Latest / FoodTech Stories / What Investors are Looking for in a FoodTech Startup
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- Megan Thomas: Welcome to Food Tech Stories. I'm your host, Megan Thomas, a marketing and communications expert who is focused on how emerging technology is adopted in food and agriculture. On each episode, we talk with leaders, innovators, and storytellers who are shaping the future of our food and food system. If you value our content, please consider subscribing. My guest today on Food Tech Stories is Lane Clark, and Lane is a program manager for investment firm Big Idea Ventures. Welcome to the podcast, Lane. Thanks so much for having me. Wonderful, wonderful. Where did you start your career? I did not have a conventional path to venture by any means. Early, early on, I was in San Francisco with a tech company that had a very exciting IPO and the startup bug bit me. After I left there, I co-founded a company and was CEO. Grew it for quite some time, about 14 years. It was on the pet retail. We ended up as a regional chain. We were acquired through a competitive process, which was great. By a much larger national pet supply company. After that, I pretty soon went to on the side mentoring as an entrepreneur in residence for Georgetown University, which I had been doing for the past 10 years. Earnestly, I started working with a serial founder on the manufacturing side of the pet food industry. That was a really good experience because it taught me both sides, retail and manufacturing. What I started to see was a really Clear need for a better food system, not just for pets, but for people as well. And so I started diving into that problem, which is a huge one, as we all know. And that led me to the Good Food Institute, where I worked for almost four years, leading the startup ecosystem engagement and also connecting the industry together. So promoting collaboration. After that, I joined Big Idea Ventures and I had worked with them while I was at GFI. And so it was a pleasure to be able to go over to the venture side and continue helping. And what similarities or differences do you see between food and pet food? People don't look at the impact that pet food has versus people food, human food, because it has a tremendous impact on the global supply. We should be spending more time looking at ways to alleviate that burden. People are more willing to accept technology into pet food versus people food. So maybe it's a door into some areas that we haven't been able to cross into with human food. And we hear so much about food waste here in the US and valorization, other techniques might have a lower bar in the pet food sector. Absolutely, yeah. Wonderful, wonderful. When I get the chance to meet listeners to the podcast, they often mention the quality of the production as one of their favorite parts of the show. That praise is due to the team that edits the show, TJG Media. Their team works with the raw audio files of each interview to enhance the quality of the sound, minimize external noise, and cut out the natural pauses that occur in conversation to create each fast-paced episode. Plus, they create engaging short-form videos to promote each episode on social media. Visit TJGmediaLc.com to find out more. So now Tell us more about Big Idea Ventures. What is the mission of the organization and what is your investment thesis? Big Idea and Ventures, right now we have a couple of active funds. The one I'm in focuses primarily on early stage companies that we make investment primarily through an accelerator, but we also do direct investments sometimes. As I said, these are early companies. They're starting out. We're focused very much on food tech. And it used to be that we were more about Protein innovation. And now we've sort of expanded our thesis to include things like enabling ingredients, fats, sweeteners, monocrops, ag tech. We're really stretching the edges of what we used to focus on. And I think that's made us a lot bigger player because we are now all across the supply chain. Then the other fund is a venture creation fund, and it's more focused on ag tech in the United States, primarily in rural communities. Very interesting. What drove the expansion of your focus area beyond protein. I think the same thing that was happening throughout the industry. We started to see that operating in these very heavily siloed areas was counter to being very productive. A lot of the reason for that is that when you get into food tech, biotech, it's a lot different than just bringing a CPG product to market. You're talking about tremendous capital investment. And to get that you really have to have a combination of dilutive and non-dilutive funding. That requires working with the universities, working with government, working with strategic partners. The other thing that happened was there was a change in terms of the hype that was around the sector. People started being less enthused by hype and more enthused by what kind of commercial traction do you have? Is there a path to profitability? We saw all this as a good time to expand our thesis and start looking at what levers really move the system forward versus move a product forward. So what macro trends are you seeing in food innovation these days? Right now we're seeing a doubling down on what is this going to do? How quickly is it going to do it? Is there a go-to-market strategy? That's a macro investing trend where we're seeing investors want to look into data rooms a lot more closely. They want to know that there is some commercial traction or the evidence enough that they think that this product will be commercialized. So that's a big macro trend in the investing community. In terms of the ecosystem itself, we're looking at functional ingredients, particularly microbiome, movement into more clean label and remove away from synthetic dyes and colorants. On a large scale, there's this wellness nutrition momentum that we haven't seen in a very long time. Some of that has been pushed forward by the investment in GLP ones, but I think GLP ones is which is kind of food is medicine and all of that, that's driving a bigger shift towards thinking about foods, the power of