We had the opportunity to participate of the EIT Food Food Venture Summit in Lisbon last month, of the major EU-centric innovation events in the agrifood space and a great thermometer of the status of our evolving ecosystems.
Managing Partner, Mario Augusto M. was a panelist during the ‘scaling food-tech and engaging institutional capital’ debate where he shared his reflections and observations from nearly 20 years in the industry as an institutional and corporate investor.
Here are some of his takeaways from discussions with the various ecosystem players in the foodtech scene attending the event:
Accessing capital for scaling foodtech requires a different set of success metrics and investment vehicles:
The foodtech ecosystem has been mostly built around, by and for VCs as the major source of funds – which only holds true for short-gestation verticals.
Consequently, the measures of success for the whole sector have been set on acquisitions/sales and IPOs. That may well suit VC mandates but does not encourage or, in many cases, allow startups to become successful, profitable, cash generating companies.
In fact, those metrics can and do prevent these emerging companies from reaching their full potential by being prematurely listed or sold too early to meet the liquidity needs of investors.
This mismatch of objectives - and time horizons - severely impairs thefood innovation sector’s ability to bring in long term capital and long-term partners that want to be there until commercial success is reached (and when true impact is realized).
To address that, the food innovation ecosystem needs investment vehicles - that complement traditional seed/VCs funds – that are more aligned with the longer duration and long-term requirements of innovation, founders and corporate partners. This would not only de-risk these startups but would also make the ecosystem more attractive to different capital providers – to support scaling, capacity expansion and infrastructure.
Food innovation is at the epicenter of the energy, health and manufacturing evolutions:
The food innovation space is a structurally favorable, generational growth sector that has implications to almost every other industry. Most sectors are either a derivative, linked to or affected by food systems, which go to the very core of society, economies, jobs and cultural aspects. It is also the triggering point and enabling driver for other areas - from renewable energy and waste management, to human health and animal nutrition, to manufacturing and construction.
The relevance of food systems to economic and social activity is undeniable. It makes up some 12% of global GDP, representing over 40% of all jobs with 2.3billion people depending on it. It also has large requirements, accounting for 70% of world’s freshwater consumption and 50% of habitable land.
And because food systems are so relevant and large, so are the size of the challenges they face and the impact that those challenges have on almost any other industry.
Nearly USD1trillion in food waste is recorded very year, while 1 in 9 people are undernourished. Meanwhile 10 million people die annually due to unhealthy diets and 420,000 perish from food contamination. Lastly, 25-
30% of greenhouse emissions are derived from the sector, with nearly 10% of that due to food loss.
And none of these problems will be solved in any meaningful manner without food innovation, technologies and solutions that can help address those and allow food supply chains to evolve and improve.
Contrary to how the ecosystem is perceived or how many players have promoted it, many compelling food innovations do not require supply chains to be ‘disrupted’ or ‘reinvented’. Instead of seeking novelty for novelty’s sake, the greatest opportunities for innovation and investors lie on understanding the pain points of the value chain players, which are inevitably linked to sustainability concerns, and coming up with solutions to solve those. This is where we as investors see the greatest potential for upsized value creation.
Regardless of the point in the economic cycle, the short, mid and long outlook for foodtech remains bright. The number of innovative startups around the globe is impressive and this is a great time to invest in the sector – as long as you have the right timeline expectations, investment vehicles and support systems.
Granted - the foodtech ecosystem is due for some downsizing as it expanded too fast during the previous upcycle (e.g. 75% of the ecosystem emerged during that time of capital exuberance and disregard for risk). But this is a healthy (and much needed) development for food innovation to set a stronger foundation for future growth.
More importantly, we are returning to a more normalized market where experience and track record through the cycle are the true measures of successful players - be it a founder, investor or ecosystem provider. Those are the types of startups and partners we like to work with, fund and have around us to create successful companies that can stand on their own.