VC Funding and Food Trends

One and a half billion dollars. That’s how much money venture capitalists invested in food and beverage start-ups in 2018, according to a recent report by Food + Tech Connect. There is no question that food businesses are booming, and money is flowing in to help them grow. But why are investors so eager to focus on the food industry? It’s because they recognize that food is big business, and the industry is only getting bigger. Thanks to the fact that consumers eat multiple meals everyday, the global food and grocery retail market is expected to reach $12.24 trillion by 2020.

The other reason VCs are more apt to write checks to small food and beverage companies these days is their desire to move away from the tech companies that have proven to become problematic and, therefore, risky. As Lauren Feiner wrote in a recent CNBC article, “privacy scandals and tech addiction have made the impact of pure tech companies feel a bit murkier. Food, on the other hand, has an obvious and indisputable value”. Naturally, investors feel better about attaching themselves to food and beverage businesses because of that.

While investors are putting big money into emerging brands, they aren’t going to do so unless a brand possesses particular qualities. Probably the most important quality that a VC will look for before investing is taste. If a company’s product doesn’t taste great, investors don’t see the point in backing it. Once investors see that the product is good, they want to know that the team surrounding the product is strong. As Duane Primozich, cofounder of BIGR Ventures, said to business news site Smart Brief, “more often, the most successful founders are those that have surrounded themselves with terrific talent”. If a great tasting product is being made by a reliable group of people, and the process in which it is made is efficient and effective, investors will want to back the venture. 

Investors are also more inclined to get in on the ground floor of emerging food trends. For example, the largest investment of 2018 was the $114 million given to Impossible Foods, makers of plant-based meat substitutes like the Impossible Burger. While plant-based proteins are still gaining popularity in the U.S., there are some more recent food trends that are beginning to make their way onto the market.

In the beverage category, collagen could prove to be 2020’s hottest ingredients. Drinks containing the supplement are said to improve the health of skin, hair, and nails. While these effects haven’t been proven, their appeal is undeniable - particularly to health-conscious millennials. Another healthy drink category gaining some steam is festive non-alcoholic beverages. Many people are choosing to dabble in the sober-lifestyle, and they want a sophisticated drink to sip at events that isn’t boozy. Some of these contain bitters, like a cocktail would, and some are even sold in wine bottles.

Speaking of health, more and more consumers are looking for foods that will help them adhere to their diets, particularly the “keto” and “paleo” diets. This means companies are having to find creative ways to make tasty carb-free products. One interesting example of this is nut crumbs. Nut crumbs are a bread-crumb substitute made of a blend of ground-up nuts that can provide a satisfying crunch to dishes like fried fish, without adding any gluten. Vegetable-based puffed snacks are another paleo/keto-friendly food gaining in popularity. They mimic the classically addictive cheese puff, but are made from things like cauliflower, spinach, quinoa, and chickpeas.

Snack foods in general are big sellers, and another visible trend in this category is the convenience of products that can be eaten on-the-go. Snacks, packaged in a way where they can be easily carried around and munched on, are perfect for today’s busy consumers. Meal delivery services are another food trend that consumers are hungry for, as they make eating at home easy and fast. Fewer people want to have to prepare their own food, and just want their meals delivered directly to them on a regular basis, so start-up companies providing this service are seeing increased investments.

There are, of course, many other food and beverage trends that are beginning to crop up, and some that have yet to materialize. But it is important to stay on top of not only what consumers want now, but what that are going to want in the near future. VC firms are out there, eager to write checks to help emerging food brands. Great taste, combined with innovation, can lead to great returns, for both investors and food companies alike.