At FamilyFarmed’s Good Food Innovation and Financing Conference last week, investors from firms including Bluestein & Associates, Hyde Park Angels, Seed 2 Growth (S2G), Spiral Sun Ventures, and SLoFIG (Sustainable Local Food Investment Group) broke down what they look for in an early stage company before signing a check.
Winning investment as an early-stage food startup
“This is a very unique time to be investing in food. There are opportunities everywhere across the supply chain right now,” managing director of S2G and founder of OpenTable, Chuck Templeton said.
The areas with the biggest opportunities also tend to be the riskiest, oftentimes found in declining categories such as packaged baby food, he added.
Templeton highlighted the investment he and his team at S2G made in fresh baby food brand Once Upon a Farm early on as an example of taking advantage of an unmet consumer need.
“Why would you invest in a declining category? And the reality was that products that were there weren’t meeting consumer demand and consumer need.”
Mark Thomann, co-founder of Chicago-based seed capital fund Spiral Sun Ventures (whose investments include TeaSquares, Coco 5, Skinny Souping, and Farmer’s Fridge) said his firm invests in companies that “have figured out a way to mobilize a community” in the face of working with limited marketing budgets.
“It’s very, very challenging to win at retail today, so think outside the box. Think of ways to generate buzz and adventure,” Thomann said.
While it helps to be profitable as a small business in the eyes of potential investors, Thomann added that Spiral Sun Ventures’ interest in TeaSquares was more about investing in its founder, Jordan Buckner.
“We invested $100,000 really in a person. As a great entrepreneur who could really scale his business and something we wanted to be part of,” Thomann added.
For Lauren Rosenthal, a lawyer by trade and co-founder and executive committee member of SLoFIG, she said entrepreneurs should know their core tenants and stick to them.
“When you go to ask an investor for money you need to know who you are, what your story is,” Rosenthal continued.
What food trends are winning investments dollars?
The areas of particular interest to the panel of investors included food safety, functional food and beverages, sustainable and local, and taking a closer look at the intersection of food and technology.
The most investable trend, according to Peter Wilkins, managing director of Hyde Park Angels, is meeting consumers in their home.
“The store is in their house and if you can figure out a way to be in their house and understand the way their behaviors are changing, you can rule the day,” Wilkins explained.
Bluestein & Associates’ investment in Factor 75, a fresh, prepared meal delivery service, was motivated by its focus on the at-home consumer food experience advancing on the idea of meal kit delivery subscriptions.
“Anything you’ve read about an ecommerce business is that customer acquisition is the easy part, but how do you actually keep customers?” managing director of Bluestein & Associates, Andrew Bluestein, said.
Bluestein & Associates saw that consumers wanted an even more convenient option to enjoying meals at home that didn’t involve 45 minutes of prep time with Factor 75's offering of fresh, healthy meals that came already prepared as a strategy to boost retention rates.
Templeton noted an overarching movement of food emulating software in terms of spending the first year as a food startup testing your product and being agile by making updates as you go.
“In my opinion, food is moving towards software through the lessons learned,” Templeton said. “It’s not about doing a $10,000 marketing study of what’s out there; it’s about getting your product out there and testing.
“Your first year should be about learning what the consumer wants and trying to meet those needs in a unique way that others can’t.”