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Algae Power! Will Americans forego sugary snacks for algae tablets?
What do Red Bull and algae tablets have in common? They're both popular consumer items in Japan - and if Catharine Arnston has her way, they'll both be billion-dollar markets in America. Arnston formed Naughtybits to sell bite-sized, algae dietary supplements, and was recently profiled in a PBS program on America's nutrition crisis. The Cambridge, MA entrepreneur talked with VC News Daily to explain how Naughtybits seeks to change the way Americans eat.

VC NEWS DAILY: So what makes "Naughty Bits" so naughty?
NAUGHTY BITS: Well, when I started teaching nutrition classes, I became known as the "Not-Eat Nutritionist," because half of what I was telling people was what not to eat... and when you say that fast, it becomes the "Naughty Nutritionist."

I used that when I started building out the company as something that would appeal, especially, to young people - partly because young people want something new and fun, and partly because I wanted to prevent the younger generation from having the same health problems baby boomers do.

VC NEWS DAILY: But your background isn't in nutrition.
NAUGHTY BITS: Oh, no. I've worked as a marketer and an entrepreneur - this is my fourth startup. I've started three other Internet-based companies. I have an MBA, I've done marketing for 25 years. I've launched about 300 companies or brands, because I used to work for the Canadian government as an attaché, and I would write companies' business plans to launch in the U.S. market.

VC NEWS DAILY: Why the foray into nutrition?
NAUGHTY BITS: Four years ago, my sister was diagnosed with breast cancer, and along with her treatment, her oncologist told her she should eat an alkaline diet. She asked me what I should do with that, and I didn't know, but I'm a very good researcher, so I looked it up. Basically, it's a diet based on a lot of green vegetables and salads and green tea. [My sister] switched to that, and went on with treatment, and completely healed. And four years later she's still cancer-free.

So, I started researching this more... and I found that 97 percent of the health problems and chronic illnesses of Americans arise from their diet. That's not a number I pulled out of the air. That's from the Center for Disease Control.

I wanted to find one thing that people could add to their diets that would lead to a healthy lifestyle. I spent about eight months looking, and nothing was working until I found the algae. There's nothing with as much protein as algae... it's almost a joke that nature has given us. There's this miracle food that has been around for 2.5 billion years, that could solve every health problem in modern society... but nobody's paying attention to it. Except we are.

VC NEWS DAILY: Algae doesn't seem like the most obvious food source.
NAUGHTY BITS: Well, it's funny. The Germans discovered it as a protein source during World War I. The first [industrial] plant to grow algae outside of Germany was right here in Cambridge. That was the beginning of the algae story, because Americans introduced the Japanese to it, and they discovered how fabulous it is. So, they threw billions into researching it, and now it's a multibillion dollar industry over there. And we're this company in Cambridge working off my dining room table. But it's got such potential.

VC NEWS DAILY: You said you want to appeal to younger people. How will you do that?
NAUGHTY BITS: I discovered the "Gen X" market is twice as big as the baby boomer market. But in the supplements market, nobody's catering to younger people. Nobody makes it fun. And so our messaging doesn't really focus on a lot of the rich nutritional information. I focus on benefits that are going to be fun and interesting to younger people - like get a better workout, or don't get a hangover.

VC NEWS DAILY: Have you sought venture funding? Is there any interest in NaughtyBits?
NAUGHTY BITS: I was a semifinalist in MassChallenge last year, I was a semifinalist in PepsiCo Highland, and was a finalist in another competition. I had some conversations with VCs last year, but nobody could really see the vision I had for the company. I decided I could either knock on VC doors and try to get money that way, or I could hunker down and build my company. You can do one or the other. In the Boston entrepreneurial community, a lot of people look for the venture capital. I chose to build my company.

Right now, we do not want venture capital. I'm not sure we could find a VC who would support our vision for the company. We are looking for an angel investor. Our ideal investor is some high net-worth individual who has a background in the athletic community, because athletes get this, completely. Someone who could write a check for $100,000, $250,000. We wouldn't take more than $500,000. And after that, with the sales we expect, we might not need any more money.

VC NEWS DAILY: What do you think the potential market is for NaughtyBits?
NAUGHTY BITS: We want to be as big as Red Bull. I see us being actually the size of Red Bull - which is a $4 billion company. We want to do the exact same thing they did - take a product that is successful in Asia, and rebrand it, and sell it here. They created a new category called "energy drinks." Ten years ago, the market here was half a billion dollars. Now it's $10 billion - and Red Bull still controls 42 percent of it.

The problem is, those energy drinks are full of caffeine and chemicals. And protein bars - those are a $4 billion industry, but those are just as bad, because they're filled with soy, which is unhealthy. Some of them have over 90 ingredients... and they're all chemicals. They're very smart - they put the foil flap over the nutritional information.

I'm just determined that one way or another, we're going to reach people, and we're going to have fun. And you're going to start taking this stuff. And it'll change your life.

- Reporting by Dennis Mayer