There may be skeptics out who think food startups are just restaurants with investment funding. Chipotle meets Kleiner Perkins. Unoriginal and doomed for failure.
But those skeptics are apparently not investors.
CB Insights has a new report out saying that the first quarter of 2014 saw a five year high point of investments in meal, grocery, and food delivery companies. Investors sunk more than $ 200 million into these deals.
According to CB Insights, most of the investments in the food space in the last two years were seed stage — 50 percent — with a sizable chunk that were Series A rounds — 30 percent.
It’s early days for the sector, but given the amount of money going into it there’s bound to be some winners. In recent months we’ve seen significant firms — like Greylock and Khosla Ventures — place bets. It’s clear that food is no longer a niche, risky investment. It’s a sector even the big boys are trusting is ripe for disruption.
Since the food sector is still relatively new, older delivery sites like GrubHub and Seamless aside, there’s room for takeover. There aren’t established players in the field, so these new food and delivery companies have a better shot at owning the market than, say, e-commerce companies trying to take on Amazon or Zappos, or transportation platforms like FlyWheel and TaxiMagic trying to overcome Uber and Lyft.
Granted, Amazon has AmazonFresh, which is a direct rival to the likes of grocery delivery companies like Instacart. But it’s still a far cry from what the majority of these startups do.
They’ve differentiated themselves, either as meal kit companies like Plated and BlueApron, on-demand meal delivery startups like Munchery and SpoonRocket, fast food delivery platforms that focus on healthy or bougie restaurants, like Zesty and Caviar, food delivery companies that specialize in shipping regional foods cross country, like GoldBely, or alternative food companies like fake eggs from Hampton Creek or fake meat from Beyond Meat.
The CB Insights data proves what Pando has already postulated — that the time for food startups is now.
Investors and entrepreneurs have a range of theories for the trickier of questions: Why now? For some, like on-demand meal companies (Munchery and Sprig), the timing is right because the mobile phone has become a “magic wand.” Consumers are accustomed to clicking it and making whatever they want appear.
“What’s exciting about Uber and Lyft is reinventing an industry that was stagnant for so long, using the entry point of the mobile phone,” Sprig’s founder and CEO Gagan Biyani says. “This is a logical next step with food.”
For the likes of meal kit delivery companies Plated and Blue Apron, Instagram has been a huge factor. “When I grew up I ate spaghetti every Wednesday and pork chops every Thursday. There wasn’t a lot of variety,” Blue Apron investor and Bessemer partner Kent Bennett says. “But now you have people watching Food Network and sharing pictures on the Internet. There’s more willingness to go for food diversity.”
For the rest, it may just be that food is too juicy a sector to resist. After all, everyone needs to eat multiple times a day. America’s health and obesity issues are renowned, and the hunger for affordable, efficient, healthy meals is high. Environmental issues mean that meat will continue to get more expensive and resources for producing livestock will dwindle. We’re coming out of the recession and America’s upper classes can afford to spend a little more on healthy, easy, delicious meals.
“It’s inevitable you’ll be able to press a button and get fast fresh food delivered to you. It’s hard to imagine that won’t happen,” Greylock partner Simon Rothman, an investor in Sprig, says. “Food is on deck to be disrupted.”
There’s a lot of money in Silicon Valley, and with an incredible amount of competition for hot deals in consumer software, good VCs have to get creative and start taking risks on untapped, unproven markets where there’s still space for windfall investments.
Furthermore, sector investments are like snowballs. It takes a little while to get one started, a few brave souls risking their snowflakes on this sphere. But as they do, and the companies they support see traction, more entrepreneurs and more investors start glomming on.
GrubHub’s hugely successful IPO a week or so back was a nice kickstart. It netted a good sum for its investors, trading 31 percent higher than its initial price at the stock market close on IPO day.
As the ball picks up speed down the hill with the help of IPOs like GrubHub and huge investments like Munchery’s Series B, more snowflakes are added. The more weight the ball carries leads to a larger surface area, and more and more hypothetical food snow is picked up on the way.
That’s why Shervin Pishevar, an early investor in Uber, was willing to make his new firm’s biggest investment yet in Munchery, the first meal cooking and delivery startup.
“When I did the Uber investment, I had to calculate what the numbers would be if it scaled to multiple cities. It got really big,” Pishevar remembers. “[With Munchery] we’re also making a very big bet this will scale to multiple cities in the world.”
And Munchery is only one company among many that’s sucking up investment with the hopes of scaling nationally and internationally. Certainly there are plenty of challenges these startups face, from dealing with health department officials to liability surrounding allergies and food sickness. And we’ve certainly seen trends blow up then fade away. But based on the latest data, the food snowball will continue to roll for the foreseeable future.
[illustration by Brad Jonas for Pando]