Investors view food production as ripe for disruption
May 17, 2016
The food and beverage industry is attracting investors who are injecting record levels of capital to fund startup ventures. Many of these investors cut their teeth in California’s Silicon Valley during the rapid rise of the Internet economy, and now they are turning their attention to food and how it is grown, harvested, processed, prepared and delivered to consumers. A race is on to identify and invest in disruptive startups that may over time reshape the marketplace.
In 2015, investment in U.S.-based food and beverage startups reached a record level of $524.4 million, according to Dow Jones’ VentureSource. The figure surged well past the previous record in 2014 of $376.8 million and dwarfed 2013, which saw $165.4 million in startup investment.
In a short period of time an industry is emerging that is geared toward shepherding food and beverage startup ideas from concept to reality. These business ventures feature accelerators, angel investors, incubators and venture capitalists willing to support ideas that a decade ago may have been perceived as impractical.
The activities of these investment firms are evident in the growth of trade shows as the Fancy Food and Natural Products Expo events in recent years. The investor ferment also is spawning such events as Rabobank’s FoodBytes! conference, which markets itself as connecting “food industry leaders and investors with startup companies that are innovating and disrupting the food chain with groundbreaking ideas in food, agribusiness and technology.”
And there is no shortage of ideas. This past March, the business accelerator Food-X introduced its spring cohort, which consists of 10 startup companies participating in the accelerator’s program. The 10 startups were selected from a pool of 290 companies that applied to the program and are actively seeking investment.
Several drivers may help explain this interest from venture capitalists. For starters, the food and beverage industry may be viewed as consolidated and slow to innovate, with management teams of the largest companies focused on scale, efficiencies and achieving incremental gains in market share.
Second, a growing number of consumers appear to be supportive of such innovative ideas. While taste, price and convenience remain key demand drivers consumers increasingly are seeking variety through the purchase of non-traditional brands and products. Many are more conscious of the decisions they are making around food and, in turn, are becoming more discriminating in the products they purchase and consume. These shifting consumer purchasing patterns are resonating throughout the supply chain as retailers and food service operators shift what they are offering and food and beverage processors respond.
Industry response has been multifaceted to date. Product developers have sought to innovate with an eye toward evolving consumer purchasing patterns, but even more interesting is how many food and beverage companies are setting aside funds for their own venture capital endeavors.
Coca-Cola Co., General Mills, Inc. Campbell Soup Co., Mondelez International, Inc., Nestle S.A. and Archer Daniels Midland Co., to name just a few companies, are all setting their sights on investing in or providing such resources as industry expertise and fully-operational pilot plants to aid in the vetting and scalability of new ideas.
Whether any of these investments prove to be disruptive remains to be seen. While the market is ripe with trendy new products that appear to have captured the imagination of consumers, at least for a time, it is difficult to identify new products poised to truly help reshape the marketplace.
Where true disruption appears to be at hand is either at the initial stages of the supply chain or in the “last mile” of delivering products to consumers. It is in these segments where raw material yields may rise via such innovative technologies as CRISPR gene editing, input costs may be reduced through the use of emerging applications that process and analyze “big data,” and finished products may be delivered to consumers that are designed specifically for their individual nutritional needs.