April 28, 2013
Venture Capitalists Are Making Bigger Bets on Food Start-Ups
By JENNA WORTHAM and CLAIRE CAIN MILLER
What if the next big thing in tech does not arrive on your smartphone or in the cloud? What if it lands on your plate?
That idea is enticing a wide group of venture capitalists in Silicon Valley into making big bets on food.
In some cases, the goal is to connect restaurants with food purveyors, or to create on-demand delivery services from local farms, or ready-to-cook dinner kits. In others, the goal is to invent new foods, like creating cheese, meat and egg substitutes from plants. Since this is Silicon Valley money, though, the ultimate goal is often nothing short of grand: transforming the food industry.
“Part of the reason you’re seeing all these V.C.’s get interested in this is the food industry is not only is it massive, but like the energy industry, it is terribly broken in terms of its impact on the environment, health, animals,” said Josh Tetrick, founder and chief executive of Hampton Creek Foods, a start-up making egg alternatives.
Some investors say food-related start-ups fit into their sustainability portfolios, alongside solar energy or electric cars, because they aim to reduce the toll on the environment of producing animal products. For others, they fit alongside health investments like fitness devices and heart rate monitoring apps. Still others are eager to tackle a real-world problem, instead of building virtual farming games or figuring out ways to get people to click on ads.
“There are pretty significant environmental consequences and health issues associated with sodium or high-fructose corn syrup or eating too much red meat,” said Samir Kaul, a partner at Khosla Ventures, which has invested in a half-dozen food start-ups. “I wouldn’t bet my money that Cargill or ConAgra are going to innovate here. I think it’s going to take start-ups to do that.”
In the last year, venture capital firms in the valley have funneled about $350 million into food projects, and investment deals in the sector were 37 percent higher than the previous year, according to a recent report by CB Insights, a venture capital database. In 2008, that figure was less than $50 million.
That money is just a slice of the $30 billion that venture capitalists invest annually, but it is enough to help finance an array of food start-ups.
The venture capital firms helping to finance these businesses are some of the valley’s most prominent names, in addition to Khosla: SV Angel, Kleiner Perkins Caufield & Byers, True Ventures and the Obvious Collection. Celebrities from Hollywood (Matt Damon), pro football (Tom Brady) and the tech world more broadly (Bill Gates) have also joined in.
“Consumers are interested in sophisticated experiences that are beautifully delivered, which we’ve seen happen on the Web and with products like the iPhone,” said Tony Conrad, a partner at True Ventures, which was an early investor in the coffee company Blue Bottle. “Now, we’re seeing that happen with food and beverage.”
Still, some tech analysts and venture capitalists are skeptical that these companies, with their factories and perishable products, can reach the scale and market valuations of big Internet companies.
“I don’t see a multimillion-dollar business coming out of any of these companies,” said Susan Etlinger, an analyst with the Altimeter Group, a firm that advises companies on how to use technology. “The majority of Americans will not likely be able to participate, they’re simply too expensive for them.”
Venture capitalists have strayed from pure technology to food before. Restaurant chains like Starbucks, P. F. Chang’s, Jamba Juice and, more recently, the Melt, were backed by venture capital. Recipe apps and restaurant review sites like Yelp have long been popular.
But this newest wave of start-ups is seeking to use technology to change the way people buy food, and in some cases to invent entirely new foods. Investors are also eager to profit from the movement toward eating fewer animal products and more organic food. They face a contradiction, though, because that movement also shuns processed food and is decidedly low-tech.
“It’s not Franken-food,” Mr. Kaul of Khosla Ventures said. “We’re careful not to make it sound like some science experiment, but there is technology there.”
Hampton Creek Foods, based in San Francisco, uses about a dozen plants, including peas, sorghum and a type of bean, with properties similar to eggs, to make an egg substitute.
Mr. Tetrick, its founder, started the company after working on alleviating poverty in sub-Saharan Africa. He hired a protein chemist, a food scientist, a sales executive from Heinz and a contestant from the television show “Top Chef.” Two large food companies are using the egg substitutes in cookies and mayonnaise, and he said he planned to sell them to consumers next month.
Unreal, based in Boston, makes candy that the founders say has no artificial colors or flavors, preservatives, hydrogenated fats or genetically modified ingredients, with at least 25 percent less sugar than similar candy on the market and added protein and fiber. The candy is sold in stores including CVS and Target.
Lyrical Foods makes cheese from almond milk and macadamia milk under the name Kite Hill, which is the first nondairy cheese to be sold by Whole Foods. Nu-Tek Salt uses potassium chloride instead of sodium chloride to lower sodium. Beyond Meat and Sand Hill Foods are making veggie burgers that their investors say taste and grill more like beef than others on the market.
Yet some investors say the projects have a better chance of success if they steer clear of selling actual food. “The food category has been a hard nut to crack because it’s a perishable item,” said Mark Suster, an investor at GRP Partners. “The No. 1 thing V.C.’s are looking for are scalable and repeatable, high-margin businesses. You can create those in food, it’s just harder.”
His firm, for instance, is tapping into the food industry by investing in Internet services like ChowNow, an online restaurant ordering company.
