Food Vs Tech Investing (they aren't that different!)

I was recently approached by a group of investors that has historically invested in b2b & b2c tech companies. They are interested in the food space and wanted my thoughts on what I look for in food startups vs tech companies. There are a lot of parallels.

Here was my thoughts:

1. 90% of all startups fail. It is tough no matter what vertical you are in. For pure food plays one thing to keep in mind is that they really aren’t making more shelf space in stores. So you have to replace someone when you get in. Honestly, this point is not much different from any other industry. Very few products are moving into a market with unlimited “shelf space.” Everyone is replacing something. Hence, tech is parallel to food on this point. Which is why point #2 is critical.

2. Velocity/Turn is one of the most important factors once on shelves. It is usually one of the first questions an investor will ask. Store count is great but you need the turn. This is not dissimilar to tech where downloads and pilots are great but without usage you aren’t building anything sustainable.

3. Brand is very important. This doesn’t mean you need a ton of cash. Startups can have a well thought out brand identity without spending much. Just like any other industry if you want to have a huge marketing budget and build brand through traditional media channels, you can, but in food, like tech, there are ways to be smart and targeted about brand building. This isn’t why food tends to take a bit more cash (I will get to that later).

4. Food tends to be a bit more geographically limited than tech at it’s earliest stages. Lots of factors play into this, production, safety, regulations, shipping, etc. In some ways this can be a benefit. It forces you to win local before expanding and can help keep you focused. Because tech tends to be geo-indifferent early stage entrepreneurs can sometimes be all over the place in sales and marketing, ignoring local low-hanging opportunities.

5. Production, food safety, regulations, and shipping add additional capital needs that pure software companies will not encounter while scaling. However, these capital needs are not much different from what you would find in hardware or any other consumer product.

6. Finally, if you invest in a food company, make sure you try the product. It has to be great. While this may seem unique to food it is really the same as any other early stage company. If you don’t have a great product, you are not going to win. You just happen to taste food!

Edit – I left the most important thing I look for in any company off of this list – Team. At any stage of a company nothing can substitute for a great team. It was just so obvious that I failed to include it in this list.