Malta, May 8th, 2020 – Five Thoughts in Isolation on Why Now is the Time to Invest in FoodTech, By Elliot Hool
Sweeping through the industrial world like an Australian bushfire, the Covid-19 virus has devastated communities in its wake. Stock markets have crumbled like Arctic glaciers in July. Millions are out of work, more than half the world sits at home.
The Coronavirus pandemic is the single most disruptive global event since World War Two. The world we thought we knew before the millennium turned twenty, is set to look and behave very differently as it heads into a new decade.
As investors seek diversity in order to weather the storms ahead, now, more than ever, FoodTech stands out for its value, its strength, its opportunities and the benefits it brings.
Shaping up to Fight the Virus
With science reportedly as much as 18 months away from a vaccine, the world’s focus is set to shift toward surviving the virus by being in the strongest metabolic state. According to leading endocrinologist and Director of the Glandt Center for Diabetes Care, Dr Mariela Glandt, the Coronavirus survival rate will have a lot to do with what and how we eat. Over 70% of US citizens suffer from some form of insulin resistance that is adversely affecting the body’s ability to fight the infection. The Metabolic Syndrome, where, due to insulin resistance, the body simply can’t handle its nutrition, causing crucially important white cells to lose their potency, leaves the body predisposed to infection and illness and exposed to the deadly Coronavirus.
Whereas in Europe and Asia, the Coronavirus mortality rate has in general affected an elderly generation, Dr Glandt expects a younger cohort to be affected in the US, where so many suffer from Metabolic Syndrome.
“Put plainly, we have become sick through the food we eat.” says the former Harvard graduate. “Refined sugar, refined oils, fat, preservatives have made us predisposed to strokes, cancer and cardiovascular diseases and have brought about so many of the life-threatening underlying diseases that are now making Coronavirus patients so critically ill.”
Dr Glandt is a founder of EatSane, a Tel Aviv-based company that specializes in low carb alternatives that reduce the risk of Metabolic Syndrome. She believes the Coronavirus is a wakeup call for the world’s population to reset and not just treat the diabetes that is behind so many underlying health issues, but rather treat its root causes: “Going cold turkey on carbs is hard to sustain, but reducing your carb intake gradually is the effective way for people to reduce their levels of insulin and susceptibility to Metabolic Syndrome.”
More and more FoodTech companies are exploring how we can still enjoy our food, but still stay healthy to keep enjoying our food for years to come. As the effects of the worst pandemic to hit the modern world become clear, sugar-reducing innovations, such as low carb bread and low carb chocolate are solutions that the world badly needs as it looks to face up to the Coronavirus in the strongest metabolic state of health.
Small Companies with Big Data: Size Matters
Coronavirus and its aftermath will have a lasting effect on food consumption and the industry that supports it. Many, including the biggest brands, will need to innovate at a time when funds are now being temporarily diverted away from R&D toward other more urgent challenges. The question is which conglomerates, companies and startups will be best placed to take advantage of the shifting landscape.
PeakBridge Venture Partner and Senior Industry Executive Dr Ellen De Brabander, speaking from lockdown in the Netherlands, believes the need to use leveraged data in the food sector will only be accelerated.
“Lately we are seeing changing consumer preferences. It’s now become about what consumers want and what they need. For consumers, ‘want’ is about flavors, foods from faraway locations and ‘needs’ is what my body needs in terms of nutrition, protein and health.” she notes. “It all results in greater customization and complexity.”
According to Big Data Food Insights company, Tastewise, there’s already been a significant shift in consumer behavior. Tastewise, which monitors millions of social actions around food shows stress relief and medicinal benefits have jumped in March 2020.
According to Tastewise, interest in “immune system” is up by 66% since February and interest in ‘stress relief’ as a functional benefit for food is up 12% this year and is likely to increase over the coming months. For example, rosemary, commonly perceived to reduce stress, is up 114% in conversations about stress relief, over the last year.
Moving forward, De Brabander can see an increased role for data not just in insights, but also in food innovation. “Customized products, with a more niche audience, will be produced at a smaller scale and thus the innovation process must become more resourceful and time efficient. Data that improves efficiency, such as predicting shelf life will save time, save costs and prove invaluable.”
De Brabander also highlights the growing need for traceability. It has become clear that both authorities as well as consumers will demand enhanced traceability of products and ingredients which again will be enabled by digital technologies like block chain.
The shifting sands brought about by Coronavirus is an opportunity for many on the FoodTech chain. “No one can predict whether certain trends that have started now, like having breakfast at home will be gone in a year,” argues de Brabander, again pointing out the advantages that the agile players will have in the industry. “Somehow, you’ll need to be able to react quickly, you can’t just hope that you’ve chosen the right scenarios. That ability to quickly react to changing situations that will be more important than ever.”
