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Venture capitalists make bigger bets on Silicon Valley’s kitchen

world Updated: Apr 30, 2013 00:15 IST
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What if the next big thing in tech does not arrive on your smartphone or in the cloud? What if it lands on your plate?

That idea is enticing a wide group of venture capitalists in Silicon Valley into making big bets on food.

In some cases, the goal is to connect restaurants with food purveyors, or to create on-demand delivery services from local farms, or ready-to-cook dinner kits.

In others, the goal is to invent new foods, like creating cheese, meat and egg substitutes from plants. Since this is Silicon Valley money, though, the ultimate goal is often nothing short of grand: transforming the food industry.

“Part of the reason you’re seeing all these VCs get interested in this is the food industry is not only is it massive, but like the energy industry, it is terribly broken in terms of its impact on the environment, health, animals,” said Josh Tetrick, founder and chief executive of Hampton Creek Foods, a startup making egg alternatives.

Some investors say food-related startups fit into their sustainability portfolios, alongside solar energy or electric cars, because they aim to reduce the toll on the environment of producing animal products.

For others, they fit alongside health investments like fitness devices and heart rate monitoring apps. Still others are eager to tackle a real-world problem, instead of building virtual farming games or figuring out ways to get people to click on ads.

“There are pretty significant environmental consequences and health issues associated with sodium or high-fructose corn syrup or eating too much red meat,” said Samir Kaul, a partner at Khosla Ventures, which has invested in a half-dozen food startups.

“I wouldn’t bet my money that Cargill or ConAgra are going to innovate here. I think it’s going to take startups to do that.”

In the last year, venture capital firms in the valley have funneled about $350 million into food projects , and investment deals in the sector were 37 percent higher than the previous year, according to a recent report by CB Insights, a venture capital database (see box).

“Consumers are interested in sophisticated experiences that are beautifully delivered, which we’ve seen happen on the Web and with products like the iPhone,” said Tony Conrad, a partner at True Ventures, which was an early investor in the coffee company Blue Bottle. “Now, we’re seeing that happen with food and beverage.”

Still, some tech analysts and venture capitalists are skeptical that these companies, with their factories and perishable products, can reach the scale and market valuations of big Internet companies.

“I don’t see a multimillion-dollar business coming out of any of these companies,” said Susan Etlinger, an analyst with the Altimeter Group, a firm that advises companies on how to use technology. “The majority of Americans will not likely be able to participate, they’re simply too expensive for them.”

Venture capitalists have strayed from pure technology to food before. Restaurant chains like Starbucks, PF Chang’s, Jamba Juice and, more recently, the Melt, were backed by venture capital. Recipe apps and restaurant review sites like Yelp have long been popular.

But this newest wave of startups is seeking to use technology to change the way people buy food, and in some cases to invent entirely new foods.

Investors are also eager to profit from the movement toward eating fewer animal products and more organic food. They face a contradiction, though, because that movement also shuns processed food and is decidedly low-tech.

Still, food startups have their own challenges that are unfamiliar to tech entrepreneurs and investors, like a broken-down delivery truck or a bad oyster.

These setbacks can be more difficult to recover from than a software malfunction.

Bill Maris, a partner at Google Ventures, the search giant’s investment arm, has not yet put money into any food-related companies.

But he said he was closely watching the trend. NYT

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