food, more than we have in the past. Definitely. Yeah. It's an interesting time. And having worked in the food space for many, many years, there often has been that say do gap with consumers. But in general, consumers are more interested in consuming more information about health and nutrition and trying things in a way that's fundamentally different than it was, say even five years ago. Really interesting to think about that. So when you're looking for a startup for your accelerator programs or for one of your funds, what are you really looking for? First and foremost, we're looking at the technology to find out if it's something that can be defensible. Can you have IP for it? Is there a competitive moat around it? We're looking for whether or not it's a nice science project or is it something that can actually scale to the point of making a difference in the food supply? We're also looking extremely closely at regulatory pathways. So the whole go-to-market is super important for us because I have seen so many technologies that are unbelievably brilliant and fascinating, but there's just no way to get them to market for various reasons. But very close second is the founding team. We're always looking for a founding team that has the specific qualities that make a good company. Without that, even the best technology will never see success. A moat around the technology, clear go to market and a founding team that you can get behind. When we talk about early stage founders, what traits or behaviors do you typically see? And then which traits or behaviors are you looking for? We get quite a few applicants to our accelerator and also quite a few requests for our investment team to look into a pitch deck or deals. And the very first thing that we look for in a founding team, of course, is going to be are these the right people to do this? So what's the background? Do they have the chops? Is it somebody who was most recently In a completely different field doing a completely different thing that just likes the idea of starting a company? Or is this somebody who has spent their life earning the right to call themselves an entrepreneur in this particular sector? There's another one though that is very hard to categorize and it's coachability. If somebody comes in and they're extremely sold on what they're doing to the point that they don't want to talk about really looking into customer discovery, they don't want to really listen to anything except things that prop them up and make them feel like they're doing everything exactly right. That is a huge problem. For some founders, they're simply not coachable. In that case, it doesn't make sense to invest in them because we're just going to be constantly at a loggerheads. That's just hard to define. It's not really being humble. It's being confident enough to accept advice. That makes a lot of sense. Can you think of an example where someone was coachable? How did they demonstrate that they were a coachable founder? I'll use somebody from our current cohort. This person happens to be related to a founder who's had a great deal of success. This is this person's own startup, but they've come up within a family for all intents and purposes, has every reason to feel successful. Instead of coming in and leading with, I come from this family and this is my brother and he's done XYZ. This person came in basically saying, What do I need to learn? Let me test my hypotheses. If they're invalidated, let me find out why. And let me figure out how to rethink what I'm doing so that it matches more what the market needs. That's a very different thing from somebody who comes in and says, I know what I'm doing. I just have to get everybody else to listen to me. What would a startup be looking to get out of participating in your accelerator program? The most important thing is not the investment. The most important thing is the ongoing support. We're a fairly long accelerator. We're five months. If you're going to spend the time with an investor or an accelerator or a combination of both, then your network needs to be expanded by that engagement. You need to be able to go to those people and ask them the really hard questions. You need to be very transparent with them and expect them to make the time for you. I had a company call me late Friday, let me know they needed to have a meeting on Saturday. That's fine. I'm not saying that's what everybody should do. I'm not encouraging people to expect. To be working seven days a week. I'm just saying it's normal for you to have last minute requests. It's normal for you to want to leverage this network for the best possible outcomes. So that would be customer networks. So to introduce to potential customers. It would also be investors to introduce to other investors, and it would be strategic partners. I think that many early stage startups are encouraged to go into an accelerator program, but I think thinking about The time investment and what they're really looking to get out of it is so key to really maximize that opportunity. We've been talking about early stage in terms of a scaling startup or startup at the growth stage. What are the fundamentals you're looking for from the founders or leaders at that point? Does it change? It does change somewhere along the way between early stage and growth stage. You want to see the founder sort of step away from being in the lab. let's say they are a founder who is a CSO, then stay in the lab. But let's say we're talking in the more conventional, the founder becomes the CEO is going to be raising money and that sort of thing. They can't be raising money and also be in the lab all the time. They need to be able to compartmentalize and say, okay, I'm going to prioritize hiring this person for this role because I can't be in it anymore. They have to be able to step away and let other people begin to do jobs. So a good delegator, somebody who can focus a lot on the job that needs to be done, which during fundraising may be almost 24-7. We need to see somebody who's thinking in more of a systems thinker, connecting the dots across the supply chain, not just working on proving one hypothesis or another, but thinking way down the line too. What