A tech company faces different issues. They often end up with a question: Does the solution respond to a real problem? Do people in the food industry see it as a challenge at all? Another task here is to understand how to integrate new technologies in rather conservative industries. A startup should consider all these aspects when entering the food space.
What would you say is the best way for food startups to convince an investor?
To give a proper advice, I would categorize startups into four different sectors: CPG companies, FoodTech companies, urban farming, and hospitality.
For a CPG company, the main challenge is to enter a market. The cost of commercializing an idea and financing the first batch is usually quite high. Most companies raising money from an investor try to sell equity, even though the company is not worth much before the market entry.
My advice is to rather try to finance and sell the first batch than to sell equity. The moment the company has some brand recognition, investors will look at it completely differently. To sum it up, planning and setting a company up for at least one year and then raising money to improve the product or boost sales through different channels could be a better strategy to approach an investor.
For a FoodTech company, it could be helpful to partner up with a strategic investor that comes from the industry. For example, a platform that is providing a hospitality solution should look for an investor which will give them access to their client base to test and adapt the product first, as the costs of customer acquisition are very high.
Most restaurants are small operators that will find it very hard to adapt to different technologies. My advice is to find an investor that is part of a restaurant or hospitality group to utilize his network.
Urban farming is a completely new space and we see a few companies that have already received large investments. But none of them validated their business model yet. I think, in the upcoming years the investors' view at urban farming will change.
Raising money for a hospitality operation is usually the most tricky task. This is not an area that typically gets investment. Only people with a lot of industry expertise and experience in franchising will be able to attract an investor.