What does a meat company, in the business of raising and slaughtering animals for food, do when startups start developing disruptive technologies that cut out the need for animals? In the case of leading US meat supplier Tyson Foods, it invests in them. Through its year-and-a-half-old venture arm Tyson Ventures, the meat company has invested in three companies manufacturing meat and meat-like products without animals. But that’s not all Tyson Ventures is investing in; the arm has also invested in a food traceability startup and a consumer cooking technology.
Tyson Ventures invests under two pillars: sustainability and the internet of food, and its investment initiative has not gone unnoticed by animal welfare and sustainability advocates. FAIRR (Farm Animal Investment Risk & Return) highlighted the $150 million investment initiative as a best practice in its new food index. Tyson Ventures is also a welcome move after the company was embroiled in an animal welfare scandal at its chicken farms two years ago.
Ahead of his speaking slot at the Future Food Tech conference in New York later this month, Tom Mastrobuoni, chief financial officer of Tyson Ventures, spoke to us in-depth about the company’s targeted investment areas and the rationale for investing in Beyond Meat, Memphis Meat, Future Meat, Tovala and FoodLoqiQ.
Louisa Burwood-Taylor: What was your background before joining Tyson Ventures?
Tom Mastrobuoni: I started my career in public accounting in New York doing auditing and tax work for mostly family-owned, closely held businesses. I did that for four years and then I got into the alternative asset management world at a variety of places including, funds of funds, a buyout shop where I spent the most amount of time, and then went on to be first chair, CFO, chief compliance officer for a number of startup private equity funds in various stages across buyout and finally venture capital.
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My last role was with the Newhouse Family in New York; they’re the family that owns Advance Publications including Conde Nast and all those great magazines. I was helping raise a corporate venture fund, very similar to the model we’re using here at Tyson where we leverage actual capital that resides within the corporate entity to make targeted investments in disruptive businesses; for the Newhouse’s it was media marketing and technology. I didn’t know it at the time but that role was a great primer for what we’re working on here at Tyson.
LBT: When did you join Tyson Ventures?
TB: So I came on board in June of last year, and my partner Reese Schroeder joined a week later after retiring from Motorola Ventures after a long career of about 30 years. I will always have one week of seniority on Reese and I never let him forget it. But he is definitely the corporate venture guru. He built the Motorola Venture program and ran it for about 15 years, so I’m very grateful for the knowledge he brings.
We spent the first couple months finalizing our investment pillars and then made our first investment, which was the follow-on in Beyond Meat, in the fall of 2017 and we’ve been at it since.
LBT: The parallels you saw between your work with the Newhouse family and now at Tyson Ventures, do you think they’re a function of corporate venture capital generally? Or do you think that it just happens to be that they were following similar strategies?
TB: I would say it’s a function of corporate full stock. It’s not so much corporate venture. There’s the old model, which I think is widely agreed upon doesn’t work anymore, where the mothership invests a bunch of capital into a disruptive or potential target company to learn, sucks a bunch of intellectual property out and then leaves that orphan unit behind; that’s sort of what you saw at Yahoo for a while.
We took a view that that model does not work anymore, so what we’ve done here at Tyson Ventures is we’ve really made it a two-way street of intellectual property sharing so we’ll look for companies that are strategically aligned with something we’re trying to do in our businesses, and we’re really fortunate that we have such a wide range of operations that we have big playing field to work with.
So we’ll look for those companies that are either potentially disruptive to what we’re doing, like the alternative protein startups Beyond Meat, Memphis Meats, Future Meat, or that could be complementary to some of the things we’re trying to do and that’s where you would see FoodLogiQ fit. How do we come up with new ways to deliver food to people and how do we do a better job of tracing food through the supply chain? Ensuring safety, and reassuring customers and consumers. We want to make sure that they feel comfortable that we are doing everything that we can do to ensure their food is made properly, and they can enjoy our products without worry.
