Evolv Ventures launched late last year as the venture arm of ketchup and mac-and-cheese behemoth Kraft Heinz with $100 million to invest in startups. It focuses on four main categories, foodtech – a broad category encompassing agtech, protein alternatives, food waste and more, industrial & retail tech for logistics, warehouse optimization and traceability innovation, consumer insights & marketing, and new consumer models, think food e-commerce and marketplaces.
The fund has two investments under its belt so far, including GrubMarket, a farm-to-table eGrocer, and New Culture, an animal-free cheese alternative startup, which we reported a couple of weeks ago. We caught up with Steve Sanger, a partner at Evolv, to find out more about the fund’s strategy and his personal shift from startup to investor, after he spent many years working as VP of business development for leading online food delivery site Grubhub.
You worked at Grubhub – how is it being on the other side of the table now?
I was fortunate to be part of a successful company and get a front-row seat to a startup going public. I’ve always been passionate about food and technology but it’s certainly very different going from player to coach and an adjustment. I’ve always been strategic and forward-thinking in my roles and my experience at Grubhub really resonates with founders I speak to now. What can be hard is that because you’re the coach, you can make suggestions but ultimately it’s their company and their vision and they have to execute it so that takes getting used to! Also there’s an adjustment to saying no to startups as it feels more personal in this world than when I said no in business development at Grubhub. Who am I to say no to an idea? It might just be the wrong fit for our fund, and not necessarily a bad idea. I try to approach these instances thoughtfully and give candid feedback as I would want to receive.
You just invested in New Culture, do you imagine Evolv making many more alt-dairy/alt-meat investments?
We’re looking at both sectors as a whole and it’s premature to say if we will do another investment at this stage; we have to take a breath. We’re looking at all alternative protein, meat, seafood and so on. It’s a question of the team, the tech, the valuation and how confident we are about the team’s ability to execute.
What do you think about where alt protein valuations are right now?
I don’t know if this is just an alternative protein statement but it’s applicable to everything in venture capital and relates to supply and demand. Due to the sheer supply of capital, valuations are high, but again it’s supply and demand which means the startups can procure those. We have to be disciplined as investors and not get caught up in the wave. Bill lives it and he emphasized a few times last few months that we have to look deal-by-deal. (Bill Pescatello is managing partner at Evolv.)
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How is your dealflow?
Dealflow has been great. We had a lot of conversations when we launched the fund and at Grubhub I was very proactive in reaching out to companies, never reactive. I don’t want my inbox to be someone else’s priority so I’m really sensitive about how I manage my time and who I reach out to and because our parent company Is Kraft Heinz, our hit rate is off the charts as people want to hear what Kraft Heinz thinks and is doing. It also brings credibility so that’s helped open a lot of doors. Deal flow has not been a problem but we hustle a lot.
In terms of sources, we’ll look at social channels and all the team are avid readers. I read your newsletter, which is not a bad source of deal flow, and other publications, and I’ve proactively reached out to a lot of the foodtech/agtech VCs to introduce myself and Evolv. We’re not sharp-elbowed; we’ll work with anyone. Coming from a business development background, I knew this was the case going into venture but I didn’t fully appreciate how much selling occurs in this world, which luckily is one of my strengths. Selling entrepreneurs and VCs on why they should work with us. That’s a lot of the day-to-day job which people don’t realize. And you have to enjoy those relationships; getting to know people in general.
How involved is Kraft Heinz in investment decisions and then working with the portfolio after?
At a high level, like any other CVC, we have a committee of senior people that weighs in on decisions and they mostly trust what we’re bringing forth and have been supportive of deals to-date. In terms of working with the portfolio, the primary focus is about financial ROI but if we can provide operational ties, it’s certainly going to give a deal a higher probability of getting past than another without those ties. But that’s not a prerequisite to doing a deal. New Culture is an R&D effort, for example, that’s focused on the strain and getting that right, then scaling and reducing the cost. There’s not a whole of involvement from Kraft Heinz at this point in time. There’s also been no formal relationship with GrubMarket to-date. I’m sensitive about the right balance, coming from the startup world. These companies are working incredibly hard to execute on the visions they have to build amazing businesses so we have to find that balance of where does it make sense to connect the broader parenting business and at what time, versus when it makes sense to be heads down building that business to drive that financial ROI.
Which foodtech VCs do you most admire?
There’s a community feel among the VCs in this space who are all trying to change the world and invest in it. I love the community overall. I will say, I always admired Benchmark Capital, where Bill Gurley is general partner. If you know him, he’s an iconic venture investor in Uber, eBay, etc. I love how they think about evaluating businesses. I’m a two-sided marketplace guy and Gurley knows that space well. I watched him closely in Grubhub board meetings when I had the opportunity to attend and I’ve spent a lot of time following what he’s writing as I think he’s absolutely brilliant – if I’m half as successful as he’s been, I’ll have a nice career in this space.
Are there any deals you wish you’d invested in (prior to Evolv’s creation of course:)?
So my background is skewed towards restaurants but when I was at Grubhub it was interesting to see how cloud kitchens developed. Early on, we tested concepts like popup restaurants that are akin to cloud kitchens and I always felt given the turnover in the restaurant space, where 20% close each year, it was a really good way to help a restaurant manage their risk. It’s really compelling and it’s early days, but I think if done right, it has the potential to change how entrepreneurs think about launching restaurants and Kitchen United was one I always admired.
Another category I like is point-of-sale technologies (POS). I remember going to trade shows while at Grubhub and going up to the POS people in the early days and see if they wanted to partner with us on our online ordering. I got cold shoulders and I knew at that moment someone would disrupt the space and that’s when I came across Toast and thought this has potential to be big.