PitchBook reported that in 2021, VCs had invested $39.3 million into foodtech companies. According to PitchBook’s report, record-breaking investments in food technology included biotech-derived products, packaging, and management.
Crunchbase reported that alternative protein startups have led with British company THIS, established in 2018, raising a $14.5 million Series A round. Impossible Meats, a US-based legacy firm, raised $500m in November 2021.
It is possible to get carried away by hype and invest in companies that aren’t viable in any booming market.
CNN reported on the danger of closing two fast-food delivery startups within a week.
Crunchbase estimates that Fridge No More and Buyk, which were established in 2020 and 2021, have collectively raised $62.9million worth of food tech funds. Both companies ended operations in March 2022.
Insider spoke to ten VCs representing nine firms involved in the food technology startup sector about their assessment of a startup’s financial viability and what investors who are interested in this market should focus on.
Kimberly Zou – investor, Energy Impact Partners located in San Francisco, California
We not only check the technology milestones, the climate impacts, and the customer pipeline but also look closely at the team.
Do they have a plan that will ensure good governance at all levels? We look for diverse groups that have more knowledge and skill to bring to the table.
We also work closely alongside key strategic partners, including large utilities, energy, real estate, and other major companies. Because we are able to use their eyes, we can assess if disruptive startups have the potential to scale. We also work closely with our strategic partners to maximize the impact of these startups and drive value for both companies and individuals.
Stephanie Dorsey & Corey Jones cofounding partners of E2JDJ based out of New Orleans, Louisiana
Consumers are looking for healthier food. However, they also want it to taste great and look good. Entrepreneurs need understand that the key to market success is commercialization.
As an investor, first ask yourself: Would this product be something you would buy, eat, or recommend?
The next step is to make sure the team is successful. Is it possible for founders to attract the talent that will drive their growth? Can they explain what it takes to build a business? Do they have experience in fields such as bioengineering or health?
Food tech isn’t coming out of nowhere. We need to align with farmers’ interests.
Suzanne Fletcher – general partner, Prime Movers Lab San Francisco, California
Our investments in companies must address current customer problems.
We see many innovative innovations in the circular agriculture economy right now such as microbiome enabled vertical agriculture that addresses food and water scarcity.
These innovations may be very effective in improving food supply chains, but they must also produce products at an affordable price. We aren’t a believer long-term “greeniums”. People will not pay more for a “green product” forever. Techno-economic models must work.
Rajan Pillay founder and managing Partner, DRADS Capital located in Victoria, Canada
Being passionate about a company is essential for funding. Be clear about what sector you would like to invest in, regardless of whether it’s food, energy, fintech or other.
One example: When we found the food tech company Live Green Co we felt an immediate connection with the industry and wanted more information.
With dedication, you’ll ask better questions about the startup’s sustainability, mission, and profitability.
We usually spend six to eight months getting acquainted with each company. We look at the company, including its documents and due diligence. We also discuss potential future partners or supply chains to find out if they have mutual interests.
Gina Domanig (Managing Partner), Emerald Technology Ventures located in Zurich Switzerland
Even though our food investment thesis revolves around reducing the environmental footprint in food production, companies must first pass the test of the market. If the market is not ready to invest in the proposed solution, then we would not invest.
Plastic management is one example. Although concerns about plastic go back as far as human history, waste management is now a hot topic. Big corporations, regulators, and consumers are pushing for innovative solutions.
Do not just evaluate the technology’s efficacy, but examine the startup’s industry analysis to determine if they are early adopters or late entrants in the market.
Nick Cooney, founder and managing partnership, Lever VC based New York City
We are thrilled by companies with innovative disruptive technologies. It doesn’t matter what problem the product solves in food production. But it must be exceptional in quality and innovation.
To identify market-disrupting startups we monitor trade media and follow Google News. We also use outbound search as well as our networks, contacts, and colleagues to locate new opportunities. We also closely collaborate with incubators or accelerators.
This allows us to find great companies more quickly by conducting thorough screenings and searching.
Maryanna Saenko co-founder of Future Ventures located in San Francisco.
Given recent world events, it is clear that future conflict will also involve resource management. This is why it’s so important to develop resource-efficient technology and assist nations in managing their food supply independently.
Although many food tech professionals decry meat, we are focused upon reforestation as well as circular agriculture.
For us, nutrition is cultural. We recognize that in areas where meat consumption is central to the culture, alternative proteins may be necessary. This might mean that we have to use a lot less tact and risk failing.
The startup team should be able to identify cultural differences in the market and then present a solution that is unique.
Lisa Feria CEO and managing Partner, Straydog Capital, Stilwell Kansas
We invest in companies with solid competitive advantages, such a new technology. One example is cellular agriculture. Another example is bio-engineered products that can be grown in a laboratory and used in cosmetics.
However, products need to be supported by a team of passionate people.
Ambition is not all. The best founding teams leverage internal and externe resources to speed up their learning curve and increase revenue, knowledge, and innovation.
This is why it is so important to get to understand each team member and to test whether their aspirations on the job are grounded in real expertise.
Stu Strumwasser (founder and managing Director, Green Circle Capital based New York City)
Our passion is for fermentation technology. The pharmaceutical industry is the origin of precision fermentation, but it can also be applied to food to break the unsustainable food cycle.
The two most important factors for assessing a startup in this niche are science as well as financial facts.
After we have analyzed the profitability, risk-return ratio, exit strategies, growth, and profitability of the solutions, we can then evaluate the sustainability agenda. We have four scientists on the team. This allows us to ask more than just: Is the solution better than the problem? We review every stage of production and assess the ESG potential for each member.