Investors say the era of easy capital is over – startups must prove real traction, clean up cap tables and focus on solving urgent industry problems.
Industry disruptors carry a different weight than they did a few years ago when innovation was flush with capital. Some experts suggest that strength in numbers (i.e. stakeholder collaboration) will pave the way for innovation. Given the small pool of funding for food tech, startups need to remain prudent about where and how to stand out among investors, according to brands and investors who shared their advice during Future Food-Tech San Francisco last week.
For early startups, a good product or ingredient isn’t enough anymore – rather, they should solve industry problems and demonstrate substantial sales commitments to secure funding explained Steven Finn, co-founder and co-managing partner of Siddhi Capital.
Investors are focused on one thing first: Funding risk
Before solving an industry problem, the main concern for investors is financing risk.
“It’s not scale up risk. It’s not scientific risk, right? The scary thing is whether the company that is doing a great job and hitting all of their milestones is even fundable,” Finn said.
Food tech investors, like Siddhi Capital, are looking at multiple factors to determine financial risk, including strong early investor syndicates and strategic partnerships, pilots and corporate relationships.
These factors “will bring down the cost of achieving meaningful, fundable milestones because companies need to be further along to unlock things than they’ve ever needed to be. They need to stand out even more than they ever have because of the relatively small pool of capital available,” Finn added.
How to break the ‘no production, no funding’ cycle
For many startups, breaking the “no production, no funding” cycle means determining if their product is solving a real and urgent problem in the supply chain, Finn advised.
This means being creative with production, he said.
“Production means two things. It’s sample sizes and commercial sizes. You need to be able to figure out how to hack samples. You need to be able to make samples go a really long way and be able to turn them into basically pretty tangible sales commitments to be able to lock down capital in this market,” Finn elaborated.
Those sales commitments from samples can be used to support raising capital for commercial production, he added.
Offtake agreements, where a buyer commits to purchasing some or all of a startup’s future output, also can bolster financial support for startups.
However, “startups selling to startups and viewing that as a creditworthy offtake are going to be punished by the market,” Finn warned.
Why startups need a clear ‘one thing’ strategy
Finn advises startups to find “the one wedge that makes your company special,” or what he calls the “do one thing policy.”
For example, egg protein replacer producer Plantable benefited unintentionally from the egg crisis, albeit it wasn’t central to the original investment goal, Finn noted.
He explained that Plantable’s flexible infrastructure and low‑cost production of consistent, high‑value protein – plus valuable byproducts – directly taps into the growing need for food security.
“So the companies like that, as they expand, will have really interesting partnership opportunities to build new facilities and geographies that care about that company,” he added.
Fundraising in 2026: Red flags and cap table reality
For Finn, the biggest red flag in a fundraising conversation is problematic insiders whose terms or expectations make new capital impossible to raise.
“One bad apple on the cap table can ruin the bunch,” he said.
If insiders won’t work together on valuation resets, down rounds or other fixes, new investors simply walk away. And if the ownership structure can’t be cleaned up, firms like Siddhi will often pass – even when the business itself is strong, Finn explained.
He said many companies that took on big rounds at inflated, now‑irrelevant valuations are left with difficult investor terms and investors who aren’t on the same page.
How to navigate a recapitalization without derailing the company
But, recapitalization is possible, albeit delicate. Finn outlined three points to the process:
- Start with what new investors need to see if the deal makes sense
- Make sure the team still has enough equity to stay motivated and keep building the business
- Identify who needs to sign off – and map out every stakeholder and what they need to give or receive
Finn emphasized that raising capital is rarely a zero-sum game, but everyone has to make concessions.
The companies that survive 2026 will be the ones willing to face their complex cap tables directly and rebuild their ownership structure based on the business’s current reality – as opposed to the valuations they experienced in 2021, Finn added.
