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Investors influencing how we will produce, consume food in the future | Gustafson
If you want to know how food will be manufactured, distributed and consumed tomorrow, just follow the money.
Venture capital firms in Silicon Valley and elsewhere have begun shifting their almost exclusive focus on high-tech startups to more mundane enterprises such as food producers and food sellers. Is the food trade turning into the next gold rush? Maybe not right away. But there are developments on the horizon that will possibly change the food industry as we know it.
Last year, venture capitalists have reportedly poured over $350 million into startup companies that deal in one way or another with food. That's a seven-fold increase from 2008.
Khosla Ventures, an investment group founded by Vinod Khosla, a former CEO of Sun Microsystems, for example, has spent seed money on half a dozen food-related startups, especially the kind that seek to improve manufacturing methods in terms of nutritional quality and environmental impact.
One of Khosla's beneficiaries is Hampton Creek Foods, a food technology company based in San Francisco that has developed a plant-based egg substitute. The idea is to give food manufacturers an alternative to using regular eggs in their products. "Beyond Eggs," as they call their invention, can not only help to cut costs because it's cheaper than eggs, it's also safer and does not involve cruelty to animals.
Laying hens in industrial egg farms are confined to small wire cages that afford each a space smaller than a sheet of letter-sized paper. That's not only hard on the hens but also increases the risk of disease outbreaks like Avian Flu and salmonella poisoning, says Josh Tetrick, the company's founder and CEO.
And in terms of costs, industrial egg production is not sustainable either, he says. The reason why egg prices keep rising is that laying hens require enormous quantities of feed to generate this many eggs. "It's an outdated and inefficient system that is a breeding ground for foodborne bacterial illnesses."
Like Tetrick, his financial backers see a future in food safety and sustainability issues. "Part of the reason you're seeing all these V.C.'s get interested in this is the food industry is not only massive, but like the energy industry, it is terribly broken in terms of its impact on the environment, health, animals," he says.
Small thinking big
Small startups are in a better position to come up with alternative solutions. Big Food will have a much harder time in the area of innovation. "I wouldn't bet my money that Cargill or ConAgra are going to innovate here," said Samir Kaul, a partner at Khosla, to the New York Times.
Not all investors in food-related startups want to get involved with the manufacturing side of the business, which is considered complex and not as profitable. Many are more comfortable with service-oriented ideas like how to better connect fledgling enterprises with customers through new technologies. But the field is widening.
Of course, food companies have enjoyed backing from risk-taking venture capitalists in the past. Starbucks, P.F. Chang's and Jamba Juice, all dominating in their respective markets now, could not have gotten off the ground without help from their early investors. But what seems different with this latest trend is that it takes place in a climate of changing consumer behavior. More than ever, people want to know what goes into their food, whom they can trust, how their choices affect their personal wellbeing as well as the environment. They are also aware they are not alone with their concerns.
For instance, the online service meetup.com has a category called "Food Startups" which helps facilitate meetings between food lovers, entrepreneurs, investors, activists, food critics, journalists, bloggers and everyone else who is passionate about food and technology. If you don't feel represented by any of the existing meetup groups, you can also start your own. Who knows, perhaps you'll get a little backing for your ideas, too.
Timi Gustafson R.D. is a registered dietitian, newspaper columnist, blogger and author of the book "The Healthy Diner – How to Eat Right and Still Have Fun"®, which is available on her blog and at amazon.com. For more articles on nutrition, health and lifestyle, visit her blog, "Food and Health with Timi Gustafson R.D." (www.timigustafson.com). You can follow Timi on Twitter, on Facebook and on Pinterest.