Kitchensurfing is a site that lets people hire private chefs to give pasta-making lessons or prepare an authentic Thai meal, just as one might book a room on Airbnb.
“Chefs spend all of their time working and at farmer’s markets,” said Chris Muscarella, the site’s co-founder and chief executive, who has worked in restaurants. “They aren’t sitting in front of a computer. So the fact that you’re finally getting more chefs online through mobile devices is actually a big deal for the culinary world.”
Still, food start-ups have their own challenges that are unfamiliar to tech entrepreneurs and investors, like a broken-down delivery truck or a bad oyster. These setbacks can be more difficult to recover from than a software malfunction.
In the early days of Plated, for instance, which sells ready-to-make dinner kits for recipes like Greek lamb burgers with cucumber salad, the founders sank $15,000 into building a customized refrigerated warehouse in Queens. Then they discovered that it would not cool lower than 70 degrees, unsuitable for food handling and preparation.
“We just had to walk away from that investment,” said Nick Taranto, one of the founders.
Bill Maris, a partner at Google Ventures, the search giant’s investment arm, said he was closely watching the trend.
He said, “Start-ups are unpredictable and all these companies are trying to take advantage of new technology and markets that are changing.”
But, he added, “in 2000, the same questions were asked about YouTube and no one knew how it would even work, let alone become a business.”
This article has been revised to reflect the following correction:
Correction: May 2, 2013
An article on Monday about venture capitalists’ interest in food-related start-ups misstated the restaurant experience of Chris Muscarella, a co-founder of the site Kitchensurfing. While he has worked in restaurants, he has not been a chef. The article also referred incorrectly to the investment history of Google Ventures. It has indeed made food-related investments, providing venture capital to Blue Bottle Coffee, a specialty retailer; it is not the case that it has not yet put money into such companies.
OCTOBER 20, 2013, 11:00 AM
Disruptions: Silicon Valley’s Next Stop: The Kitchen
By NICK BILTON
SAN FRANCISCO — Megan Miller knows that cockroaches are packed with protein and she says they can be made into a surprisingly tasty treat. But if that is a bit too avant-garde to believe, do you think you might like crickets if they were “ground up into a powder so you can’t see wings or legs?”
Ms. Miller believes you would.
She is the co-founder of Chirp Farms, a start-up firm here that is dedicated to making food like the company’s flagship Chirp bars, which are $2.50 morsels made of crickets. They are expected to arrive in stores next year.
While making food from insects might sound fascinating — or icky — the approach she is taking, treating Chirp Farms like a technology start-up rather than a food outfit, is what really makes the company interesting.
“My background is digital product development,” Ms. Miller said in an interview. “I’m using the same kinds of thinking that I used in technology start-ups while I build this food business, too.” In addition to starting Chirp Farms, she is the director of research and development for Bonnier, a publishing company.
While a growing number of start-ups like Chirp Farms have received money from big venture capital firms, exactly how these companies plan to compete with the entrenched giants of the food industry has not been clear.
Nonetheless, they are undeterred. They see a big, slow-moving market just begging to be invaded by someone with new ideas and a new way of building a business.
“What is happening right now is that Silicon Valley is starting to see opportunities for disruption in other areas besides traditional technology,” Ms. Miller said.
If this sounds familiar, it is. Just as tech took on music, first with Napster and later with services like iTunes and Spotify; just as Amazon took on books and eventually the entire world of retailing; and just as Craigslist took on traditional classified advertising, these food start-ups think it is not so far-fetched to go after the food industry.
“The food system is bizarre and ineffectual and completely lacking in innovation,” said Josh Tetrick, founder and chief executive of Hampton Creek Foods, which makes imitation egg products using plants.
Creating a successful food company requires a lot more than just a good idea. There are government rules and regulations and competition from entrenched conglomerates with vast distribution systems.
These obstacles will not be easily overcome. But these start-ups are trying to do that by behaving like the most successful tech outfits that have gone from ideas to multibillion dollar businesses.
Some have programmers writing code to test out snacks and determine the types of ingredients that can go together. Some approach management in the same way start-ups run their operations, using a process called Agile methodology, in which project managers work in very small teams with programmers and have software development practices like Scrum that are intended to move and build products very quickly.
Essentially, they are organizing the development of food products in much the same way that tech start-ups organize code.
“You have to think in terms of scaling, like software, and that’s what Silicon Valley brings to the food start-ups, where we know how to create something small, then iterate rapidly, and finally scale it,” Ms. Miller said.
The interior of the San Francisco offices of Hampton Creek looks like a cross between Walter White’s meth lab in “Breaking Bad,” a nightclub and a standard-issue start-up. Plants that might soon be turned into substitute egg products sit along the windowsill. Thirty young (and hip) programmers, marketers and scientists zip about to loud music blaring from speakers.
Employees at the company do not talk about food as food, but rather as if they were programming an app to be sold in the iTunes store.
“While a chicken egg will never change, our idea is that we can have a product where we push updates into the system, just like Apple updates its iOS operating system.” Mr. Tetrick said. “So our mayo is version 1.0, and the next version will be 2.0, which will be less expensive and last twice as long.”
