After my previous investment in Procens, a black soldier-fly (BSF) startup located in Argentina, I have recently invested in my second FoodTech company, Softseaweed, a startup offering software and IoT solutions for the seaweed industry, based in Norway.
This has prompted me to reflect on the need for an investment thesis for FoodTech startups. The following are my current reflections:
FoodTech investment criteria
Look for startups/entrepreneurs:
- Targeting emerging markets;
- Affordable product/service: should aim to provide affordable options for consumers, as many people in these regions may have lower incomes and be unable to afford more expensive products, e.g., developing low-cost food production methods.
- Excluding biotechnology: avoid biotech since their products generally involve high development costs and/or face regulatory hurdles.
- Extensive Product-Market Fit and Market Analysis: the founder has performed a thorough market analysis to determine what products and services are most in demand, and how they can reach consumers at scale. Has devised marketing strategies that are tailored to the specific needs of the region.
- Local expertise: the founder has invaluable insights into the local culture, consumer preferences, and business practices.
- Positive Environmental Impact: startup minimizes its environmental impact, and enhances positive externalities. Focuses on sustainable practices.
- If it depends on Infrastructure?: the founder is familiar with the state of local infrastructure.
My preferred potential areas for investment within food tech are:
- Precision farming
- Sustainable packaging
- Circular economy systems
- Food production automation
- Low-cost alternative proteins
In addition to the above, any FoodTech startup should meet my usual investment criteria:
With regards to the criteria for selection:
- Seed investment up to Series A (as Jason Calacanis says: such a startup should be in the “ Goldilocks Zone, not too hot, not too cold “; beyond an idea and before you start executing your international expansion phase) ;
- Have at least a successful pilot (best if paid by the end users) and ideally some market traction ;
- Actual revenue of at least $60-$100k pa, $5k in MRR + with growth m/o/m ;
- Depending on the market and product/service, pre-money valuation is between $1-5m ;
- Impact-related – solving a major problem ;
- There are other companies working on similar issues ;
- Trustable founder(s), strong technical team ;
- Scalable ;
- As little capital intensive as possible ;
- Ideally has received a patent or applied for one (although this is more to signal to the customers than a value adder);
- The startup has received nonrefundable grants and access to debt.
With regards to the criteria for allocation within my portfolio of investments:
- I try to limit my allocation to startups, including potential follow-up rounds, to less than 10% of my net worth.
- The aggregate initial investment in startups -as an asset class – is limited to 5% of my net worth.
- For a first-time investment in any startup, not more than 1% of my net worth;
- Ensure that I already have sufficient liquidity or know that I will have within less than six months of the date of investment, at least the same amount that I would invest, for follow-up rounds.