PitchBook reports that VCs have invested $39.3B in food tech companies between 2021 and 2023. According to the report, biotech-derived foods and packaging were the most popular areas for food tech investments.
Crunchbase says that alternative protein startups lead the pack. This includes British company THIS, which was founded in 2018, and Impossible Meats, a US-based legacy company. Crunchbase claims that they raised $500 million in November 2021.
The risk of getting caught up in hype and investing money in a company not viable is high with any boom market.
CNN reports that in just one week, two super-fast food delivery businesses were closed. This is an example of the risk.
Crunchbase reported that Fridge No More and Buyk had collectively raised $62.9 millions in VC funding from their inceptions. Both companies closed their doors in March 2022.
Insider spoke with ten VCs of nine foodtech startup companies about how they evaluate a startup’s profitability and what food tech investors looking to invest in this sector should look out for.
Kimberly Zou, investor in Energy Impact Partners, San Francisco (California).
Apart from checking the technology milestones and the climate impact as well as the customer pipeline, we also take a look at the people in the company.
Does the group have a plan to ensure good governance at the grassroots? We seek diverse groups who can bring more knowledge to the table.
We also have close relationships with key strategic partners, such as large utilities and energy companies. This gives us the opportunity to see the potential for disruptive startups and work with them to determine if they can scale.
Stephanie Dorsey & Corey Jones, cofounding Partners, E2JDJ based New Orleans, Louisiana
Consumers expect more nutritious food. But, it must also taste good and appeal to the eye. Entrepreneurs need to understand that commercialization can be key to success on the market.
You are an investor.
Next is the team. Can the founders attract talent to drive their growth and success? Does the founder understand the challenges of building a company? Does the team have any experience in bioengineering, agriculture, or health care?
Food tech is not emerging in a vacuum. Therefore, it is crucial to be aligned with farmers’ needs.
Suzanne Fletcher, general Partner, Prime Movers Lab located in San Francisco (California).
The companies we invest have to not only make a scientific breakthrough but also address the current customer needs.
Right now, there are many innovations in the circular economy of food such as vertical farming with microbiome-enabled technology that treats water scarcity and food shortage.
These innovations are important in improving the food supply chain. However, they have to be competitively priced. We do not believe in “greeniums”, which are long-term, sustainable solutions. People won’t pay more for a green product forever. The techno-economic model needs to work.
Rajan Pillay, founding partner and managing director, DRADS Capital, Victoria, Canada
You must be passionate about the company you are funding. Be clear about which sector you wish to invest, be it fintech, food, or energy.
When we discovered Live Green Co, a food tech company, we felt an instant connection and wanted to know more.
If you’re passionate about a startup, you’ll be able to ask more questions about its mission, sustainability, or profitability.
We usually spend six months getting familiar with each company. We evaluate the company, its processes, due diligence, documents, as well as their processes. We also meet with supply chains and potential future partners to determine if there are mutual interests.
Gina Domanig, managing Partner, Emerald Technology Ventures, Zurich, Switzerland
Although our food investment thesis focuses on reducing the environmental impact of food production, it is important that a company passes the market test. If all indications are that the market isn’t ready to accept the solution proposed, we won’t invest.
Plastic management is an example. While plastic is an issue that has existed for as long as the material itself, there are now more people interested in managing waste. Consumers, regulators and large corporations all press for innovative solutions.
It’s not enough to evaluate whether the technology works. You also need to understand whether the startup has a solid industry analysis: Are they late adopters of market failures or early adopters?
Nick Cooney is the founder and managing Partner of Lever VC based out of New York City.
We love companies that have innovative technologies and are inspired by them.
We closely collaborate with accelerators, incubators, and other market-disrupting startup companies.
This screening and thorough searching helps us to quickly find amazing new companies.
Maryanna Saenko is co-founder, Future Ventures. Located in San Francisco, California
Recent events show that future conflicts will also revolve around resource management. We must develop resource-efficient technologies that allow nations to manage their food supplies independently.
We are focused on reforestation, circular agriculture and decrying the meat industry.
We see nutrition as a cultural issue. If meat is a mainstay of the culture, it takes a lot more tact to allow alternative proteins.
The startup team must understand the cultural differences within the market and offer a solution that fits into this unique context.
Lisa Feria, CEO, managing partner at Stray Dog capital, Stilwell (Kansas).
We only invest in companies with strong competitive advantages, such as those that use a novel technology. You can think of cell agriculture, bio-engineered protein production in a lab, and their use for cosmetics as good examples.
But, the products must be supported by a skilled and passionate team.
Ambition doesn’t always mean success. The best founders are those who leverage both internal and outside resources to cut their learning curves and increase revenue, innovation and knowledge.
We must get to know each other personally so that we can assess whether our aspirations and expertise are real.
Stu Strumwasser, founder, and managing director, Green Circle Capital based out of New York City
We are passionate about fermentation technology. While precision fermentation originated in the pharmaceutical industry, applying this science to food could break the unsustainable food system.
Two of the most important factors in evaluating a startup within this niche are science and financial facts.
After understanding the risks and returns, the profitability, growth and exit strategies of each strategy, we then weigh in on their sustainability agenda. Four scientists make up our team. They don’t simply ask, “Is this worse than the problem?” We test each team member on their ESG potential at each stage of the production cycle.
