The Foodtech Cornucopia Continues

Interest in the Agriculture and Food sector has skyrocketed in the last two years, essentially more than doubling from $800 Million in 2013 to $1.7 billion in 2014. Of particular interest is the massive increase in VC investment in Consumer Food Sourcing companies, a sub-sector of Agriculture and Food.

During the same period, consumer food services and particularly on-demand food service companies enjoyed a 7-fold increase in venture capital investment, going from $89 million to $678 million. These same trends continued well into 2015 after Instacart took the first spot in Forbes “America’s Most Promising Companies” list, back in January.

Instacart’s massive success and that of several other companies in the sector have driven more and more players to enter the food-delivery market, with plenty of venture capital investment following suit.

A roundup of the key consumer food sourcing investments in 2015 was given in our “FoodTech Start-ups Enable a Cornucopia of Choice for Consumers” blog post earlier this year in June. Since then a further $218 Million had been invested.

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Pre-portioned meal deliveries

Online restaurant delivery services provide a natural continuation of the already established phone delivery infrastructure that is widely used. Currently, the majority of foodtech investment is going into innovative meal delivery service providers.

In July, the pre-portioned meal ingredients delivery service Plated announced that it had closed its Series B funding round with $35 million, giving a cumulative total paid in capital of $56 million since it was founded in 2012. Competition in the market remains fierce, with players such as Blue Apron and HelloFresh still dominating. Companies are looking to distinguish themselves from one another by offering the widest selection of premium ingredients and meals.

HelloFresh continues strong, receiving $85 million in Growth Equity funding in September, giving it a total paid in capital of over $200 million. The round reportedly values the company at $2.9 billion.

Newer business models are integrating the entire supplier chain

As the market becomes increasingly more competitive there have been deviations from the original business models which are starting to catch on. One of the biggest differentiations for start-ups in the Foodtech industry is the part or the length of the supply chain that they control.

A perfect example is Pronto, a London startup, founded in 2014 and received a $1.6 million Seed funding round in August this year. The company might be entering the market late but its business model allows it to keep a larger percentage of the profits by controlling a greater portion of its supply chain. The company runs its own kitchens, with its own chefs, food procurement, menus and delivery fleet.

Farmigo is another outlier trying to redefine the way people acquire fresh products from their local farmers by creating a platform where consumers can shop a variety of locally grown products and have them delivered to a local pick-up point. In September of this year the Palo Alto based start-up received its Series B funding of $16 million.

Despite the fact that deviating from the norm is proving to be the right business model choice for some companies, for others it doesn’t always prove to be as successful, as it adds increased complexity. This is evident by the suspension of operations outside of San Francisco of the locally farmed food providers Good Eggs and GrubMarket. Both companies had managed to bring in a total funding of $56 million and $12 million respectively from the day they were founded.

“[R]einventing an entire supply chain — it’s hard, it’s physical, it’s not just bits and bytes”  said Benzi Ronen Farmigo CEO and Founder- TechCrunch interview.

During every month this year, there has been a new investment mega-round VC investment announcement or launch of a new on-demand service in this space. This rapid growth and investment interest has made the sector one of the most competitive, but by no means saturated. As more than 70% of food orders are still currently being processed via phone, it is clear that food, groceries and other delivery services can still provide a wealth of opportunities. However, it still remains to be seen whether the companies with the newer business models will be able to distinguish themselves and grow to the size of their more established cousins.