Start-up investments in support of innovation and industry growth

18 Apr 2019 --- Growth and innovation are pivotal for industry and an efficient way to achieve both is to invest in promising start-up companies. Small players can bring innovative ideas and a fresh view of the market that established companies value. The dynamic food business arena is ever-changing and keeping up with consumer demands requires staying on top of trends that smaller players may find easier to identify. Key industry player DSM offers its perspective on start-ups and the avenues they open up for industry growth.

“Venturing clearly is a trend; it is seen as an opportunity to speed up innovation – among both start-ups and investors,” Rob Beudeker, Investment Director, DSM Venturing, tells NutritionInsight.

Small players are shaking up the food and beverage industry by taking on the classic FMCG giants in an increasingly high-tech arena. The role of Silicon Valley start-ups in alternative proteins breakthroughs has garnered ample media attention. But the growing significance of small innovators, in general, is a global phenomenon. Their role as thought leaders has driven multinational companies and legacy brands to invest in them – and learn from them. Many of the “big boys” are venturing into the funding space or setting up investment competitions. Kombucha, cellular agriculture, clean meat and insect proteins are just some of the on-trend platforms in this golden age of creativity.

A 2018 Innova Market Insights trends survey found that two in five US and UK consumers prefer small brands “because they are more dedicated to their products and have a personal story.” This is completely on trend of course, as 20 percent growth has been reported in food & beverage launches with a social-ethical claim (Global, 2017 vs. 2016).

Funding programs that support start-ups
For venture companies, it is important to identify start-ups that will offer the best return-on-investment and bring on industry-changing innovation. Next to traditional methods such as networking, start-up competitions are increasingly proving a good way to “weed out the weak ones. With innovation and, of course, profit in mind, many industry-leading companies have launched funding programs to support start-up innovation. The race is intensifying for start-up businesses that are trying to secure investments, yet the playing field is now broad and promising.

The SEEDS of CHANGE Accelerator program, named after the Mars Food organic seed and food brand, is selecting six US and four Australian participants in the following areas: start-up food brands, innovative experiential offerings, new business models and emerging technology. The goal is to help early-stage food-focused companies fast-track growth and live their purpose to build a healthier and more sustainable future. The search will focus on companies that share the Mars Food values of world flavors, plant-based eating, easy-meal solutions, responsible food and creating with care. The finalists remain to be revealed.

PepsiCo's Nutrition Greenhouse mentorsPepsiCo last year launched the Nutrition Greenhouse accelerator program in North America, an innovation initiative designed to discover and support emerging brands in the food and beverage sector. The North American program followed the launch of PepsiCo’s Nutrition Greenhouse in Europe, now in its second year. In 2017, eight start-ups in the European program delivered an estimated combined sales growth of over €10 million – a fourfold increase throughout the duration of the 6-month program.

FrieslandCampina Ingredients (FCI) runs the Milkubator program, which seeks to stimulate innovation on the dairy supply front. The Milkubator uses lean start-up tactics and tools and facilitates the adoption of new methodologies allowing FrieslandCampina to become more agile and faster in its product development cycle while keeping a strong focus on consumer needs.

Late last year, Swiss-headquartered flavor giant Givaudan revealed plans to open a new innovation platform for the food industry. Coined MISTA, the new platform seeks to help start-ups and established corporations to optimize ideas and products, scale-up projects, search for partners and build dynamic teams to meet the constant challenges of the food industry. Joining Givaudan as founding members of MISTA are Danone, Mars and Ingredion.

Investment drives innovation
Besides financial investment, DSM offers coaching for entrepreneurs and provides access to its extensive know-how on topics including validation, scaling manufacturing, quality and safety, market intelligence, partnering and licensing and new technology scouting, says Beudeker. 

The company’s goal is to create value for the ecosystem it operates in, as well as achieve the investment returns necessary to continue working sustainably. Since 2001, the company has invested in more than sixty start-ups in Europe, North America and Israel, 33 of which are in its current portfolio. 

“We have made it a priority to collaborate with start-ups that are strategically relevant to our business groups and have the potential to revolutionize industries. We do this primarily through our venturing department. Half of our venturing portfolio is in the nutrition sector, while the other half is in solar, 3D printing and the biomedical materials markets,” Beudeker says.

Last year, DSM announced that it is seeking to streamline its portfolio and set aside about €3 billion to expand its nutrition business. The company suggests that further funds will become available for strategic moves within the nutrition arena, as DSM moves further away from its heritage chemical positioning and further cements itself as a leading nutrition powerhouse. Exemplifying its interest in nutrition, the company acquired an equity stake in personalized nutrition company Mixfit, making DSM the start-up’s largest shareholder with approximately 50 percent of shares.

DSM Venturing, the venture investment arm of DSM Nutrition, also made an equity investment in skin microbiome company S-Biomedic NV, last year. The company is a Belgium-based life sciences company that is pioneering “a new approach to cosmetic and therapeutic potential of the skin microbiome.”

Challenges and interesting markets
The challenge in investing in start-ups, besides the financial risk, of course, is the integration of two different entities and the alignment of their goals. 

“As a corporate venturing investor, we operate at the interface of two seemingly incompatible cultures: the fast-pace, single-focus entrepreneurial startup culture with high risk-acceptance and the long-term, results-driven, global, large corporate risk management culture,” says Beudeker. “To do this successfully requires unique experience and skills which can only be built over time, and this makes it so rewarding and interesting to do.”

Beudeker also notes that the company’s current focus on start-ups investments is on Europe, Israel and North America. “Extending DSM’s venturing efforts into territories like Singapore, Bay area, Europe, Israel and China is an opportunity we will consider building on in the future,” he says.

Investments in the Israeli start-up sector have boomed from 2014 to 2018, raising almost US$800 million in funding over this period. This is according to a recent investing report from venture capital (VC) platform AgFunder. Due to the country’s location and unfriendly desert climate, agricultural practices prove challenging. Yet, Israel, rising to the occasion, is proving “fertile ground” for agri-food innovation and the start-ups that drive it. 

Other notable start-up investments 
The strength of start-ups as thought leaders has driven multinational companies and legacy brands to invest in them. These companies also have a marketing advantage. A nice example of how to capitalize on this image comes from start-up The Ethical Butcher, which is launching a new meat box delivery service with a difference – it aims to deliver “carbon negative meat” to households across the UK. The London based company is raising funds to create what it describes as a “craft beef revolution” through a crowdfunding campaign which taps into the growing demand for ethically-produced, sustainably-sourced and environmentally conscious meat products.

Last June, General Mills’ venture division, 301 Inc., led a US$12 million round in funding in NextFoods the parent company of GoodBelly Probiotics. Additional capital came from existing investors, including Emil Capital Partners. The investment came as GoodBelly sought to expand beyond beverages into snacks such as bars or other products. For General Mills and its venture arm, the deal established its presence in the probiotic space while leaning on its experience managing brands such as Nature Valley Bars and Annie’s Homegrown snacks. 

Last February, wellness start-up Viome entered into an agreement with Campbell Soup Company to acquire Habit, a personalized nutrition company that seeks to “take the guesswork out of eating right.” Viome reports it will combine its insights from the microbiome with Habit’s nutrition plans and consumer data and engagement tools to offer the first “whole-body” approach to human health. 

By Kristiana Lalou