am I going to need? Not only financially, but what am I going to need in terms of Partnerships, relationships, how do I move my company forward? Early on, people think a lot about hitting the next milestone in a growth stage. You don't have one milestone, you have a ton of milestones. You have to have somebody who's pretty agile. Is there an activity or a function that you see is commonly deferred too long by the typical founder? In our category. So in biotech, fit tech, you typically have technical founders and they are kind of slow to let go of that. I mean, that's what they've been doing a lot of times for their entire educational career. And it's extremely hard to step away from the bench. Quite honestly, it's not what they love to do. They also may not have studied business a lot, but you have to have some degree of financial and business literacy. And you have to have a little bit of a desire to embrace it because you can't just rely on everybody around you. There are a lot of cautionary tales about people who farm all of that out and then things go on and they don't realize their problems until far too late. They have to be able to fully understand their cap table and their balance sheet and all of that. That's part of running the company. So really building out that skill set early on so that they're equipped to drive strategy and scale effectively. Exactly. That's very insightful. I appreciate that. So what advice would you give to a pre seed or seed stage founder who is working on a unique technology? Describe unique, define unique. Things can be unique and interesting, but if nobody will pay for them, you still don't have a company. There's a difference in working on a unique technology and working on a business. Very soon after you begin to devote time and resources to that unique technology, you have to go through the exhaustive customer discovery process to find out whether or not there's a need for it. And a lot of times it's in this period when founders realize, okay, there wasn't a need for exactly what I thought there was, but I uncovered something else in these conversations that's even bigger and more fun. So I always tell founders, Don't approach this as it's drudgery. It is a really unique, fact-finding, interesting opportunity to learn about how you can make the best possible science to bring into the world. So often we go, we have a solution and we go in search of a problem to solve, but sometimes problems are hairy and they're not linear. And I completely agree with you that you can actually find a bigger opportunity. And I love the idea of a a one that's more fun. I love that idea too, that there may be something even more exciting. It's not necessarily that you're giving anything up. That's an important thing because people automatically assume, okay, well, I'm gonna have to give up my baby. This is what I've been working on forever. No, you might find out that there is this entirely different area that excites you even more. And I see it a lot. I see founders pivot early on and they always feel like It's an embarrassment or a failing of some sort. It is absolutely not. It is the smartest thing you can do if you're finding out that what your assumptions were just aren't quite proving out. Keep digging. Is if it must spring forward completely formed and ready to be validated. It's a really interesting thing to think about. Do you think that biotech and food tech are fundamentally different from an investment standpoint from other sectors? And if so, how? I do. I think they require a lot more funding than most sectors. I mean, that's a huge blanket statement, but let's face it, it is very expensive to launch a biotech company. The timelines, the horizon is longer. They're not necessarily as fit for VC funding long term. VC is good for getting off the ground, but that isn't patient capital. There's a lot of need for going in for non dilutive funding, grants and so forth, going in for commercial traction, maybe even getting some paid pilots. And then maybe getting some other creative ways of funding family offices, who knows? But going in thinking I can fund this entire company for its life through VC is not realistic. In terms of protecting their interest and so forth, VC is great for a little while, but then it's not fit for purpose. It plays a vital role in a specific phase. Absolutely. And do you see the US in terms of the investment landscape as being different or has it changed compared to other, let's say Europe or Asia? Yeah. Absolute dollars. The US is still leading, but Europe is very resilient. We're seeing a lot of progress there, especially with precision fermentation. I'll call out the Netherlands in particular. I mean, they're just really leading in innovation. We also see a little bit more opportunity for government grants and so forth. Not saying that the US doesn't have them, but there seems to be quite a lot. on offer in Europe. We also see areas like Latin America, where some of our current companies are coming out of. They have some very interesting technological hubs that are becoming quite powerful. We have lots of areas to watch at the moment. Asia is a little harder than it has been in recent years, I think. The US is certainly harder than it has been in recent years, but we do see the tide turning. The hype has mercifully calmed down a little bit and we're looking at what happens post hype, which has not been easy to go through for a lot of companies. And there are some very talented founders and interesting technologies that have not made it through the gauntlet. But I do think we have had a pivotal moment when we can start seeing a little bit more go right and a little less go wrong. Indeed, indeed. Five years ago, food tech, if you went to an industry event, was being driven by indoor vertical farming. It was everywhere. So It's interesting how quickly things can change in this sector. When you look to the future lane, what are most excited about? I'm excited to get past this curve I've been talking about. I think it'll be really fun. I mean, right now, a lot of investment is going into AI and going into GLP ones. I think that'll shift a little bit and we'll see a rationalization of some of