   Could be a new trade secret or patentable business model!

Mr. Universe's picture

Why not, if sales numbers and increased orders convince the Muppets that the stock is worth big time, then pump and DUMP the whole thing off to some new dupes. When they ask why sales crashed through the floor, some soon to be unemployed mailboy, opens up a jar and exclaims "Because it tastes like shit".  

CrazyCooter's picture

When our Walmart closed, they did clearance sales starting at 25% off and ending at 75% off. Somewhere along the way I bought six or so plastic containers of this stuff for pretty cheap. Maybe a buck fifty a bottle, maybe less. Something like that.

I tried it once. It sucked horribly. I have been meaning to donate the rest to a food bank for a while.

Regards,

Cooter

Ralph Spoilsport's picture

Beats me why people buy food because the advertising says it's healthier.  Unless you're Canadian and slather mayonnaise on everything in sight, how much freaking mayo can you go through to make it be unhealthy? My old man said never skimp on brake shoes, luggage or mayonnaise. Just buy Hellman's fer krissake, then go worry about something else.

Miffed Microbiologist's picture

Veganism is a religion. Love to piss them off when I tell this to them. Especially since they often brag they are atheists. Then to have their head explode I tell them I'm a Vegan the eats meat. That usually has them running back to their lesbian Coven.

Miffed

Stanley Kubrick's picture

Yawn. 

What's the fuss?  Everybody's doin' it.

#IDIDN'TDONUFFIN'

Mr. Universe's picture

Golly,  I thought it was #Dindonutn

Either way it wasn't me....no no child.

https://www.youtube.com/watch?v=M1i32RiGgwY&spfreload=10

Dr. Richard Head's picture

The record labels have been doing this shit for decades.

Delphi_Addiction's picture

Our collective morality has decreased so much- and societal rot increased so great- that we don't even recognize how far we've declined as a culture. We're numb to fraud in all it's contagion.

I recognize these types of shenanigans have gone on for a long time, perhaps across generations.

But the broad nature and deep roots of our depravity seems to establish new thresholds. Ever since the GI generation departed the stage and Boomers took control. This isn't an indictment on that generation just on the times we live. This group may not even know how corrupt they are.

They're about to find out, though.

Hype Alert's picture

Yeah, I'm pretty sure that's his point.

Rainman's picture

sounds just like the car bizness to me

ToSoft4Truth's picture

GM invested into Lyft for the channel to stuff.  "It's a write-off."

Cognitive Dissonance's picture

Instead of 'Just Mayo' they should call it 'Just Immoral'.

jomama's picture

The hell is immoral about it? I ran a successful crowdfunding campaign that guess what - I, myself contributed to!

 

Is that immoral?

 

Fact is that showing traction early on is good for market perception. It's not immoral, it's creative to reach a goal.

 

Results are what matters, it's not taking the longest hardest road.

GadExp's picture

Have you ever heard of the term 'LYING'?  Lying is when you give someone an incorrect or misleading perception of reality.  

 

"Showing traction early on" where there isn't real traction is call "lying".  Lying is considered to be very immoral by practically every reasonable person.

 

And NO!  Results are NOT what matters!  What matters is HOW you get the results.  The banker terrorist operate under the concept that "Results is what matters".  That's how they justify murdering millions of innocent people - because they have convinced themselves that somehow the ends justify the means.

 

Good grief Jomama!  You should reconsider your fundamental standards for obtaining results!

 

 

Edit:

 

DANG IT!!!  I HATE your fetching attitude Jomama!  I and almost everyone I know in business has been scammed out of millions of dollars from people like you who hold the attitude of "Results are what are what matters!!!"  This attitude is the center of the ROT of our society!

 

I modify my previous recommendation!!  Instead of "you should reconsider your fundamental standards", I scream in your face wake up and reap the destruction you have sown in this collapsing world of decay and corruption!!!  Be ready to feast on the fruits of your immoral standards - DEATH, STARVATING, PAIN, and MISERY!!!

 

...I'm going to go calm down now. 

 

jomama's picture

VCs don't give a fuck about your tactics, they care about results.

 

Did you invest any money in this company?

 

Would you argue Wal Mart built their empire upon your moral standards? Good fucking grief yourself.

 

Are you seriously trying to hold this start up business (which is at an all time low in the USA) responsible for what ails your planet of decay and corruption?

 

Yes, you should calm down and at the very least put things in perspective. Don't shoot the messenger.

 

FWIW, if you're getting scammed out of millions, you should be 'in business'. I own a small business myself, and results (sales, perceptions of success) are what matters. Welcome to the new normal. You either adapt or sit there crying about it on message boards.

More Ammo's picture

Sounds like a circle jerk....

What happens after the first one shoots his wad?

RmcAZ's picture

Steps to creating a successful business in the USSA:

Step 1: Make any product, I mean anything.
Step 2: Buy your own product.
Step 3: ???
Step 4: Profit

GadExp's picture

INSERT:

 

      Step 0.5:  Find investors - take their money.

Step 1: Make any product, I mean anything.

      Step 1.5:  Find more investors - take their money.

Step 2: Buy your own product.

      Step 3:  Sell all your shares to other investors - never look back.

Step 4: Profit

Pew Pew Pew's picture

+50 for "Underpants Gnomes" Southpark reference.

VD's picture

how is this materially different from stock buybacks really?

 

the Scientologists used to buy back their own copies of Dianetics to goose sales -- they didnt exactly have VC money, but they did have sucker cult members' money -- almost the same shit really.... unicorns & cults & cults of personalities like Elon Musk & the phony Theranos chick criminal,  et al.

Zero-Hegemon's picture

No, she's a real chick, sort of

VD's picture

i meant phony company more at phony tech behind said company, whereas the chick is a straight up criminal but since she's in with Obama and Hillary she wont even get a wrist-slap for literally endagering lives, which she did all while falsifying tech/medical test/etc.

 

the ponzi is so rampant and egregious right now it really does boggle the mind, if one were to put all these crimes of financialization into some kind of perspective....

Okienomics's picture

Stock buybacks are so 2015.  Central Banks are the big buyers now.  Bullshitish

StagStopa's picture

Stop picking on Elon..he's a visionary..

E.F. Mutton's picture

How do you spot the Vegan in a room full of people?

Just wait, they'll tell you. 

I'll go Vegan when you can snatch the Pork Chop from my hand, Grasshopper.

chrsn's picture

Just spot the pale, emaciated hippie?

Seek_Truth's picture

The very BEST way to prepare TOFU:

1. Throw it in the trash.

2. Grill some meat.

Bay Area Guy's picture

LOL.  I've actually had some pretty damn good tofu dishes in Chinese restaurants.  Fried, then included as part of the ingredients in a spicy clay pot it particularly good.  But, I see people having it just by itself and that's just plan blech.

Here2Go's picture
Here2Go (not verified) Seek_Truth Aug 4, 2016 4:12 PM

I'm gonna try that tonite! Muchos Gracias!

Ralph Spoilsport's picture

Reminds me of the Eastern Shore recipe for preparing carp:

  1. Get a board large enough to lay the carp on.
  2. With a large sledge hammer or maul, pound the carp until it's completely unrecognizable.
  3. Throw away what's left of the carp and eat the board.
Here2Go's picture

FUK YEAH! ~ lol

Agstacker's picture

Vegan:  Old Indian word meaning 'poor hunter'.