3 Ways the Venture Ecosystem Has Failed the Food System… And How We Can Fix It

written by  Allison R. Stewart 

It is an exciting time to be involved in the food industry and the good food movement. In other words, it’s an exciting time to eat. Farmers’ markets are at a record high, and more Americans than ever are demanding transparent labeling on their food. We are eating more varieties of foods and have even more options in how we receive that food– be it grocery, online, meal delivery, meal kit, or meal replacement.

Along with all this consumer demand and positive growth came venture capital interest. 2015 was a record year for food and ag investments. Food-X, where I work, invested in 35 food and agtech companies in the past 18 months, and we are not the only ones. Finally, consensus has been met for the need for major disruption in the food system. Despite all this excitement, 2016 has seen a few well-loved and well-funded food startups close up shop, in tandem with a decline in venture investments into the food and agriculture industries. These companies ranged from farmers’ markets to meal delivery. These ideas were BIG, and these startups raised big money. In fact, just four  of the startups that closed or scaled back in 2016 had previously raised $68 million in total. Unfortunately, clever thinking and successful fundraising are not always enough to ensure success for most startups.

As a former good food evangelist now working at a food tech accelerator, I am applying what I’ve learned from my years of experience in advocacy and customer service to the food startup ecosystem. Some have questioned whether venture capital is even good for “real food.” Ultimately, I believe this is not the case. Looking at these food startup closures, we can start to learn even more about how food startups and VC should join forces and continue to push the line of innovation in the food system together.

Here are some lessons learned about how VC has failed the food system:

  1. Cool ideas over necessary businesses.

Many of these food startups were offering products for higher-income urban Americans. Cool ideas can go quite far in many industries. Consumer tech companies are full of very cool ideas that have a great brand and concept, and they execute well to deliver. Unfortunately, the food industry is a bit different.

Although trendy foods exist (hello, avocado toast!), food in of itself is not a trend. While some of the best new food companies apply to niche food fads, they are longer lasting because they offer a good product that endures the ebbs and flows of consumer trends. Before endorsing cool ideas, there are some larger systemic issues that must be considered. The beauty of the food industry is that it has wide appeal. Offering a product that appeals to a wide array of customers, rather than laser-focusing on the wealthy is a great food business strategy.

Starting a food business is a fine balance between pushing boundaries and working with what is already acceptable and familiar. Similarly, it balances health with an emotional connection to each other and ourselves. Food startups can start off as novel ideas, but they should also have the ability to become an important facet of feeding our society in the future. Entrepreneurs and investors alike should ask: will this be an integral product or service moving forward? Will this product shape the way we will eat in the future?

2. Food is not proven.

Investors love to iterate this, as there hasn’t yet been a prolific exit in the foodtech realm. Investors expect return on their investment, and with the case of the four startup closures, yes, they definitely did not generate the 10x minimum investors aim for. Food startup funding is expected to drop 24% this year. Perhaps it’s due in part to the food startup ecosystem being so young; food and ag investments only started to pick up in 2014, and there has only been a handful of success stories. Food companies that have recently made the switch to public are uncommon– this year, most notably, US Foods released their IPO, but they did not come from meager roots like other startups aspiring for greatness.

Because food is rooted in such an ingrained part of everyday life, new food technologies must uproot daily habits. What makes it even harder for startups emerging in the food space is they have to tackle these habits and emotions, alongside complex supply chain logistics. But with huge systemic problems comes huge opportunity. The global population is rising, tastes and preferences are changing toward new flavors and more protein, and consumers are becoming more educated about health and wellness. Entire new categories (for example, cellular agriculture) are being formed within the food industry. Moving forward, it is inevitable that food will be a good investment.

  1. Tech and food are not the same.

Everyone eats, thus making food one of the most important and ill-represented industries. Even though everyone eats, not everyone is an expert. To build better food systems, let’s have our farmers, supply chain coordinators, and those BOH (back of house) determine or at least have some say in how we we shape a new food system.

Two of my biggest concerns with food startups are logistics and food safety. Both of these take a lot of finagling and finesse to ensure customers receive products that are edible and clean (of dirt, but also of handlers’ germs!). It is even more important as foodies move towards meal kits and expedited delivery services with new operational capacities that we make sure the supply chain is solid. Traditional tech companies are also dealing with scaling and a sales funnel, but they do not have to deal with expiration dates and local sourcing.


Cohort 3 Visiting Stone Barns Center

Now, how can we fix it?

  1. Engage with your customer.

To sound like a broken record, everyone eats. So that means your laser-targeted audience may not be so targeted. Maybe consider targeting an underserved population, because everyone eats and everyone wants good food. Food is emotional, and every eater will have a different response on why they will or will not buy your product. You need to know your customers personally to better understand the nuances of food purchasing.  

  1. Be patient.

Results do not come as quickly, but they will come. Recent trends are further proving the merging of the good food movement and the food industry, and I believe this will result positively with stakeholders partnering together to make lasting changes.

  1. Keep investing in small companies with big, exciting ideas.

Unless we keep striving to understand what the big problems are and explore possible solutions, we will never see the systemic changes most eaters are longing for unfold.  We need to keep investing to ensure changes occur. At Food-X, we look forward to meeting startups that are dealing with the big questions, and are eager to engage with the future of food.  

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