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Software is eating the world; humans are eating food — Looking into European FoodTech funding.

Marc Andreessen is famous for coining the term “software is eating the world” which really summarizes the most profound opportunity in tech. Meanwhile we humans eat food. So how do the two interconnect? This post is a deep dive about how VCs are funding European companies related to food, a category known as FoodTech.

Creandum has for many years actively been investing in FoodTech with companies like Linas, Vivino and most recently Cornershop. And for good cause — FoodTech is one of the most exciting sectors for a few important reasons. At a fundamental level it’s one of the most important industries for humanity. Constraints on the world’s resources are reaching its limits as the world population is growing, so we need to find solutions for sustainable ways provide high quality food to everyone. On the other side of the spectrum, we also literally eat and drink everyday meaning the macro market opportunity in combining food and technology is massive.

Often the value chain related to food is referred to from farm-to-table, and entrepreneurs are working hard across the full length of it. At Creandum we typically think of this in three large buckets:

• Farming (agtech, decisionsupport, water/soil/crop tech)
• Processing (production, sustainable protein, storage, distribution, wholesale)
• Consumer (restaurants, retail/ecommerce, delivery)

The problems entrepreneurs are working on across these categories generally involves a focus or a combination of reducing waste, minimizing use of chemicals, conserving resources, accelerating distribution, lowering costs and improving quality and health — all of which are amazing missions to pursue. Hence, it’s important to recognize that FoodTech includes a lot of different type of companies, and expands far beyond customer deliveries which is the vertical that has gained most of media and VC attention in the past couple of years.

Because of Creandum’s excitement in this field we have done an analysis of the funding landscape in FoodTech. The analysis is based on public and free data on companies which publicly or according to our assessment operate within Farming, Processing and Consumer.

What’s getting funded?

When you look at FoodTech funding over the past couple of years, the market has mostly been highlighted by a few massive funding rounds within food delivery. These big rounds are outliers where funding has been used to scale up the workforce to get food to your door, whether it’s ready-to-cook meals like HelloFresh’s case ($211M raised in 2015), or food delivered from restaurants from Delivery Hero ($755m in 2015), Foodpanda ($210M in 2015) or Deliveroo ($200M in 2015). More on total funding later in this post, but with roughly $1.6 billion invested in FoodTech during 2015, these companies’ recent funding rounds have made up the brunt of total funding and driven the Consumer vertical.

FoodTech in Farming and Production startups meanwhile are barely making a dent in total European VC funding. Even when we take away the $1.3B invested in the above mentioned outliers, it’s still clear that Consumer is still dominating VC attention.

Although the three verticals in FoodTech are very different and can’t really be compared side by side, one could assume that Consumer with its heavy investments by far is most competitive. Farming and Production are tougher for the average entrepreneur to understand since we are all food consumers and can easily think of ways to get food in our bellies, but a smaller segment of us have domain insights to discover opportunities before food reaches our plate. However, there are definitely amazing software-enabled opportunities earlier in the value chain, and we welcome entrepreneurs out there working on impressive technologies across Farming and Production.

Where is the funding going?

Funding in FoodTech has logically been allocated geographically to larger European markets, with the UK and Germany having attracted most funding by often becoming big players at home before expanding across Europe.

The funding apparatus around Rocket Internet has also driven much of the european FoodTech excitement by investments in Delivery Hero and Foodpanda as well as cleaning up the market by acquiring smaller players in the delivery scene. According to our database, in 2015 German FoodTech funding reached a whopping $993M where Rocket Internet made up an impressive six of the ten largest rounds, bringing the country to represent 62% of Europe’s funding in FoodTech (a large part of which was Delivery Hero’s $755m raised in 2015). The UK, meanwhile picked up $529 million, while the rest of Europe pulled in just 5% of the rest of funding.

With larger later-stage German and UK rounds rounds slowing, the first quarter of 2016 is still weighted towards Germany and Uk. Although Q1 2016 includes significantly fewer data points and funding rounds than 2015, we see Nordic countries like Finland and Sweden advancing their Foodtech scenes. As an example, Finland-based food deliverer Wolt raised an $11M round to scale up its operations in Finland and to expand to Sweden (and probably elsewhere). Whether Wolt and other startups will be part of a larger consolidation play across Europe, or a force of its own to be reckoned with, is anyone’s guess.

Funding slows at the top 📉 but growing from the bottom up 📈 .

If total investment is any signal, it seems that the battle in food delivery is slowing down. Total funding per quarter it has steadily dropped from $792M in Q1 2015 to only $32M the same quarter one year later (in Q1 2016 quarter we only tracked 6 investments, but it’s unlikely much more information may come in later). Regardless, these giants aren’t getting cash fuel at the same level anymore, very similar to what we see across all sectors. It naturally follows at first glance that average funding rounds are heading steadily down. Over the past five quarters average funding rounds peaked at $66M in Q2 2015 but has steadily dropped to a meager $5.4M at Q1 2016.

But taking out these big delivery outliers paints a different picture. Removing the outliers, most specifically Delivery Hero, Hellofresh, and Deliveroo, and FoodPanda, shows a slight uptick in FoodTech funding over the past year. In such analysis we conclude that early stage financing has more than doubled from $2.11M average funding in Q1 2015 up to $5.4M in the same quarter one year later.

When considering median investment size including outliers we see a similar trend. The median FoodTech company barely grabbed half-million dollar rounds in Q1 2015, but has increased to $3.3M one year later.

What can we make of this? With total investments down, this suggests that entrepreneurs across the board in FoodTech are receiving more scrutiny from investors, but those who convince investors secure larger pools of capital. We think this is good news for the best entrepreneurs looking to get into the food business.

Still plenty of room in the Food value chain

In many ways now is a great time to be a European entrepreneur within FoodTech. The industry is coming at us — quickly, early stage companies are getting more funding, and there’s a growing community is behind it. With so many well-funded players competing for last mile delivery, the Consumer vertical is a tough market to operate in unless you do something uniquely different which taps into another subset of consumer behaviour. Instead entrepreneurs have to look beyond the most obvious and deeper inside the value chain within Farming and Products.

We truly believe in tremendous value creation to happen within those categories, and openly welcome such entrepreneurs to reach out to us. There are big world-changing opportunities out there and Creandum is looking forward to working with the best entrepreneurs in the industry. More than an internet of things, we strongly embrace the #InternetOfFood. 💪 👊

via GIPHY