Why are food startups drawing so much VC attention?

August 17, 20185 Minute Read

When you hear the words “venture capitalist,” you probably think of a moneyed Silicon Valley investor who funds startup tech companies, like Facebook and WhatsApp, right? You’re not wrong, but there’s more to the story now. VCs are expanding their portfolios beyond tech into the food world.

Bold new food startups, like Hampton Creek and Suja Life, stand ready to disrupt their industries thanks to an infusion of cash and strategic support from the Valley. How did they manage to catch the eye of VCs? Innovation—pure and simple.

Disrupting how we eat

In our gluten-free, environmentally conscious age, it’s no surprise that VCs are interested in health-conscious food startups. But, as CB Insights reports, they’re also particularly attracted to startups that have the potential to disrupt a wide category of foods and industry models, not just a single vertical within the food and beverage space.

Think of it in terms of Uber, which began with ride-hailing but extended its reach into package delivery and food delivery—all while working on a fleet of autonomous cars that could reshape transportation and delivery in the future. VCs want to invest in food startups that have similarly ambitious plans to innovate beyond their initial domain and pioneer new markets altogether.

Hampton Creek: Powering the vegan movement with big data

Hampton Creek is one of the top darlings among food startups. Known for its vegan Just Mayo product and vegan-friendly cookie dough, the company is now valued at over CAD$1.3 billion—which makes it an enviable unicorn in Silicon Valley terms. Hampton Creek bills itself as a food technology company specializing in the development of plant-based egg ingredients for the purpose of creating environmental sustainability and generating cost savings throughout the supply chain. It also leverages big data analytics in its research and is working on a large data set of plant-derived proteins, which likely caught the attention of tech-focused Silicon Valley investors.

The San Francisco-based food startup has designs beyond mayo and cookie dough. According to Quartz, Hampton Creek recently revealed that it has been secretly developing the technology to create lab-made meat and seafood, also known as “clean meat.” The company claims it’s two years ahead of the competition in bringing these products to market, expecting to debut its animal-free product line by the end of 2018. This audacious innovation could profoundly impact industrial agriculture, potentially alleviating animal suffering and reducing greenhouse gas emissions.

Hampton Creek’s new venture goes far beyond the original vegan mayo product with which the startup began, aiming to create a new market that doesn’t yet exist—and this is likely why VCs, like all savvy entrepreneurs, want to capitalize on that lucrative opportunity before anyone else.

Suja Life: Bringing new life to juice

Organic juice is another blazing hot market right now, and Suja Life has stormed into it with astonishing momentum. Forbes listed this San Diego-based startup as second on its 2015 list of most promising companies, and Coca-Cola counts itself as a key investor along with Goldman Sachs. Celebrities like Leonardo DiCaprio, Sofia Vergara, and Jared Leto also have stakes in the company. Suja Life is the most well-funded startup in California as of 2017—a staggering achievement when you consider the fact that the Golden State is home to Silicon Valley itself.

Suja’s cofounders Annie Lawless and Eric Ethans are still quite young, but they wisely brought in a CEO who knows the ropes—and can calm the nerves of VCs looking for an experienced hand at the wheel: Jeff Church, a private equity veteran. Church came across the high-pressure processing (HPP) method that made it possible for Suja Life to sell their juices, which would only have a shelf life of three to four days via major distributors otherwise. After that, business took off even faster.

While Suja Life’s drinks are already phenomenally popular and selling briskly at places like Whole Foods and Target, the beverage startup probably won’t stop with its existing line of organic juices, smoothies, pressed probiotic waters, and drinking vinegars. Suja Life is considering entering the rapidly growing kombucha market if it can successfully create a nonalcoholic kombucha product that meets its standards. Chances are, that’s what VCs find most appealing about Suja: its keen entrepreneurial sensibility paired with careful, seasoned strategy.

What can we learn from these food startups?

What can we learn about innovation from the massive success of these once-scrappy food and beverage startups? First, it pays to be visionary. As Hampton Creek demonstrated, they’re clearly not content to sit on their laurels and bask in the revenue from their existing line of vegan-friendly, plant-based mayo and cookie dough. They’re aggressively pursuing the technological breakthroughs that will create an entirely new market of clean meats well before the competition.

A dash of wisdom helps, too, as Suja Life has shown. Scores of startups are born every day, but few succeed over the long term without pivoting or making major adjustments to their business model. The startups that make it have a pragmatic view of their strengths and weaknesses, and they strategically seek out resources that address the weaknesses (like an experienced CEO that can help them scale up), while building on their strengths (youth and hipness).

VCs are shrewd, and they don’t choose to invest in just any company. Coming from the tech space, they know that bold ambition is as important as tech chops. But the knack for identifying and executing high-level business solutions is also crucial. These two startups made the cut, because they have these qualities in abundance. It’ll be exciting to see what they do next as the market continues to bloom.

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