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Is the Future of Big Food, Small Food?

Meal Kits

Food and Beverage Trends

There is growing consumer demand for more “farm-to-counter” specialty foods in grocery stores and restaurants.  More and more people are looking for cost-effective, sustainable and healthy options to feed their families.  Venture capitalists and investment firms are seizing this opportunity to develop disruptive startups and new technology to meet the increased demand by putting their money where their mouth is.


VC Investments
2014-2016 INVESTMENT TREND

The trend which started in 2014 with a sharp increase in venture capital investment in new food and beverage startups has continued through 2015 and into 2016.  If investment capital is any indicator of where the industry is headed, companies who produce specialty foods may have a leg up as new investment for those producers has surpassed producers of general food products.

Among the notable investments was Impossible Foods Inc in the 4th quarter of 2015. According to their website, the company uses “plants to make the best meats and cheeses you’ll ever eat.”  In a recent article on TechCrunch, Brad Holden, a principal and investment counsel at Tomorrow Ventures said, “Lyfe fits into the trend of healthy solutions… More and more people are focused on their health. [They’re] focusing on nutrition, and diet is one of the biggest impacts on your health. In the long term we definitely look at companies that are in this space, although some of them tend to be pretty out there.”  Lyfe Kitchen has already branched out from their VC Investmentinitial California operations to open restaurants in Tennessee, Nevada, Illinois, Colorado and three locations in North Texas at Plano Park, Preston Center and West Village.  Their stated mission is to serve low-calorie, locally and sustainably sourced meals.

VCs are not the only group to jump on the investment opportunity.  According to the Harvard Business Review, “Non-VC sources of financing are growing rapidly and giving entrepreneurs many more choices than in the past.”  One such group are the angel investors.  “Angels” affluent individuals making smaller investments during an earlier development stage than VCs.  The angel investors fund more than 16 times as many companies as VCs, and that share is growing.  “In 2001 angels invested more than $22 billion in approximately 65,000 companies, whereas venture capitalists invested about $28 billion in about 3,700 companies.”

The landscape of angel investors is changing as well with new groups like AngelList, Food Angels and the Angel Food Network are sprouting up which connect investors with early-stage food and beverage companies and “ foodpreneurs” as they call them.

For some startups, attracting VCs can be challenging.  Crowdfunding and business incubators help companies in the early stages of development to reach higher levels of consumer interest, pre-sell more products and to test new ideas.  These initial steps are needed to attract the largescale venture capitalist investments that can increase the size and equity of firms to maintain their continuity and profitability.  Some companies are even utilizing crowdfunding as a marketing tool even if they don’t need the capital because of the opportunities it can provide to generate buzz.



Crowdfunding
COLLABORATION AND CROWDFUNDING

There are several options for crowdfunding that have popped up for new and developing businesses or projects.  GoFundMe, Indigogo and Kickstarter are just a few.  

Some of these methods offer a product or small value in exchange for contributions but recently with the passing of the JOBS Act, Title III allows an exchange of equity for individual contributions making the appeal that much greater for small investors looking to cash in on the next big thing.

A new crowdfunding platform and business incubator team that is helping to bridge the gap between VCs and start-ups is Barnraiser and Sonoma Brands.  Elizabeth Crawford of FoodNavigator-USA.com stated the, “an unconventional partnership… will create a new paradigm for fundraising and marketing that promises earlier, more sustained growth potential.”

The Harvard Business Review noted the shift stating, “any innovation in financing start-ups, such as crowdfunding and platforms like AngelList and SecondMarket, has come from outside the VC industry.  The story of venture capital is changing.  Entrepreneurs have more choices for financing their companies, shifting the historical balance of power that has too long tilted too far towards VCs… An emerging group of “VC 2.0” firms are going back to raising small funds and focusing on generating great returns rather than large fees.”  The National Venture Capital Association (NVCA) stated, VC firms fell from 744 to 526 in the last decade, raising under $19 billion in 2011, down from $39 billion in 2001.

According to Entrepreneur.com, Revolution Foods, another company to receive a steady stream of investments from angels, firms and local governments, “now serves more than 200,000 meals a day to children in more than 1,000 schools in 12 states across the U.S. Revolution Foods operates from seven “culinary centers” in 25 metro markets, including Washington D.C. and cities in New Jersey, Colorado, Texas and Louisiana. Roughly 80 percent of the company’s school meals go to low-income students. Revenues hit $70 million in 2012, and Revolution is expanding its retail line to provide greater access to high-quality food. Its retail line is available in approximately 2,000 stores nationwide.” 

Jonathan Schieber noted several other developing companies and investment firms in an article posted on TechCrunch; “Hampton Creek, the vegetarian egg substitute, has raised $23 million from Horizons Ventures, the investment fund of Hong Kong billionaire industrialist tycoon Li Ka- shing.”

According to a Newswire press release, AccelFoods, an early-stage investment platform and United Natural Foods, Inc. (UNFI), a multi-billion dollar natural, organic, and specialty food distributor are partnering up to provide support for supply management and development of startups.  The press release stated, “With this new partnership comes further proof that the future of big food is small food.”

Jordan Gaspar of AccelFoods stated they are “loosely” modeling the structure of their investment platform on the success of models from the tech industry.  “We can do the same for food businesses,”  Gasper said.

One of the ways technology is merging with the food market is through FreshDirect, an online grocery store where customers can order groceries from their smart phone or computer and have it delivered directly to their doorstep.  The company is limited right now to the New Your City metropolitan area but if their success is any indication of where the market is headed, it won’t be long before other local startups seize the opportunity to meet the demand.

Other companies are taking that one step further by offering complete meals in a box that can be shipped, with the recipe and everything their customers need to prepare the meal from scratch.

These new startups and innovations have the potential to disrupt the established industry but they also create new opportunities for companies with vision and the ability to adapt to the changing market.  With a wider landscape of potential financing options, startups and established mid-sized companies alike can create a new model to attract the capital they need and carve out a larger slice of the market.  Unfortunately, for those companies who can’t change, the only thing they carve out may be large helping of humble pie.



INFO GRAPHICS

http://blogs.wsj.com/venturecapital/2016/01/29/the-daily-startup-food-beverage-investment-soars-to-record-in-2015/

SOURCES

http://blogs.wsj.com/venturecapital/2014/07/25/will-investors-still-back-food-startups-as-competition-heats-up/
http://techcrunch.com/2014/06/10/food-startups-are-riding-a-vc-gravy-train/
http://www.foodnavigator-usa.com/Manufacturers/Crowdfunding-platform-incubator-team-to-give-startups-early-leg-up
http://hollywoodindustry.digitalmedianet.com/article/AccelFoods-and-UNFI-Strengthen-Ties-3956191
https://www.freshdirect.com/index.jsp
https://hbr.org/2013/05/six-myths-about-venture-capitalists
http://impossiblefoods.com/
https://en.wikipedia.org/wiki/LYFE_Kitchen
http://angelfoodnet.org/
http://revolutionfoods.com/
http://www.entrepreneur.com/article/238277
 

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Our home office is centrally located just outside Dallas. Over the years we have built a nationwide presence by completing many projects throughout the U.S. We specialize in automation, equipment & conveyor installations, rigging, mezzanine & structural steel fabrication and erection, machine moving & rigging, plant equipment decommissioning, and plant maintenance. Our projects range from half-day preventative maintenance procedures to turnkey assembly/production line installations.

A Plus Industrial Installation
Division of Surpass Inc.
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