Start-up engagement with innovation is a key investment driver, says Venture Capital Firm Managing Partner

26 Jun 2019 --- The role of start-ups in shaping the future of the food and beverage industry is significant. A shifting consumer landscape that thrives off active social media interaction and the e-commerce model means that there has never been an easier time to start a food business. This is according to Dayton Miller, Co-Managing Partner of Boulder Food Group, who spoke to FoodIngredientsFirst about the Boulder and Los Angeles-based venture capital firm’s views on the natural food industry.

“It’s never been easier to start a food business. The ability to launch products with minimal capital via outsourced partners and functions, online distribution and other services have led to more brands than ever before,” explains Miller. “The fundamental driver is a shift in consumer preferences and an easier ability to reach audiences via social media.”

Indeed, a diverse range of start-ups that encompasses ingredients, technologies or services and plant-based finished products have flooded the industry in recent years. Start-ups are undoubtedly spurred by the increasing rate of venture/private equity firms investing in this space, Miller notes.

Innova Market Insights pegged “Small Player Mindset” as its number nine top trend for the year, reflecting an industry where small players are shaking up the norm and taking on classic FMCG giants. A 2018 Innova Market Insights trends survey found that two in five US and UK consumers prefer small brands “because they are more dedicated to their products and have a personal story.” This is completely on trend as 20 percent growth has been reported in food and beverage launches with a social ethical claim (Global, 2017 vs. 2016).

However, the start-up scene has not only proliferated with new entrants due to good timing or ease of launching but also because they are able to respond more quickly to popular consumer trends. Big brands that used to dominate commerce are essentially operating for efficiency. This means economies of scale and high output in the most cost-effective manner, Miller notes.

Innovation invites purchasing
Ultimately, as the number of diverse start-ups grows, the consumer is the real winner as they have more choices to solve their evolving needs, Miller says.

Innovation is about experimenting, testing, trial and error. In this way, it is not as well suited to the mass output eyed by A-brands. Yet, “innovation is the solution to changing consumer preferences and needs,” Miller says, so, the way that start-ups engage with innovation is a driver for investment.Capitalizing on the surprise trending status of the humble cauliflower, US company CAULIPOWER states that it is “revolutionizing” favorite comfort foods by making them “better and better for you.”

The food and beverage industry is going through a transition due to the growth of natural, organic, health and wellness and convenience. These categories are dominating what consumers want to buy and what retailers find profitable to sell. Start-ups are able to respond to these demands with innovative offerings.

Miller’s company, Boulder Food Group, has invested in a range of start-ups, but he pinpoints two as “stand-out.”

Capitalizing on the surprise trending status of the humble cauliflower, US company CAULIPOWER states that it is “revolutionizing” favorite comfort foods by making them “better and better for you.” The company offers tortillas, pizzas and pizza bases, among other products, which all utilize cauliflower as their base ingredient, some of which are marketed on a paleo platform.

Pizza bases especially have benefitted from a healthier makeover, reflecting the wider plant-based trend. In fact, Innova Market Insights notes that over 40 percent of consumers (average of consumers from UK, US, China, Brazil, France and Germany) increased their consumption of fruit and vegetables “in order to be healthier.”In the beverage space, Boulder Food Group’s first exit, Chameleon Cold Brew, was sold to Nestlé in November 2017.

“A few years ago, I’m not sure a lot of people imagined cauliflower-crust taking over the frozen pizza aisle, but it certainly has,” says Miller.

In the beverage space, Boulder Food Group’s first exit, Chameleon Cold Brew, was sold to Nestlé in November 2017. Founded in 2010, Austin-based Chameleon has become the number one organic cold brew brand in the US and one of the top three refrigerated cold brew brands in the country. The company’s current portfolio consists of multi-serve concentrates and single-serve RTD products, two segments that account for 18 percent of the US$2.5 billion in-home coffee category.

As many of the big boys are venturing into the funding space or setting up investment competitions, the innovative start-up space can only be expected to grow. Kombucha, cellular agriculture, clean meat, the microbiome and insect proteins are just some of the on-trend platforms in this golden age of creativity.

By Laxmi Haigh

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