Grocery stores are starting to pay attention. Hampton Creek announced last week that it had set up a partnership with Whole Foods that would bring Just Mayo, the company’s plant-based mayonnaise, to retail shelves across the country.
Thomas Manuel, the chief executive of Nu-Tek Food Science, which makes a lower-sodium salt product, has worked in the food and agriculture industry for 43 years. He knows the difficulties of entering the business and questions if some of these food start-ups will eventually be snapped up by the giants they are trying to change or simply copied out of existence.
“Unlike other industries in technology, where people can carry patents and protect their ideas, the majority of the food industry doesn’t have that,” Mr. Manuel said. “So if you come along with a great idea and it starts to become really successful, then someone else can just come along and copy it.”
But there might be room for both entrenched corporations and start-ups in the future of the food industry.
A report issued by the United Nations this year warned that by 2050, the world’s population is expected to reach nine billion people and that there are not enough resources on the planet to feed them. The report suggested insects as a solution.
Can Silicon Valley ingenuity make eating insects appetizing to Western palates?
“As the population grows, there is not going to be enough protein for people. There is no way we can produce meat at the scale,” Ms. Miller said. “What we’re trying to do is popularize a protein that hasn’t made it into Western culture yet, and that’s going to be very disruptive.”
Monday 5 August 2013
Google’s Sergey Brin bankrolled world’s first synthetic beef hamburger
The billionaire co-founder of Google, Sergey Brin, said he invested €250,000 in the technology for animal welfare reasons
The man who has bankrolled the production of the world’s first lab-grown hamburger has been revealed as Google co-founder Sergey Brin. The internet entrepreneur has backed the project to the tune of €250,000 (£215,000), allowing scientists to grow enough meat in the lab to create a burger – as a proof of concept – that will be cooked and eaten in London on Monday.
Brin, a computer scientist who set up Google with university colleague Larry Page, is one of the wealthiest men in the world and has a history of backing projects that sound as though they belong in science fiction movies.
The pair have teamed up with film director James Cameron and others to investigate mining asteroids, and Brin is an investor in the private spaceflight company Space Adventures, which is selling $100m (£65m) trips to the moon. Google is also developing driverless cars and its philanthropic arm, Google.org, has invested in green energy projects.
"It’s really just proof of concept right now, we’re trying to create the first cultured beef hamburger," said Brin in a film to mark the tasting event in London. "From there I’m optimistic that we can really scale by leaps and bounds."
The synthetic meat hamburger will be cooked and eaten at an event this afternoon. Among the tasters will be the Chicago-based author of Taste of Tomorrow, Josh Schonwald, and an Austrian food trends researcher, Hanni Rützler of the Future Food Studio.
Brin said that he was moved to invest in the technology for animal welfare reasons. People had an erroneous image of modern meat production, he said, imagining "pristine farms" with just a few animals in them. "When you see how these cows are treated, it’s certainly something I’m not comfortable with."
Brin’s money was used by a team led by physiologist Dr Mark Post at Maastricht University to grow 20,000 muscle fibres from cow stem cellsover the course of three months. These fibres were extracted from individual culture wells and then painstakingly pressed together to form the hamburger that will be eaten in London on Monday. The objective is to create meat that is biologically identical to beef but grown in a lab rather than in a field as part of a cow.
"Cows are very inefficient, they require 100g of vegetable protein to produce only 15g of edible animal protein," Dr Post told the Guardian before the event. "So we need to feed the cows a lot so that we can feed ourselves. We lose a lot of food that way. [With cultured meat] we can make it more efficient because we have all the variables under control. We don’t need to kill the cow and it doesn’t [produce] any methane."
Dr Post said that Brin’s team had come to him to back the project. "They had identified this technology as something that would fit their funding goals in terms of environment and animal welfare. They liked my approach and decided to fund it."
Brin said he wanted to invest in technologies that were "on the cusp of viability. If it succeeds there, it can be really transformative for the world." He acknowledged that some people would probably think synthetic meat was science fiction. "I actually think that’s a good thing. If what you’re doing is not seen by some people as science fiction, it’s probably not transformative enough."
If successful, lab-grown meat could become a viable way to tackle the increasing environmental impact of meat consumption around the world. Around 30% of the Earth’s useable surface is already covered by pasture land for animals, compared with just 4% of the surface used directly to feed humans. The total biomass of our livestock is almost double that of the people on the planet and accounts for 5% of carbon dioxide emissions and 40% of methane emissions – a much more potent greenhouse gas.
By 2060, human population is predicted to rise to 9.5 billion and, with a rising demand for meat from rapidly developing populations in, for example, China and India, the market in meat is expected to double by the middle of the century. If that happens, livestock could be responsible for half as much climate impact as all the world’s cars, lorries and airplanes. In 2008, Dr Rajendra Pachauri, chair of the UN Intergovernmental Panel on Climate Change, urged people to have one meat-free day a week to help curb the rate of global climate change.
Though calculations of the environmental impact of Dr Post’s lab-grown meat have yet to be published, early indications suggest that cultured meat could reduce the need for land and water by as much as 90% and overall energy use by up to 70%.