Speaking to FoodNavigator-USA at our Food Vision USA conference in Chicago, Whipstitch Capital co-founder Nick McCoy said such a venturing/incubation strategy is not a new phenomenon, but definitely a growing one: “All of the large strategics are trying to figure out their venture and incubation programs and they are all adopting different tactics.
“Some are simply putting money in for financial benefit; others are trying to leverage IP that they have that might be latent or otherwise dormant; other are just using it as a vehicle so they have the ability to buy a company before it goes on the market later on.”
As to how deals with large CPGs (as opposed to private equity investors) are typically structured, it depends, said McCoy, who co-founded Whipstitch Capital with Mike Burgmaier last month (click here for details).
“Very frequently there is a pathway, but how secure is it? Do they [CPG investors] have a right of first offer, is there an option baked in? Sometimes these deals are done in three or four stages…
“There is almost always a value add component too; so if it is a beverage company there is probably a distribution deal, and there may be also some help in the supply chain.”
Food and beverage accelerators
As to how big CPG companies identify promising early stage companies in the first place, business accelerators such as Food-X, AccelFoods, and Rutgers Food Innovation Center in New Jersey are often good starting points as they have already vetted scores of candidates and picked the likely winners, said Rabobank’s food & consumer trends executive director and senior analyst Nick Fereday.
In his latest ‘talking points’ note on food industry trends, in which he highlights the growth of business accelerators targeting food and beverage companies, Fereday noted:
“We expect an increasing number of the larger food companies to start paying more attention to accelerators, either as co-investors or early acquirers of recent graduates rather than waiting for them to hit their normal acquisition sweet spot of $30-50m in sales.”
- Click HERE to read more about food-tech investing.
- Click HERE to read about ZICO's tie up with Coca-Cola: "There were some ugly moments..."
- Click HERE and HERE to read about General Mills' 301 Inc venturing arm.
- Click HERE to read more about Whipstitch Capital.