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Daily news and analysis about the food tech revolution

food tech investments

Reheated: Q1 2017 Shows Food & Beverage Investment Is Hot Once Again

Food and beverage are hot again.

After a sluggish 2016, a strong first quarter of 2017 suggests investment in the food and beverage sector could be set for a comeback on an annualized basis according to CB Insights.  This would be a reversal from the past couple years, which has seen food and beverage sector investment decelerate since hitting a peak of $787 million in the final quarter of 2014.

Food and beverage investment. Source: CB Insights

Not only did last quarter reverse the trend in total annual investment, but also saw an increase in the average funding amount, which has also been on the decline for the past several years, falling from an average of $7.6 million per deal in 2014 to $2.7 million in 2016.  The average deal value in Q1 2017 was $6.7 million, more than double the 2016 average.

But Q1 2017 was an extraordinary quarter. A single private equity deal by Food Union, a Latvia-based conglomerate of food and beverage brands, accounted for nearly half ($225 million) of the total investment for the quarter.  Backing this deal out of the quarter’s total results in a figure much more on par with past quarters ($289M Q1 2017, $265M Q4 2016, $322M Q3 2016). It’s tough to say whether we’re seeing a true reversal in the decline in investment or just an anomaly resulting from a single high value deal.

Who’s backing food and beverage deals?

While deal value has been on the decline the last few years, the volume of deals has risen steadily since 2012.  With the growing activity in food and beverage, several new investment firms have emerged, like CAVU Ventures, New Crop Capital, PowerPlant Ventures and S2G Ventures, that focus solely on this space.

And these funds are growing fast.  AccelFoods, one of the early leaders focused on the food and beverage sector, nearly doubled the value of its fund recently, growing from a $20 million fund to a $35 million fund.

Large corporations in this space are also getting the fray, creating incubator and funding branches to foster growth in innovative start-ups.  Company-affiliated funds include Kelloggs’ 1894 Capital, General Mill’s 301 Inc., and Campbell’s Soup’s Acre Venture Partners.

What are they investing in?

Since 2013 spices and condiments as a product category have attracted the most funding and acquisition deals.  Notable in this sector was the acquisition of Justin’s by Hormel Foods in 2016 for $286 million after raising $48 million.

From a funding perspective, beverages account for half of the top ten most well-funded start-ups since 2013. Cold-pressed juice start-up Suja takes the top spot with $196 million disclosed funding from investors including Coca-Cola, Boulder Brands Investment Group, and Leonardo DiCaprio.

Looking forward, venture capital is seeking out market disruptors for investment.  One of the leading categories currently attracting deals is plant-based protein, which has the potential to significantly alter the beef and dairy industry.  CB Insights has earmarked plant-based protein as a significant investment category based on the high level of activity in this space amongst what they term “smart money” investors, those with a strong past performance and exit history.  Examples of alternative protein are varied and include molecularly engineered meatless hamburgers from Impossible Foods ($183 million raise from Google Ventures, Khosla Ventures, and Bill Gates), dairy-free milk made from peas from Ripple ($43 million raise), and cricket-based snack bars from Exo ($5.3 million raise).

While it’s unlikely that bug based protein is going to overtake the livestock industry anytime soon, the fact that these types of companies are getting funding demonstrates the broad thinking and growth in deal activity in food and beverage.  As early indicators show, 2017 is shaping up to be a very interesting year in the investment community, particularly for food and beverage companies.

VCs and Big Food Sink Money into Future of Food Startups

A clear sign of maturation for the startup food-tech sector is reflected by the entry of new venture capital from tradition VC firms as well as big names in the food industry. Along with an array of global venture capitalists, Campbell’s, Tyson Foods and General Mills have established multimillion-dollar funds to support new companies in a myriad array of future of food entrepreneurs.

Two areas within the food technology sector that are the focus for investment are meal delivery and grocery delivery. According to VC tracker, CB Insights, in its November 2016 report, the market shifted in Q3 2016 when 30 deals related to meal delivery surpassed the 27 in the grocery delivery sector. The individual investments for the meal delivery marketplace appear to be smaller than grocery delivery, as the total for grocery delivery was higher at $406 million, compared with $376 million for meal delivery. In addition, one deal for a meal-delivery startup, London-based Deliveroo, was for $275 million –accounting for 70% of that area’s Q3 dollars.

Others food-tech firms receiving large Q3 VC investments were Fresh Direct with $189 million and meal service Home Chef with $40 million.

Between the meal delivery and grocery delivery space lives another emerging space receiving more than its share of funding. Companies such as Blue Apron, which offer meal-kit subscriptions, sell pre-packaged groceries that align to specific step-by-step recipes. Satisfying the grocery and meal delivery crowds, meal kits offer the convenience of skipping the supermarket combined with the joy of simple cooking. Blue Apron has received more than $500 million in VC funding today, including money from Bessemer and First Round Capital. The company is reported to have more than a $1 billion valuation.

