Navigating the Ups and Downs of Funding

Where can food and beverage companies find capital? How do they know whether a given investor or partner will help their operation win in the marketplace?

A panel of investors provided thoughts on how to maximize opportunities during an IFT FIRST session on Monday titled, “Finding Funding: Unlocking the Keys to Obtaining Startup Investments.”

A common belief among the panelists is that overall the venture capital market has cooled off for food and beverage this past year for a number of reasons. Dan Ripma, vice president, food and agriculture at S2G Ventures, said generalist venture capital firms that were entering the market during the past six years have been getting out. “When do we feel like capital markets are going to return? I think it's a common question for investors, co-investors, entrepreneurs, anyone looking to raise capital,” he said. “We don't know the answer to that question.”

Opportunities with solid data and rigorous financial analysis provide the most comfort for investors, as do those with potentially strategic exit paths, Ripma said. The plant protein market, for example, has gone through both the “hype” stage and a falloff, and “is now starting to chip away at 2% to 3% growth per year,” he said. “We see a lot of that in markets with hype cycles.” Clean taste, good taste, and price competitiveness have been key to success for companies in that sector, Ripma explained.

S2G also has been spending time on “the intersection between food and healthcare, taking food and nutrition through the healthcare channel,” Ripma added. “That’s an area we’re keenly invested in.”

Fabian Gosselin, senior associate of investments at Cleveland Avenue, explained his company has been taking more of a “hands-on approach” to figuring out where the gaps are in its portfolio and how best to support companies that fill them. Startups have seen a deceleration in interest from the corporate venture strategic model vis-à-vis two or three years ago.

However, he said larger “companies still need to innovate. They can’t do it all by themselves, can’t do it all in house ... Business models have evolved. It’s not just, ‘I’m giving you a check as a startup.’” This more hands-on approach is “a win-win for everyone,” he added.

Many of S2G’s recent efforts have focused on the intersection of climate technology and food technology, Gosselin said, and he sees companies rethinking their supply chains to find sustainability-oriented offsets. “Companies are looking at solutions at the farm level, which didn’t use to happen before,” he said. “We’re starting to see corporates closer to the consumer pay attention to what’s happening at farm level. There’s a farm-to-fork value chain that people need to start paying attention to.”

Christopher Downs, director of the Food and Beverage Accelerator (FaBA)—a $160 million fund housed at the University of Queensland in Brisbane, Australia—has seen similar developments in the sector from his vantage point.

“For a long time, the level of VC investment was there, but low,” he explained. “Then, we saw the big peak that came through ... Now that’s come down again, as well. Why? Exuberant claims around the growth potential of markets. Probably also, from an investor perspective, there’s a need for a more judicious understanding of the return on investment. There’s work to be done on both sides.”

In the area of plant-based meat, Downs has seen a flurry of failures, mergers and acquisitions, and strong companies pivoting in various ways—toward global markets, or toward foodservice, for example. “There’s a lot of innovation and agility trying to find the sweet spot that will keep growth happening,” he said. “It calls for continued innovation around taste and texture.”ft