According to PitchBook, in 2021, $39.3 billion was invested by VCs into food technology companies. According to PitchBook, the top three areas in food tech that saw record investments were biotech-derived food, packaging and waste management.
Crunchbase reports that alternative protein startups are leading the charge with THIS, a British company founded in 2018, raising $14.5 million Series A round in June 2021. Impossible Meats, a legacy US company, raised $500 million in November 2021.
There is a risk that you will get caught up in the hype and invest money in a company that isn’t financially viable in booming markets.
CNN reported that two fast food delivery companies were shut down in one week.
Crunchbase reports that Fridge No More and Buyk were founded in 2020 and 2021, respectively. They had raised $62.9 million each in VC funding. Both companies were shut down in March 2022.
Insider interviewed ten VCs from nine companies involved in the food startup industry to find out how they assess a startup’s viability and what investors should be looking for in this area.
Kimberly Zou is an investor at Energy Impact Partners, San Francisco, California
We also check the technology milestones, climate impact and customer pipeline.
Are they able to create a plan for good governance at grassroots level? We often seek out diverse groups with more knowledge and skills.
We also work closely with strategic partners like large utilities, energy companies, and real-estate companies. We have their perspective and can see if disruptive startups could scale. Working together with our partners, we maximize impact and drive value both for the companies and the employees.
Stephanie Dorsey, Corey Jones and Corey Jones are cofounding partners at E2JDJ, based in New Orleans.
Consumers want more nutritious foods, but they also expect it to taste good and be appealing. Entrepreneurs must realize that commercialization is crucial for success in the marketplace.
As an investor, ask yourself the following questions: Would you buy, recommend, and eat this product?
The team is the next important factor. Are the founders able to attract talented people and drive their growth? Are they able to understand the complexities of building a business? Are team members knowledgeable in the relevant fields of bioengineering and health?
Food tech does not emerge in a vacuum. It is important to align ourselves with the interests of farmers.
Suzanne Fletcher is general partner at Prime Movers Lab, San Francisco, California
Companies we invest in must not only be a breakthrough in science, but also address customer problems directly.
We are seeing impactful innovations in circular food economies such as microbiome enabled vertical farming, which addresses food scarcity and water shortage.
These innovations can have a significant impact on improving the food supply chain but they must also be affordable. We don’t believe in “greeniums” for the long-term. The techno-economic model must work, as people aren’t going to be willing to pay more for green products forever.
Rajan Pillay is the founder and managing partner of DRADS Capital, based in Victoria Canada.
Passion is key to food tech funds. Be specific about the sector that you are interested in investing, whether it is fintech, energy or food.
We felt an instant connection to the niche market when we came across Live Green Co, and we wanted to learn more about it.
You will be more interested in the mission, sustainability, profitability, and motivation of a startup if you are dedicated.
We spend approximately six months getting to understand each company. We examine the company and all documents. To find common interests, we also speak directly with potential partners and supply chains.
Gina Domanig is the managing partner of Emerald Technology Ventures, based in Zurich (Switzerland).
Our food investment thesis is focused on reducing the environmental footprint of food production. However, the company must pass the market test first. We wouldn’t invest if everything points to a market that isn’t ready for our proposed solution.
One example is plastic management. Plastic management is a good example. Although plastic concerns are not new, recent interest in waste management has been growing. Big corporations, regulators, consumers, and the public are all pushing for new solutions.
You should not only assess the tech’s effectiveness, but also consider whether the industry analysis of the startup is sound: Are they early market adopters or late-market failures?
Nick Cooney, founder, and managing partner of Lever VC, New York City
Companies with disruptive technologies are exciting to us. No matter what problem it solves in food production, we want them to be innovative and high quality.
We closely work with accelerators and incubators to identify disruptive startups in the market.
We are able to find new great companies quicker by doing thorough research and screening.
Maryanna Saenko, cofounder of Future Ventures, based in San Francisco (California).
It’s evident that future conflicts will be about resource management, as demonstrated by recent events. It is therefore crucial that we develop resource-efficient technologies to help countries manage their own food supply.
Many food tech experts decry the meat sector, but we are focused instead on reforestation or circular agriculture.
Nutrition is cultural. In areas where meat is a major part of the culture it is, we believe that alternative protein options are a cultural issue. It might take a lot of patience and even failure to make these changes.
Startup teams must be able to recognize cultural differences and provide solutions that fit the context.
Lisa Feria is the CEO and managing partner of Stray Dog Capital, Stilwell, Kansas
Companies that are able to offer solid competitive advantages such as a new technology or cellular agriculture, are our investments. Cellular agriculture and bio-engineered proteins that are grown in a laboratory can be used to make cosmetics are good examples.
Products must always be supported by a passionate and talented team.
Ambition is not everything. The best founder teams use both internal and external resources to reduce their learning curve, increase revenue, innovate, and share knowledge.
It’s crucial that we get to know each member of our team personally to ensure that their goals are based on actual expertise.
Stu Strumwasser is the founder and managing director of Green Circle Capital, based in New York City
Fermentation technology is a passion of ours. Although precision fermentation is a technology that comes from the pharmaceutical industry, it can be applied to food and help break the unsustainable food chain.
Science and financial facts are two of the most important aspects to evaluate a startup in this niche.
After analyzing the risks and return ratios, profitability, growth, exit strategies and risk-return ratios, we evaluate their sustainability plan. Our team includes four scientists. We don’t ask “Is the solution worse than what is happening?” We go through each step of the production process and evaluate the ESG potential of each member.
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