that. So that's something to look forward to because it's awfully hard to work with these early founders and watch them struggle to get funding when they have life changing, world-changing technologies that they're trying to promote. I am very, very excited about seeing the collaboration starting to come together. I remember when I was at GFI, I worked with a couple of co-authors on a white paper and we were really pleading with the industry to start working together and collaborating and talking to each other. It's finally starting to happen. For instance, there's an accelerator that's starting soon and it is being put on by Imperial Bezos out of London. In the accelerator, the companies that are chosen and that go through it are guaranteed a very substantial paid pilot with a commercial partner at the end. That is brilliant because that is what all of these companies need. They really need to have that first evidence. Because the other thing I haven't talked about is right now it's very hard to find a lead investor. Everybody's sort of in this, well, let me see who else is going to do it and then come back to me and let me know. Then that just gets incredibly hard for these companies because if everybody's saying, well, I will, but I need to wait. I need to hold off. And everybody's seeing a hold off signal. And meanwhile, they've got five investors ready, but no lease. Right. Yeah. And an impasse. Exactly. Yeah. Yeah. I've certainly witnessed that as well. I'm heartened to hear you think that it's going to swing back around. Are there any technologies that you're particularly interested in or watching that are maybe further out? Yeah, I think back to what we were talking about earlier. Microbiome, I think we were all looking at really closely. dyes, move away from synthetic dyes, I think will be really big. Part of it is watching in the US what this administration is valuing. It's helpful for founders if the current administration is really looking at something they're working on. Long term, I think enabling technologies in general, rather than thinking about a product, thinking about platforms that can actually go from one molecule to another and improve absorption or improve yield, we're seeing a lot of that and we're investing in a lot of that. That to me is probably the most promising move. A lot of companies are looking for that. A lot of investors are looking for that, but they too want that. Well, what is your first? What's your beach head product? The companies are having to identify the correct beachheads. So it gets a little complicated, but I think that's where the future lies. Does that require different strategies or skill sets to establish a high-performing platform and initial beachhead product? It definitely does. It's a lot more work. It's a lot more customer discovery. the payoff is that you're not tied to one particular outcome. For instance, there are companies in our portfolio right now who can look down the road and say, okay, we started off with food, but then we moved into skincare and nutraceuticals, or we moved into supplements or into all three. That is a very comfortable place for companies to land because investment can come from people with different theses. I am a big fan of being able to work across different industries. Absolutely. So how can folks find out more about the work being done at Big Idea Ventures? On our website, bid.com. We'll be announcing our new accelerator over the next few months. And it's a small accelerator. We have about five, six companies in it usually, but we do get a lot of applicants. And then there's a lot of engagement, a very specific one on one engagement and a lot of networking and so forth. I am very proud of what we've built and how we're able to help companies. So If there's any interest at all, you can also reach out to me. We're a small team, which makes us be very communicative. It's not one of these big corporate hierarchies. If somebody emails me, then it'll get to the right person. And my email is lane.clark at bigidventures.com. Lane L-A-I-N-E. Right. A lot of founders in biotech will start thinking about Whether they should work with a CMO, C DMO, or whether they should build their own facilities. Right now, investors are not super happy with companies that are going to be building their own facilities early. That is not a really good formula for success. If I were in a founder's shoes trying to think about that, really look closely at ways to cut down CapEx and not take on this huge product. In the past four or five years, we've seen a lot of companies that made this error. And I think it's important to avoid it. That goes back to your point about customer discovery as well and ensuring is the market ready and are there different ways we could come into the market that are less CapEx intensive. These are not academic exercises. This is setting the foundation for whether or not you have a chance at creating a successful company. I can't emphasize enough how important it is to start this work so early. If you don't, then you find yourself playing catch up later. It's never too early to start. understanding the environment, understanding your customer, understanding the investors. We had a workshop last week with somebody who had a background in regulatory and he was saying like get to know the FDA long before you submit. Something I learned from my entrepreneurial journey is go back and do additional discovery when you're a few years in because things change and they can change very quickly. Challenging your assumptions is very important as well. Is this still hold true? Be curious always. As a founder, you should be led by some kind of quest for learning at all times and looking at opportunities to learn not as threats to your business, but as a chance to better your outcome. Absolutely. Well, thank you so much. I really enjoyed our conversation today, Lane. Me too. Thank you so much. Thanks for joining us today in the latest episode of Food Tech Stories. Be sure and subscribe to our podcast on your favorite podcast platform and keep an eye out for our bi-weekly episodes. I'm your host, Megan Thomas, founder of Ladder Seventeen. Food Tech Stories is edited by TJG Media.