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How Big Ag Can Undermine Progressive Food Start Ups

If you had asked me fifteen years ago whether I would be running my own business, I probably would have shrugged it off. Even when I started my first company in 2005—an environmental consulting firm—I was a reluctant entrepreneur.  And in 2009, when I co-founded my second company, which eventually became venture-backed (meaning, we took money from investors to grow), that was even more surreal. When you go out for investment, you begin to bond quickly with the seemingly small group of people who had “been there, done that” or are currently doing it. You find yourself becoming far more singularly focused and conversations seem to shift to the latest investor gossip or to the day-to-day triumphs and challenges of running a business.

By the time 2013 rolled around, I was looking for a little of my life back and a new adventure. An opportunity to work in the world of food fell into my lap, and I snapped it up. Moving from sustainable fashion supply chains, which was the focus of my last company, to hyper-local food seemed to be an interesting move. Plus, I was looking forward to being more of a backseat driver for a spell, getting a chance to observe what was happening around me, versus constantly having my hands on the wheel. I’m grateful for those opportunities because it’s allowed me to get a fuller perspective of where companies have tripped up along the way.

Food investment has recently seen a surge of interest. A few months back I was having lunch with a friend of mine who runs a social venture challenge for young adults. He shared that of all his ventures (and he has hundreds of hopefuls that come through his doors), it’s the food businesses that have really taken off. His reasons for this were few but telling. “If you’re making a food product,” he shared while sipping his wine, “it can be produced and put on the market quickly—far more quickly than say a gadget, pharmaceutical, or even a technology product.” Secondly”, he pointed out, “it’s where the interest is.”

The last several years have been a particularly bountiful time for food start-ups seeking investment. In 2014, venture capitalists pumped in $2.36 billion to food and agriculture businesses—a number that doubled in 2015 to $4.6 billion. That number has seemed to cool in 2016. The latest reports from AgFunder recorded only $1.75 billion of funding in the first half of the year. That means that there was a 20 percent decline. However, there is a silver lining. The number investors who took interest in the space grew as well as the number of deals. So though there’s less dough (food pun intended), there’s more people who’ve taken interest in the sector as a whole.

Many of these startups, some of whom I’ve worked with or have met, have an interest in disrupting Big Ag. But the lesser discussed topic is how much those big food companies—from General Mills to Kellogg to Campbell Soup, are actually investing in those startups. This is particularly smart on the part of the big guys. They can opt for a minority stake in a growing company and keep close tabs on it through its growth—shaping its trajectory along the way and potentially acquiring it in the end. At The Future of Food panel I moderated with Be Social Change this past August, Andrew Ive, Managing Director of Food-X, a food innovation accelerator, shared that the big food companies know that people want something different, but they’re too big and too damn rigid to change. That leaves them antiquated and vulnerable. One of their solutions in order to “innovate” is to invest.

But if you take investment from anyone—big food or not—you have to expect some meddling, and this can steer young companies into directions they’d prefer not to head. Many new startups are founded on strong cultural (and sometimes idealistic) principles, which in turn attract progressive and talented young people. Rhys Powell, The Founder of Red Rabbit, a company whose mission is to provide all children with access to nutritious, made-from-scratch meals in school, summarized it best at the Kind Summit for Entrepreneurs this past November: “If you have a job that never turns off, then you want to be doing something that you believe in.” And when it comes to startups, it’s more often than not a job that never turns off. What can stress a young company is when executives or shareholders demand a sharp shift in policy, a change in management, and inevitably a change in culture. If a hardline shift is instituted, it’s challenging to keep the trust of employees and retain the talent who were willing to put in extra effort because they believed in the company—and the company, in turn, believed in them.

A word that often goes hand-in-hand with investment is “scale”. You hear it mouthed in every possible sentence, “Yes, but how are you going to scale?” or “You’re thinking at too small of a scale,” or “How quickly do you think you can scale this up?” Investors simply want to know that if they’re putting money into your growth, that they’ll be getting far more in return, and in a timeframe that’s amenable to them.

Scale, however, particularly in the world of food, can take time. Much of the billions of dollars that were shuttled into food businesses in the past three years, were in food-tech, like Agrilyst—an intelligence platform for indoor farms; and food delivery companies like Blue Apron, Maple, Good Eggs, and more. But many investors who were new to the world of food investment put far too much emphasis on the technology components. Yes, the technology needs to work, but if you’re in the business of food preparation, food making, or food delivery, you’re more in the business of “food” than tech. That means you have to hire talented people who understand logistics, food operations, and in many cases, consumer tastes, and customer service.   

One of the greatest benefits of being in the world of food, however, is that if you have a good (and tasty) product, you can have a lot of repeat customers. After all, people do need to eat, and if they’re like most people, they’re eating three meals a day. This is important—and before one should even consider expansion, expansion, expansion, they may want to consider retention. The better the retention, the less you have to market and sell your product, which means more time making people happy (and hopefully healthier) and less time shoveling money out the door on marketing to gain / game new customers.

This of course, means scaling can be a slower process, and that’s okay—as long as the investors and founders are on the same page from the get-go. Founders need to be aboveboard with their potential investors, sharing the elements of their company they feel are non-negotiable, so the right partnership is established. After all, scale is not a bad word. Nearly all good food businesses I’ve met want to do it. “At my company,” shared Powell, “Our mission is our business. More meals to schools is good. The more we scale, the better we can do for our community. But building a business is not easy. You have pressures coming in all sorts of directions. But as long as I’m at the helm of the company,” he assured. “I will always balance what we do with the need for profit. We will not compromise the quality of our food. That is non-negotiable.”

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