LBT: What are your investment pillars?
TB: We have two core investment pillars that we focus on. The first is sustainability. Reese and I report into Justin Whitmore, who’s Tyson’s first chief sustainability officer. He also has his night job is EVP of Corporate Strategy for Tyson, so our boss has a really big job! We’re fortunate to be working for him. Sustainability is obviously a core mandate across all Tyson businesses and we subdivide sustainability into four subgroups: alternative proteins, food waste and supply chains, food security and food safety, and food deserts.
In alternative proteins, we look at fungal-based, algae-based, and of course seafood businesses. On food waste, there’s a lot of data out there about the percentage of food that’s wasted in supply chains. I don’t know if the number is as big as people say it is, but we do realize it’s an area that needs focus and needs investment to get better at. Having worked at this company for a year now, I can say we do a pretty good job of using as much of the animal as we can in the processing as possible. So I think that there are great opportunities for us upstream and all the way down to the consumer level; we’re looking at some interesting companies that help restaurants sell surplus food at discounts to people like a GrubHub but on the surplus side.
On food security and food safety, how do we ensure that the cold chain hasn’t been broken? And food deserts is a really interesting space. I’m from the East Coast and we have large cities obviously — New York, but even in New Jersey we have Newark, we have Canton, and Trenton. And there are some areas there that are technically observed as food deserts because grocers go out of business because there are folks who don’t have a car, or can’t get out of their homes, such as the elderly or the infirmed, and all of a sudden that neighborhood grocer goes out of business and they are stranded with no access to healthy food options. So it’s really an area where we feel, with Tyson’s position in the market, we can really do some good there.
LBT: Across all those categories, are you looking at investing in startups innovating across agricultural products?
TB: I would say it’s all different types of food; we are obviously not a produce company, but we do have a lot of meal kits that Tyson makes that do incorporate some produce. You probably won’t see us doing any vertical farm investing any time soon, but I could see us going after a digital marketplace that helps sell surplus produce that could be an ingredient in some of our products or meal kits.
Sometimes it’s not always a straight line. Sometimes it’s a spaghetti bowl of how you get to your end, but what I’ve been learning about this industry is so many things are interconnected. You just have to look for that connection and then you have that a-ha moment, “Oh, okay, if we capitalize this company, it can have an effect on us, a positive effect on our company and on the environment. If it’s sustainability, let’s go after it.”
For instance, there are some companies that are focusing on eliminating food waste at the farm level, for instance. Some of those inputs may make their way into our animal feed supply chain. They may make their way into our Tyson Tastemakers supply chain. They may just be a byproduct of one of the thousands of independent farmers that we work with. If there’s a way that we can help them reduce waste and thereby make them more efficient, perhaps it can have a nice effect on our cost as we seek inputs from them and make our products more affordable and for our shareholders make our company more profitable.
LBT: What’s your second pillar for investing?
TB: Internet of food is the second pillar which is exactly what it sounds like: IoT for the food supply chain. It includes sensor technology, and that could be everything from RFID sensors to track products through the supply chain to ammonia sensors in a chicken grow house to monitor those levels and automatically kick on ventilation when it’s needed. We’re also looking at disruptive revenue models. As I said before, Tyson sales are primarily through brick and mortar retail and our food service channels, club stores.
What we’re seeing — and this is not anything new — is that there is a great demand on the part of consumers to have direct contact with the suppliers of their product. When I was with the Newhouse family, we used to call it disintermediation and brand-to-consumer communication.
One of the best examples of this is Red Bull. Red Bull is not an energy drink business; it’s a marketing company that happens to sell an energy drink. They sponsor sporting events. They have their own online and print publications. They’re sponsoring concerts. They just happen to sell an energy drink. They are brilliant marketers. If you look at what’s happening in the big brand markets, Pepsi, Ford, GM, they’re all starting to bring their ad-content creators in-house because they want to control that messaging. They’re using the ad agencies for buying slotting and getting the word out, but they really want to control the message.