Not to be left behind, major food brands have set up venture funds which serve the dual purpose of protection against future market trends as well as smart capital management. Tyson Foods launched Tyson New Ventures in December 2016 to expand beyond its 5% interest in plant-based protein startup Beyond Meat. The Tyson fund will be managed by Mary Kay James, a former managing partner in DuPont Ventures. Her previous interest was in biotech and specialty food products. In the case of Tyson, a leading producer of poultry and meat, investing in new forms of proteins protects, and simultaneously positions, the company against major consumer shifts in eating habits.

In February 2016, New Jersey-based Campbell’s Soup Company launched Acre Venture Partners with initial fund totaling $125 million. To date Acre has invested in food safety startup, Sample6; agricultural data provider, Farmers Business Network; urban farming’s Back to the Roots and home juicing manufacturer Juicero. As with other food companies investing in startups, this lineup provides Campbell’s access to either distribution opportunities, new channels or expanded uses for its existing products.

In October 2105, General Mills launched 301 Inc, a business development and funding arm focused on early-stage food companies. To date, 301 Inc has invested in Beyond Meat, Kite Hill (vegan non-dairy products), and Tio Gazpacho, a bottled-soup manufacturer.

Food Tech Investment Report: Fall 2016

Lighter fare with a hint of international flavor.

No, that’s not what’s on the menu today, but instead a summary of the latest funding, M&A and partnership report from Rosenheim Partners, a strategic and financial consulting firm focused on the food-related tech and media sectors. Led by consultant Brita Rosenheim (also a Smart Kitchen Summit 2016 speaker), the roundup looks at the sector overall and dives deep into a variety of deals.

We combed the last roundup in the latest report, published at FoodTech Connect, and found interesting pieces to highlight. As Rosenheim notes, the deals for the past few months have been pretty light, with a decent amount of activity abroad. Meal kit delivery and grocery delivery continue to pop up in the U.S. food tech sector, including recent funding announcements:

  • Home Chef, a Chicago-based meal kit delivery startup picks up $40 million in a Series B round. The investment brings Home Chef’s total to $50 million in 2016 alone, and the startup argues their big differentiator is its focus on home-cooking, friendly menu items (think: stuff your kids might actually eat) and the ability to customize your box from a deeper variety. The startup is growing rapidly, with 600 employees and a reported 1.5 million meal boxes delivered each month.
  • Fresh Direct, amidst rumors of an IPO or sale, announced an investment of $189 million to add to its manufacturing capabilities and move into new geographies. The company is currently focused on the east coast (NY, NJ, PA, CT) but has been cash positive since 2010 and runs FoodKick, its on-demand service that brings food in an hour to customers. Operating since 2002, the company has fought hard to stay alive alongside big competitors like AmazonFresh and more recently, the rise of meal kit delivery startups.
  • NYC home meal delivery startup Umi Kitchen raised its seed round, bringing in $1.4 million to grow its mobile app that connects home chefs in Brooklyn and Manhattan with hungry customers. The idea of making prepared food delivery easier and more ubiquitous isn’t new, but Umi’s differentiator comes in the kind of food they’re offering – home cooking, straight from someone’s actual home. Umi’s also not trying to reinvent or invest in a delivery infrastructure – they’re taking advantage of Postmates presence in NYC to bring meals to their customers.
  • We recently wrote a piece about Brava, the stealth smart kitchen startup led by former media execs at Disney and the former hardware lead at smart home company August. What exactly they’re working on remains a bit of a mystery, but it will be a smart kitchen appliance – maybe even a smart oven. They’ve just picked up $12 million A round investment led by True Ventures and plan to launch their product sometime in 2017.
  • The last interesting one comes in the form of a partnership rather than an investment – one that has implications not just for consumers but food brands as well. Hershey’s has announced its intention to partner with Chef’d, an online meal kit store, to create branded dessert meal kits. The idea of a meal kit with chocolate dessert recipes and ingredients sounds pretty yummy, but what Chef’d is doing is even more intriguing. Partnering with content companies like Allrecipes and Good Housekeeping and now food brands like Hershey’s, Chef’d is not just delivering meal kits. They’re taking recipes from familiar consumer brands, recipes that home cooks are likely to be preparing in their homes, and bringing them to life using the convenient form factor of a meal kit. And for brands, Chef’d meal kits are in many ways branded content – a less sales-y way to build awareness and cultivate loyalty.

While the food tech investment roundups continue to demonstrate the popularity of meal kits and food delivery, we’re starting to see the connected kitchen emerge regularly as well. Startups like June and Juicero have picked up sizable investments in within the past few years and we believe 2017 is where we’ll start to see even more break throughs in the space.