A Stormy Investment Climate: Similarities with 2008
So we’ve established that FoodTech is a good investment, but is now the right time? The current apocalyptic investment climate reminds veteran entrepreneur Rick Borenstein of the 2008 crash and its aftermath. “The most obvious similarity is the difficult fund-raising environment venture funded companies are facing. The question every CEO must ask today is “when the music stops, will I still have interested investors?” Capital conservation was the name of the game in 2008 and is the same today. I started a seed fund in March 2009 and was immediately impressed by what a target rich environment it was at that time. Every company, no matter how exciting, needed money. I turned those circumstances to my advantage. My money, little as it was at the time, was welcomed into the best deals.” 10 years later, his fund, Transmedia, is showing an impressive 11 times return on investment, 4-5 times better than most of the industry. “It wasn’t due to how smart I was,” says Borenstein, it was about seizing the opportunity and good timing.”
Borenstein believes that although the economic impact of the virus could last some time, some sectors are fundamentally sound and will bounce back relatively quickly. He suspects the Coronavirus will lead people to be more aware of the potentially positive roles their investments are playing in a world set to undergo a restart: “I expect investors to take more of an interest in the social impact of what they are investing in, this could lead to a big boost for the FoodTech and Agtech sectors.”
Figure A displays how Serie C investments spiked in the 5 years following the 2000 and 2009 crashes. Figure B shows VC exit count and value post 2009.
Source: Pitchbook, Forbes
Glorious Food: Not Going Anywhere
Food is one of the least cyclical industries. Unlike the heavily hit tourism and entertainment sectors, in times of depressions, downturns and even pandemics, people still need to put food on the table – and lots of it. If recent events have shown us anything, it’s a reminder of how powerful the food industry is and what a strong constant it is in our lives.
PepsiCo announced last month that they were hiring 6000 new workers to help cope with the overwhelming demand brought on by this crisis. They are not by any means alone: Papa John’s, Mondelēz, Domino’s, Kellogg’s and other food industry giants all announced the creation of thousands of new jobs as they struggle to feed an anxious, hungry, hoarding customer base. General Mills recently said it has raised its 2020 forecast as customers stockpile its cereals and snack bars. Not only has demand for food not subsided it has multiplied.
The Food and Beverage sector has significantly outperformed the S&P 500 since mid-February (see Figure C), as it did in the US and Europe in the months following the 2008 crisis (see Figure D).
Note: Figure D Index based on the weighted average share price for following F&B companies: Nestle, PepsiCo, Coca-Cola, Danone, Tyson Food, Kellogg’s. Source: Yahoo finance
The Great Reboot. A Defining Moment
The Coronavirus has stopped the world in its tracks in a way other existential threats could only have dreamed off. However the effects of this pandemic won’t just stop with improved hygiene habits and better video chat room etiquette, this modern-day plague is a wake-up call for the earth and its inhabitants.
As humans cower in the face of the nature they believed they were insulated against, thoughts are beginning to drift toward a reboot, to creating a greener, cleaner, fairer earth beyond our bubbles. This is a challenge that the FoodTech industry can lead.
Senior Fellow, Agriculture and Environmental Sciences at Davis University and Former Chief Agricultural Officer at Mars Inc., Professor Howard-Yana Shapiro is convinced that the current crisis is of our own making. “How many times can you tear the fabric of ecology and things won’t escape? Take Ebola, the virus had been around 80 years, people knew about it, but we tore enough of the fabric of the ecology in a certain region that it was allowed to escape. What we’re seeing now with Coronavirus is the same. We’ve upset the ecology to a point that it has no ability to recover. We’ve lost our buffers.”
For all that, Shapiro believes we are living in unique and opportune times for food and agriculture: “For the first time in history we have a unified view on food and agriculture: We now understand what food is made of at a molecular level, and what role it plays in our body and why each particular food ingredient is important to our health, well-being or growth. This awareness isn’t happening in isolation, but simultaneously across the field. We are starting to understand how to do things.”
Shapiro notes that since the markets crashed, all he hears about on his business news channel is the outstanding value of Apple and Google stock, but he thinks the real value lies elsewhere: Companies that understand what food really is and have the scientific tools to do something special. “What if you gave Machine Learning the rules for food, what type of tomato would it come up with?”, he speculates excitedly. “Fast pivoting food businesses that understand science will have the opportunity to change the paradigm of what food is all about over the coming decade.
- These are difficult and extraordinary times. As thoughts turn to the day after, we should consider future investments in terms of the following:
- Their relevance to the issues and ‘pains’ we now face
- The security of the industry
- Their groundbreaking innovation
- The positive role they will play in reshaping our world
- Their value in the market
FoodTech in 2020 ticks many, if not all, of these boxes. FoodTech investment is an opportunity for significant returns and a chance to play a positive part in a world that is shifting on its axis. It’s an opportunity to look beyond our current isolation toward shaping a better future for us and our children.
Rick Borenstein is an Investment Committee Member at PeakBridge Partners Ltd.
Howard-Yana Shapiro and Ellen de Brabander are Venture Partners at PeakBridge Partners Ltd.
Tastewise is a portfolio company at PeakBridge Ventures SICAV plc.
Led By Erich Sieber and Nadav Berger, PeakBridge Partners Ltd is an Alternative Investment Fund Manager and Investment Services Firm specializing in high-impact FoodTech.
Elliot Hool is the former Chief Marketing Officer at SimpleOrder, a restaurant inventory management platform purchased by Upserve in 2018. He is currently the co-founder of 2Scots, a digital marketing agency specializing in taking startups to market.