Direct-to-consumer food brands give food companies the same leverage. It gives them a channel directly to consumer. You can tweak recipes. You can get feedback on your product quickly. You know what works. You know immediately what doesn’t work. Consumers are really good about telling you what they don’t like. Sometimes you’ve got to draw out of them what they do like, but those are channels that we are exploring because we really feel that that kind of data can help Tyson, a $40 billion a year, top protein producer in the country, figure out where the next plant-based movement is going to come from? What’s the next paleo? What’s the next keto? How do we do that? We need to get better … Part of the Venture team’s mantra is let’s get better at going where the puck is going to be and not standing where the puck used to be.
LBT: So you’ve made five investments so far. Can we go through them and why you invested?
TB: Beyond Meat was an investment that we inherited. The initial investment was made towards the end of 2016. There was really an exhaustive effort by the prepared food strategy team and the corporate finance team to do something in plant-based movement.
The task there was to identify the company that had the strongest ability to create a platform of products. Single brands are extraordinarily hard. Single-product brands are nigh on impossible to master. If you can find yourself a business that has the vision and a CEO and management team that understands what it takes to succeed … Ethan and Seth and their team really have this nailed, which is, “Let’s create a platform of plant-based products that appeal to the 96% to 98% of the population that does not self-identify as vegan or vegetarian in the United States. That’s interesting to a company like Tyson Ventures because you can make a nice little business out of being a vegan or vegetarian-focused business, but companies that can scale quickly, leverage technology, have a really sharp brand, appeal to what customers want and are constantly innovating, are what we’re looking for — that’s what we found in Beyond Meat, and that’s why we decided to back them twice.
The second deal we completed was Memphis Meats, a cultured meat business, out of the Oakland-Bay area. Uma Valeti is a well-known, well-published cardiologist. Got his start at the Mayo clinic cultivating tissue for human transplant, human organ replacement and then really saw an opportunity to leverage that in the food industry.
There are going to be some of our investments that have a 10 to 20-year time horizon. I don’t know what the actual time horizon is for when you might see cultured meat in the meat case in the grocery store. There’s certainly a number of both financial, scientific and regulatory hurdles that everybody needs to get over for that day to come, but this is one of those technologies that we looked at it and said, “This is real enough. There’s enough money flowing into this space and people are serious about this that if a company like Tyson ignores what’s going on here and doesn’t have a foot in the door to at least understand the industry, understand either the synergies or the potential threats that might exist from an emerging tech like this, then shame on us for not being smarter about it.
There are some investments where we’re going to expel more intellectual property and more intellectual capital into the portfolio company. There’s going to be others where we draw a lot more out. I would say this is probably the latter, where we’re going to learn a lot about what’s coming with this technology.
Same story on Future Meat, Israeli-based company, founded by Yaakov Nahmias, from Yissum University. Super smart guy. I tend to think I’m fairly educated. I get off the phone with Dr. Nahmias and I feel very stupid. He is extremely brilliant and not only technically sound and obviously well trained and well-studied, but he gets our market. Sometimes you come across entrepreneurs and they have a really great idea, but they’ve never spent time in the food industry, even less time than I have, and they don’t really comprehend how our supply chain works, how our industry operates or how it’s going to integrate into this machine that we have running in this country.
To come across an entrepreneur that is technically sound, financially conservative, understands what he’s trying to do and understands how it applies to the food supply chain, that’s a unique individual so we chose to back him.
Also they have a different approach to Memphis Meats so you probably won’t see them competing either in product or in geographic markets. We felt given its early stage and that cultured meat space is so nascent, that it made sense for us to have two chips on the table to cover both sides and let’s see which horse finishes the race first.
