How to win investment? Top tips for startup founders

In fact, €6.5 billion venture capital was invested in food tech in Europe alone between 2013 and 2018, according to Five Seasons Ventures State of European Food Tech 2018 report.

Niccolo Manzoni, founding partner at Five Seasons, the only food tech startup focused venture capital firm in Europe, says it’s crystal clear to him that the food and nutrition area has ‘clearly got an amazing amount of entrepreneurs’.

“We see in excess of 1,000 opportunities a year and we are seeing more and more second time entrepreneurs which is a sign of this space reaching maturity. The fact the sector is reaching maturity is a sign of the amount of capital that’s being invested.”​

So how can entrepreneurs possibly stand out over this super-sized crowd?

”Our high number of applicants means the company has to take a very strict systematic approach to who it chooses to back,” ​explains Manzoni.

“We choose a specific sub-sector in the food industry that we find exciting and where we think we can generate value and we create a map detailing what we are looking for.​

 “We tend to back people with a real passion for what they do and a real want to change the way a sector works - a bold vision.”​

Manzoni says one example of a startup with a very bold vision is Foodspring, which was acquired by Mars just last week, which gives the brave promise to customers to 'Feel Good. Every Day.'

He also points out that YFood Labs, one of Five Seasons’ portfolio companies, launched in 2017 with a meal drink that works as an alternative to junk food for busy people. He says this has sold more than 2 million bottles already. 

“Another great example is Ynsect, which recently raised the largest early-stage agtech funding deal on record in Europe. It’s working on changing how the fish feed segment sources proteins, in a sustainable way.”​

Realistic and flexible​

Manzoni adds that entrepreneurs in the food sector can often underestimate the complexities of some of the processes involved in food manufacturing and they can be unrealistic in their expectations of what they can achieve.

“More importantly in the food sector, more than any other industry, is they have to know how their vision is going to play out.​

“People can often underestimate the complexity of some of the processes involved in food manufacturing. Of course it’s fine to not have all the answers at the start but they should at least having mental flexibility and the ability to assess the problem and find the best solution.​

“With that, it’s important for founders to be humble and be able to take on board the experiences of those around them.”​

David Atkinson, managing partner at Tate & Lyle Ventures, agrees that the founder’s attitude and ability to take assistance from others is ‘crucial’ to the success of an early stage business.

“No investment will go smoothly all the time so it is vital that there is mutual trust on both sides - that the founder understands they cannot do everything alone if the business is to be a success. ​

“Therefore, they must be able to work closely with others, help to develop a team and accept their own shortcomings. They must be able to work with investors and have a vision of where this business could go with the right backing.“​

Of course, it’s not just the founder’s attitude that must be on-point, but also their understanding of their market and how their innovation is different to the competition, says Atkinson.

 “They must also have developed a clear route to market strategy. Whilst this may be a lot for one person to achieve, at least they should understand why and how their innovation will make a difference in the marketplace and how best it can be used by the market.”​

Investment protection​

Atkinson adds that he would Ideally like to see some form of intellectual property which provides a barrier to entry in order to protect his investment, although he recognises this is often difficult to achieve in the food sector.

“It is crucial we find some form of protection for the investors and the hard work put in by the management team, so that the idea or innovation is not immediately copied by others.​

“Whilst it is not necessarily important that a founder has a strong financial background themselves, it is important that they recognise how important financials are to the business. Therefore, a member of the team with a strong financial background who can reflect many of the points highlighted above in a financial model which they can discuss as a team with prospective investors is crucial.”​

So whilst the chemistry with the founder is key, it is also important that the founder can show they have a protectable innovation and a clear vision, plus credible financial forecasts.

Mike Bush, managing partner at Growthways Partners, sums up the essentials: “​When considering a startup founder I find it important to not only look at the background of the founder as it specifically relates to the new venture but also at their ability to raise required capital, cost effectively build and lead the proper team,  and a broad attention to detail.  ​

“As it relates to the venture being founded, it is important that the business have unique competitive advantages that are or can be protected via IP and that have a market size large enough to allow for focused growth over an extended period of time.”​

Advice from Synbitech​

Investors from across the health, food and agriculture space gave some insight into what they search for in a startup company during a panel discussion at Synbitech, in London, in June. Here’s their thoughts at a glance…

• Dr Irina Haivas, Principal, Atomico:“We normally need to see a drive for change of something in the world and we won’t back something with a negative impact. ​We want to see the research and the commercial traction, not in terms of revenue necessarily, but at least initial customer interest. Perhaps with a pilot product or something. ​We also need to see there’s a product, not just an idea, as that helps to de-risk the investment.”​

• Eleonora Mantovani, Programme Associate @ RebelBio SOSV programme: “We need proof that the basic science has potential and the founder needs to have some sort of recognition, such as a PHD or Masters, to show that their theory will hold. ​We need to see people that are committed. Often we see people playing with the idea of a startup because of the coolness associated with it and then there are those that are in it for the long run which is something we need to see because it’s something that’s going to take a long time.”​

• George Katzaros, Co-founder & Partner, Farm Street Partners and founder of Clean tech group Verditek plc: “Big addressable markets are what I look for and a good team of people. The people factor is the other pillar on which companies are successful or fail. I want individuals to have a clear path on their market and have a stab at pricing it.”​