Kirk Haney, the CEO of the San Diego-based acceleration fund Radicle Growth, says that asking entrepreneurs in the food & beverage industries – and specifically the food- and ag-tech space – to follow the same playbook with the same financial support as other tech companies is unrealistic.
He explains this is because “there is no Silicon Valley for food-tech or ag-tech,” and as a result it “requires a pretty Herculean effort at this stage to help companies grow.”
In this episode of FoodNavigator-USA’s Soup-To-Nuts Podcast, Haney explains how the traditional venture capital model is falling short when it comes to food, beverage and agriculture, and describes how Radicle Growth is pioneering an alternative approach that he says could benefit entrepreneurs, investors and the overall industry. He also shares where he sees the most potential for innovation and growth within food, beverage and agriculture in the next five to 10 years
The current model and its faults
The huge influx of money pouring into the food and beverage industries in recent years is evident in the steady stream of headlines proclaiming multi-million dollar investments in innovative young start-ups, such as the recent $2.5 million investment in Renewal Mill, a $90 million investment in Siete Family Foods or a $12 million investment last year in SnackNation.
And while Haney acknowledges “there is a ton of venture capital in US that is coming up,” he says that the investments in food- and ag-tech pale in comparison to other segments. Specifically, he noted, last year roughly $5 billion was invested in ag- and food-tech, compared to $23 billion in health-tech and $36 billion in syn-tech.
“It is a fraction of other industries,” he said, noting that the median seed round for ag-tech and food-tech is about $1.5 or $1.5 million.
Haney says this simply is not enough money to carry entrepreneurs forward and allow them to sufficiently develop their technology and product before worrying about their next fundraise round. The distraction of needing to raise additional funds can cause entrepreneurs to focus on the market potential rather than the product – ultimately slowing progress down.
One reason that food- and ag-tech companies need more money when starting out than businesses in other sectors is that they are not operating in a connected infrastructure, such as Silicon Valley provides, Haney explained.
Because the industry is not centralized or fully digitally connected, companies need to spend more finding and meeting with investors who are spread around the world.
The ag- and food-tech industries also are at a disadvantage because they do not generate returns or even adoption as quickly as other industries in which investors are active – leading traditional investors to balk at the wait time for returns.
“And they are right, if you are looking at investing in the rearview mirror,” Haney said. “I look forward, not back, and what I see is that change historically it has been that way…[but] the dynamic is changing in a way because the food value chain is being digitized. Things are going to faster because we have new technology to reduce risk for a farmer or someone in the food value chain.”
Developing a new model
With this backdrop, Haney said the food- and ag-tech industries need a completely different investment model that is can bring “the right amount of capital for these early stage companies” paired with much-needed expertise that when combined can build up the industries in a fashion that mirrors the creation of Silicon Valley.
And this is exactly what Haney says Radicle Growth is trying to do.
“Where Radicle started is we saw that to go from $100,000 investment from an accelerator to a median series A in 2018 of $6.2 million, there was just a huge funding gap. Plus, we had great entrepreneurs who didn’t have any experience in the food value chain or great entrepreneurs in the food value chain that never raised venture capital for their startup, and we wanted to bring these communities together to help reduce risk and help increase our chance of success,” he explained.
“We are a company building platform. We have a dedicated pool of capital … and then we also have developed and built this community of experts” who can help entrepreneurs build their business, he added.
So far, the model is proving successful with 100% of the companies in which Radicle has invested receiving follow-on financing compared to the average of top seed funds in Silicon Valley that are about 71% or 72%, Haney said.
Rising to a challenge
A key component of Radicle Growth’s strategy is hosting what it calls Radicle Challenges, which strive to bring together the best entrepreneurs from around the world to compete for “real money” to help fuel “real solutions” to some of today’s biggest challenges.
“We created The Radicle Challenge, created a pitch day competition that …[was] the first to do an ag- and food-tech challenge that was putting real money to work,” he said.
So far, the company has hosted five challenges and they have “been incredibly successful” and generated 450 of the 1,011 deals the platform conducted last year, Haney said.
Past Radicle Challenges have addressed a broad range of issues from GPS to automation to other ag- and food-tech issues. But Haney says a common thread of the Challenges is that they have addressed problems identified by industry and market experts.
Haney explained that the topics are based on problems identified by market experts. Areas that are ripe for innovation include food safety, specialty crop production and managing workflow with a labor shortage.
How they evaluate investments
Challenge participants are evaluated not just on how they are trying to solve the problems at the center of each competition but also on their leadership potential and how well they respond to advice and work with others.
Haney explained that the founding team is “hands down” the most important component of a potential investment. Radicle looks for entrepreneurs who can creatively address challenges, rather than giving up, and who have a track record of leadership or action.
The group also looks for entrepreneurs who are “coachable” and willing to listen to advice and incorporate insight from others in their decision-making process, he said.
Entrepreneurs can expect help creating a ‘pragmatic’ plan
According to Haney, competition winners and other entrepreneurs who sign up to work with Radicle Growth can expect a dedicated team that will help them created a “pragmatic” business plan.
He explained that optimistic entrepreneurs often think they can do more than is possible on limited budgets or in a tight timeframe, and so his team works with them to pare down a list of eight priorities ot just one or maybe two.
By executing this strategy, Haney says he believes that in the next 10 years the investment in and potential for companies in the food- and ag-tech segments will grow the current $5 billion to $20 billion or even $30 billion.