Last two, Tovala and FoodLogiQ. Tovala is a Chicago-based, multi-function kitchen device, cloud-enabled with a meal subscription attached to it. You purchase your oven. You sign up for the meals, they’re shipped to your door frozen and ready to eat. You take out your meal, scan a barcode and the machine pulls down the cook time from the cloud. It’s not a microwave, it cooks on convection, steam and broil settings. The average cook time is 15 to 17 minutes and the food’s perfect every single time.
It’s targeting that busy urban family who doesn’t have time to do go out and do all the farmer’s market shopping that they want to do or hit up Whole Foods on the way home. We found that one interesting because it gives you that direct to consumer channel, gives Tyson a way to potentially develop some products for the Tovala line. Part of our agreement with them we have an exclusive product development phase, where they’re working with only Tyson. Our goal is to be the first big food brand on their platform.
My personal favorite investment, because it’s the deal that I sourced and led, is FoodLogiQ. It’s a software traceability platform that enables the food industry – think Chipotle, Subway, those folks — to not only manage their supplier network and follow products through the supply chain, but if there is an incident at a restaurant, it has an automated recall and response module that allows that restaurant manager to initiate a recall within the system and it automatically filters all the way back and hits all the relevant suppliers along the chain.
Obviously, the most important thing is to make sure our customers are enjoying safe food, but if you look at it from a business perspective, recalls are very expensive. They are time-consuming and they are reputationally damaging in the market. And this is very timely if you look what’s happened in the States recently with the romaine lettuce recall, and now they’re recalling 200 million eggs.
LBT: How do you know which boxes, pallets and so on are affected?
There’s a universally accepted GS1 barcode standardization used in the food industry, where everyone’s using the same sort of barcodes. The data is embedded in those barcodes. For instance, at a Tyson plant, we would box up some poultry. That box would get scanned. We would then palletize that into a number of boxes. That pallet would get scanned. It gets onto one of our trucks. The truck gets scanned. That truck goes to a distribution center for one of our QSR customers. The truck is scanned at the distribution center. The pallet comes off, pallet scanned, box scanned. Box gets delivered to the individual restaurant. Could be one of 10,000, one of 500. Then that box is scanned at the point of receipt at the restaurant, so now we’ve known where the box started and where the box ended.
LBT: When you were talking about Memphis Meats, you said it’s a bit of an educational process for you and could be a long time horizon, so I’m wondering what Tyson Ventures will be providing its portfolio companies as a strategic investor, beyond capital?
TB: One of the questions my partner Reese and I ask is, “What are you looking for from an investment from Tyson? Are you looking for retail introductions? Are you looking for R&D support? Are you looking for marketing assistance, branding, packaging? Tell us. Literally, help me help you.”
It sounds a little corny, but that is the way the conversation goes. It’s very much … We have 122,000 team members who excel at what they do, 143 locations around the US and the world, subject matter experts in everything from animal welfare to microbiology to packaging to branding to food service. You name it, we can do it, and we can pretty much do it better than a lot of folks can. Tell us what resource you would like and we’ll see what we can do to make that happen for you.
The flip side of that is when we go into a transaction with folks, we have what we call clean term sheets. There are no business services terms in there. There’s nothing that says, “You are a meal kit company, so you have to buy poultry from Tyson. You are a brand data business, so you have to give us access to your data.” We want those things to happen organically because they happened with us organically in our business unit heads. It’ll happen with other companies, then the company we invest in will grow and be successful and we’ll have a great exit.
LBT: Do you intend to acquire any of the companies in the portfolio at any point?
TB: Our team does not handle M&A for the company. There’s a separate corporate strategy team that handles merger and acquisition work at the company. Nowhere in our mandate is it for us to be a feeder for the M&A team. However, we don’t exclude that from happening. If we make an investment and the company is doing really, really well, and it fits strategically with where Tyson’s trying to go in one of its business units, then that’s certainly an option that’s on the table, but Reese and I, we don’t handle that side of the business.
Mastrobuoni will be speaking at Future Food Tech in New York June 19-20 at New Lab in Brooklyn.