Last week, S2G Ventures, also known as Seed 2 Growth Ventures, officially launched its $125 million food and agriculture fund at the New York Times’ Food for Tomorrow event in New York. The fund has in fact been quietly investing since June 2014 and has made eight investments already. These include some relatively high profile companies in the sector such as ShopWell, the nutritional food discovery app, MycoTechnology the taste improving biotech company, and Beyond Meat, the plant-based meat manufacturer.
Using the consumer as its north star, the firm invests along the supply chain, from ‘soil to shelf’ and across seed, venture and growth-stage companies, investing from $250k to $10 million in each portfolio company. It is flexible in how much it will invest into each segment.
Co-founded by Victor Friedberg, who led the announcements last week, the firm also announced last week that it had brought Chuck Templeton, the founder of OpenTable and former CEO of GrubHub, onto the team as managing director. (Read our story about last week’s announcements here.)
AgFunderNews caught up with Templeton and Sanjeev Krishnan, managing director, to hear a bit more about the firm’s investment process and how it views the food and agriculture sector.
How do you approach sourcing farmer-focused technologies, and what are the challenges in this segment?
Krishnan: We are lucky that Midwestern BioAg [an inputs distributor and biological ag consulting company in S2G’s portfolio] has a direct-to-farmer model and a research & development farm where we can do field efficacy trials for new technologies to help with diligence. That farmer connection is important. Entrepreneurs are developing a lot of technology and think they have a good idea, but there is a disconnect with the agricultural industry.
Templeton: That’s not just an agriculture problem; it happens in a lot of different industries. A challenge for testing agtech is that there is a much longer cycle to test and develop different iterations of a product; there are only so many growing seasons in a year compared to a much shorter iteration cycle for other industries.
Krishnan: While many of these technologies will be used by the farmer, we are trying not just to understand him or her, but the consumer: how can we feed a new and changing consumer? The agtech paradigm has been very focused on increasing yield, but we are looking more at what consumers will be buying. The consumer is the head of acreage, and retailers are thinking about what consumers want to see on food labels.
We are pretty inclusive and flexible, so would look at precision agriculture technologies if they provide a solution for the consumer, such as ensuring transparency or traceability for labeling. It’s a different set of dynamics.
It’s a $1.4 trillion industry and we are trying to understand the problems the food service industry is facing. If we can’t help solve them, we need to back entrepreneurs that are disrupting the current system. It’s exciting because there’s so much change.
Templeton: There is more change in farming than ever before. For the first time, large food brands are actually going to the farm gate to try and understand their supply chains — not just calling their commodities suppliers — and looking for a level of transparency not seen before. And you can see it appear in marketing campaigns; McDonalds recently announced it was only using cage-free eggs for example, and Chipotle has a strong non-GMO policy. They had to work with their suppliers to make big changes to make this happen. These systems have been built up over 50 years. And are built for scale. They are not built for diversity and flexibility.
You have identified organic and non-GMO as target areas for investment. How tied are you to these certifications?
Krishnan: We have no value judgment on organic or GMO. We are focused on sustainability, health and decentralization. It’s not about non-GMO or organic, it’s about the functionality of food. We think that food will go beyond these classifications into other labels such as high protein or high in beta-glucans as consumers look for more functional, tasty and affordable food. And food that they can know what’s in it. Big food companies are therefore looking more clinically at food and what characteristics they can identify on their labels such as nutrition density and traceability. GMO is a complex debate and consumers are clearly voting with their dollars. From our perspective we just want transparency. And we don’t think GMO is the only system that can exist; more will follow.
You are invested in indoor agriculture company Shenandoah Growers. What challenges do you see for indoor ag as it grows as an industry?
Krishnan: It’s a logistics issue, an infrastructure issue, a cost issue and an identification issue — are you B2B or B2C? Shenandoah Growers are one of the most proven models with 25 years of operations and product in 6,000 stores and they have had lots of iterations to meet these challenges. They have developed a unique production technology with a series of industry secrets and patents, which has brought costs down, improved the freshness of product, and built them a brand.
Would you invest in farmland as part of a vertical integration play?
Templeton: Buying farmland is not really a venture model and in addition, you have to think about the capital intensity of farming operations. This is not something we would do as a venture fund, but there might be opportunities to create special pools of capital to go after these issues. There are some food brands that have vertically integrated and bought their own farms. In the past, they would have outsourced the risk to the farmer, but now with more demand for transparency, owning the land can help control what happens on the land and therefore the profile of the food sold. We also hear a lot from retailers about resilient sourcing. That’s one way they frame sustainability and that’s pushing new models for produce and row crop production.
What are your views on the heating food e-commerce industry, which is essentially trying to play the intermediary between producer and consumer?
Templeton: There are new models for consumers to discover food. Certainly the millennials don’t pay attention to traditional marketing tactics and methods. So, the “last mile” and how consumers discover and make those choices will be interesting. It’s almost going back to the old days when milk used to be delivered milk to everyone’s house, and it’s helping farmers get a bigger percentage of what their produce is sold for. But there needs to be some more evolution and a critical mass of consumers demanding these services in certain geographies. And we’re not sure how you get that.
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