5 Questions for Investor and Innovator Chuck Templeton

For the past decade, as managing partner of venture capital firm S2G Investments, Chuck Templeton has driven sustainable innovation within the food system.

S2G, which has a portfolio of more than 100 companies, takes a systems approach to investing in the food and agriculture, energy, and oceans sectors, and has managed more than $2.5 billion in assets.

In the food sector, S2G’s focus is on companies that deliver healthy, environmentally friendly solutions.

As founder of the online restaurant-reservation service OpenTable, Templeton has firsthand experience with building a business. He was also an early investor and operating chairman of companies such as Grubhub and Venmo.

Templeton recently shared his thoughts on the current state of food and ag-tech investment and innovation, zeroing in on the strategies that entrepreneurs will need to survive in the current environment.

Investors are more selective than they were a couple of years ago, and the food industry is facing regulatory challenges and heightened consumer concerns. Where are the opportunities right now for food system entrepreneurs?

In the last couple of years … a lot of companies put a lot of technology into the space or a lot of capital into the space, which enabled a lot of technologies. Now the question is going to be how do we turn those technologies into actual innovations that the food system can use?

Industry has a hard time absorbing so much at one time, so now a lot of these companies have really scaled down their cost structure and they’ll able to work with industry at a much more relevant pace—at the pace of industry. I think we are at a point where there are a lot of technologies sitting out there that would allow a number of cheaper innovations, healthier innovations. So I do think we’re in the midst of a transition.

What do you and other S2G team members look for when you are evaluating a startup company’s investment potential?

First of all, there’s the impact lens that we look through to make sure that there’s an impact story. It’s got to make goods that are more healthy, more sustainable, and [will] mitigate or adapt to climate change … So we’re thinking along those parallels, those north stars, if you will.

And once we see that, then it’s, what are the unit economics? Can we make money on the unit economics? Then alongside that, it’s, can we scale the unit economics? Can we actually make money at scale? Is the market big enough? Is the margin big enough that it enables that?

Number three, we like to see entrepreneurs that get out and “wow.” If you’re a food entrepreneur, how do you get your food out there … to get people to try it so you can get real-time feedback?

One of the entrepreneurs that I admire so much is Seth Goldman of Honest Tea. Any time you talk to him, he’s got a tea there for you to sample. He wants to get the product in your mouth. That does a couple things. One, it keeps him honest. It has to be a good product, or he’s not going to sit there and want to hand it to you. And then two, it also allows him to get sampling out there. That’s getting out the wow.

And the last [important quality for an entrepreneur] is about understanding that they’re going to fail at some point. There are going to be times when things don’t work out, but [they are] still getting back up and having the fortitude to go try again.

What food and ag-tech innovations with potential for long-term impact are you seeing?

One of the things that we’ve seen is that with a lot of products that came in and wanted to be the full product—a lot of the plant-based meats, a lot of the cell-based meats—I think the next wave that we’re going to see is the blended wave of the 50/50 type of thing where you take the “real product” and then you take the “alternative product” and you mix those two together and you create a solution that’s better from an environmental standpoint or health standpoint, but also leverages the industry that’s already out there and the cost structure. … So, to me, that’s where some of the bigger opportunities are.

Where else do you see strong potential?

[With] CEA (controlled environment agriculture), we’re seeing a lot of that stuff pencil out. There have been some tough circumstances over the last 18 or 24 months, but we’re starting to see some of these technologies get to a point where they are profitable.

We think the conscious consumer [is an important trend]. We’re seeing companies like Once Upon a Farm (organic baby and kid food) and Farmer Focus (humanely raised organic chicken), which offer very good-for-you products, now growing like weeds.

GLP-1s are causing an interest in protein, for sure. If you read any of the reports about GLP-1s and the people who are on them, they talk about people not sitting there all afternoon stressed about, “When am I going to eat my next calories?” Now, as they do decide what they are going to eat, they’re much more thoughtful about it. So that’s where you’re seeing these better choices around protein and other things. Less sugar will continue to reign. I think there are five or six new sugars coming out on the market that have a lower glycemic index; it will be interesting to see if they can grow.

Some investment experts have said that as funding has tightened up, it’s more important than ever for startups to recognize what they can and can’t do. Partnerships are becoming increasingly important, for example. What are your thoughts about that?

That’s another one of the big trends, I think. … Startups just don’t have the cash to build a $30 million or $50 million or $80 million facility. So what they’re doing now, they’re getting much smarter about it. Now what they can do is actually reverse engineer a product so it’s someone else’s fermentation tanks or downstream processing. Or maybe you just spend $2 million or $3 million dollars on a line that you have in someone else’s real estate and now you’re in for $2 million rather than $40 million or $80 million.

We’re seeing more of that type of creativity. It’s working at the pace of industry. Because industry is not going to scale you instantly.

It’s being entrepreneurial. It’s what entrepreneurs do. Give them a constraint, and they will solve around it.ft