Securing funding for food and drink start-ups is more difficult than doing the same job for innovators in other industries, according to Alessio D’Antino, CEO and co-founder of Crowdfooding UK.
Speaking at the recent Rothamsted Open Innovation Forum (ROIF 2017), he said the dynamics of the food and drink sector were so ‘peculiar’ that startups need to work doubly hard to get their pitches in front of the right investors.
“Before launching Crowdfooding just over a year ago, I spent two years working in the San Francisco Bay Area with a startup accelerator. During that time, I came across a bunch of food entrepreneurs who were attempting to advance some very innovation projects,” said D’Antino. “Almost without exception, they weren’t able to find the funds to bring their products to life.”
Having subsequently decided that the entrepreneurs’ lack of success was due to a gap in investor understanding of such businesses, he moved to the UK and set about creating a solution.
“Our aim was to build a crowdsourcing platform for food and drink businesses to help create meaningful matches between entrepreneurs and investors,” he said.
“The reason why food and drink innovation is more difficult to fund than other sectors is that potential investors find it hard to grasp what the proposition is all about when looking at a food company, as opposed to studying a tech business, for example.
“The first things investors need to understand is that the margins on a food product will be way lower than in other industries, such as software development. In addition, it can easily take a couple of years for a food startup to convince retail buyers to scale up product rotations by enough to deliver significant sales income.”
Describing Crowdfooding as a specialist online crowdfunding platform for the food and drink sector, D’Antino admits his own company is still at a very early of development, having only just completed its first £10k funding project with Chocothon, an initiative that aims to create a shared value platform for a more sustainable Ghanaian cocoa supply chain.
With 250 funding requests having crossed his desk in 2016, however, he’s convinced crowdfunding remains a specialist need for the food and drink sector.
“About 70% of those who have approached us for help are startups with the rest being more established businesses who are looking to work with startups on innovative products,” he said. “Part of our platform, therefore, is to create an environment where we could bring corporates and startups together to consider collaborative ventures.
“We want to help businesses improve nutrition by fostering food innovation, with part of that process being to enable startups to gain access to the sales infrastructure which many established food businesses already command. Startups need such an infrastructure to get their products to the masses, and our task is to facilitate collaboration between innovators and investors to help this happen.”
What investors get in return for their money depends on the type of project they decide to fund and the stage of development of their chosen startup partner.
“We advise those who are seeking funding during the early days of their business life to offer investors a ‘reward crowdfunding’ package,” said D’Antino. “This usually involves no formal engagement between the investor and the funded company but rather an agreement whereby the investor receives a pre-arranged reward, which is often quite modest.
“It could be a supply of the new product for a set period, an amazing meal cooked by the innovator or something similar. Investors under a ‘reward’ approach are effectively making an up-front payment for product, services or experience to enable the startup business to begin production.”
An equity investment is more suitable for scale-up startups that are a bit further down the development road.
“For equity-based cases, it’s important to have the right investors on board,” he said. “We don’t want people who provide capital and then forget about the business, but investors who understand the proposition and are able to offer advice, connections and help open doors for the scale-up business.
“These ventures are often risky in terms of investment and without the right level of engagement and commitment from investors, they’re less likely to succeed. You can’t just throw money at such propositions and expect them to work.”
Investing in startups and scale-ups isn’t a one-way street, however, particularly for corporates who want to be innovative themselves but don’t have the time or resources to do so on their own.
“Some corporates, for example, are interested in investing in startups where they see a product or development fit with their existing business,” said D’Antino. “Our role is to help businesses and individuals make the right connections, a process which includes designing programs to enable businesses to collaborate with start-ups and scale-ups and to help start-ups and scale-ups work with corporates.
“We’re also the intermediary whose task is to help make sure neither party takes too much from the other in the process.”
As for how many of last year’s 250 applications are still being considered, D’Antino commented: “When it comes to selecting companies for equity raises we make sure (via our investment committee) that they are investment ready before putting them on the platform.”
D’Antino’s co-founding partners are Sara Roversi, Executive Director of Future Food Institute & FoodInnovationProgram.org and Andrea Magelli, who managed a media company team attached to four Olympic Games.