In trying to stay consistent with our S2G Ventures Success Nutrition Facts (credit Alex Casey), Always Learn, Always improve is first. 2018 was a year full of lessons. If I reread our Lessons from 2017, I could take the easy way out and just rehash that blog post. Basically every one of those points remained consistent in 2018.
Building the Team and Organization: We started the year with 6 team members and we start 2019 with 13 team members (not including several interns). We also spent significant amount of time codifying our mission and Core Values;
Surrounding Our Firm with Great Advisors: We added 2 advisory board members to get to 6 total;
Investing Behind Great Entrepreneurs: We made 50 investments → 43 follow ons and added 7 new portfolio companies to give us a total of 37 companies in our portfolio;
Portfolio Scale: Our companies did approximately $750MM in revenue in 2018;
Building Industry Momentum: We spread the message of disruption in the food industry at approximately 120 events where we had about 75 speaking roles. We also saw a nice increase in our social media presence.
Entrepreneurs Continue to Drive Change: Our deal flow increased in 2018, where we saw over 700 different opportunities, and dug in on about 200.
Given we are a multi stage fund, we get to see companies at very different points on the arc of their company growth. We look at the growth of a company in 4 phases: idea, validation, infrastructure and scale. We usually focus on the last three. As noted above, in 2018, we worked significantly on our own business. We moved from validation to building infrastructure or from being reactive to proactive. We spent a fair amount of timing looking at how we “add value” to our portfolio companies. We spent time working on how to build processes and structure around Access to Capital outside of just S2G, Talent Recruitment, Goal Setting (OKR’s), Business Development and Exit Planning.
In doing so, we worked on our internal processes and implemented a variety of technology solutions, including SalesForce, Slack, and Ally (an OKR management tool), among others. In addition, we structured our Advisory Board interactions, planned team training/ culture events, sourced and readied a new office (move in 2/19), launched the beginning of a best practices library to share with our portfolio companies and more. There are so many things we could write about. 2018 was another big year for S2G in its journey to be a world class investment firm that can help improve the overall quality and sustainability of the food system.
Food as Software. Over the last 20 years, as the software industry has grown up, it has gone through several phases. From large specifications and hypotheses, it has shifted towards quick tests/ iterations that are released “into the wild” to quickly get real world/ user feedback. If the feature works, keep it, if it doesn’t dump it and try the next thing. It’s less, what do you think and more what do your users do. In the past, big food would general spend several years doing research, focus groups, getting a product to the point of a large commercial release and blowing it out in the channel with larger advertising budgets. In 2018, we saw more and more companies treating food like software with small iterative launches into the market (often online) to get quick feedback, iterate on the product, change the formulations, change the serving size, test pricing, positioning, etc… Once they got market feedback, often within weeks, entrepreneurs and innovation leaders could then scale the product and drive its proven success across multiple channels.
The Decline of Major Brands. We have all seen the stats about how big food has changed.
90 of the top 100 brands have lost share since 2015
Of the largest 900 new food brands since 2013, 88% of them have come from small and medium sized companies
Large CPG valuations have dropped $130B since June of 2016 (as of June 2018)
Consumers seem to continue moving towards smaller brands that cater to their “tribe” or their specific preferences, like paleo, vegan, keto, Whole30, gluten free,… In addition, consumers want the same variety, conveniences and flavors that meet their changing tastes. Big Food will continue to provide staples, but the growth is in the increasing diversity of these tribes that are looking for local, natural and clean label foods – not just superficial differences as generally happens in SKU extensions like shape or flavor or serving size.
AI & ML. In addition to Food as Software, we also saw many of our ag tech companies using AI and ML techniques to find solutions to solve their customers needs. They are condensing years and years of trials info a few months or a single season. Where as historically field tests were much more manual and incremental, now using new techniques, they are able to test thousands (even tens of thousands) of different experiments in a condensed time frame compared to what might happen in mother nature. Bringing large data sets and “smart” software to the agriculture industry has the ability to help farmers drive improved profitability in a low commodity environment. We are on the verge of significant improvements in ag-tech market as these software solutions are refined and focused on “real-world” problems.
Biological (can be) > chemical. Many of our portfolio companies have been around for years and some are new to the scene, but they continue to validate that using biological solutions found in nature (sometimes with AI & ML and sometimes with good old human intuition) can be just as efficacious, without the downside (human health, environmental degradation, cost, farmer ill-being,,..) of chemicals. In more and more industries (including agriculture) entrepreneurs are finding cleaner, more cost effective and healthier solutions to customers needs. We continue to see biological solutions being validated and it is only a matter of time before they see widespread adoption.
Attribute is the New Brand. Currently, most food companies focus on a logo or a symbol to differentiate. Maybe it’s a cartoon animal or lifestyle they are known for. Increasingly though, consumers want food to be a solution to a need they have. Could be better vision, shiny skin, inflammation reduction or it could be a better mood. “Let food be thy medicine and medicine be thy food.” Most newer brands are spending time focused on their functional attributes and how they differentiate from others. The companies that can provide those specific attributes that solve the needs of consumers, cost effectively and authentically, will be where new customer loyalty resides. DNA, heart rate, glucose and other constant, realtime human monitoring will accelerate these verifiable claims.
Regenerative Ag is a Thing. Some of our portfolio companies that have been around long before we got involved have been working on Regenerative Ag solutions, knowing that we need to move beyond just sustainable (at least for awhile), but to regenerative to our planet. We have an economy that continues to put more carbon into the atmosphere then it takes out, and an atmosphere that seems to have more carbon in it then is optimal for human existence and stable weather patterns. So we have to continue to find ways to remove carbon from the atmosphere and put it back into the ground to where it was prior to the industrial revolution. And we realize that there are no technical hurdles in doing so, it is politics, will and belief that it is doable. More work to be done, but it became clear it is possible.
Shift in Mindset. Conventional wisdom used to be that being sustainable was expensive and limiting. That being sustainable was a drag on the economy. But one of the biggest learnings of 2018 was that the economy that we have built over the last 100 years is actually what is expensive and limiting. We have chosen energy sources and a food system design that is incompatible with infinite future growth and is already holding back our potential. But real, short, mid and long-term growth are dependent on using sustainable resources, techniques and business models which will enable us to grow an economy to meet the needs of everyone. Sustainable solutions are the opposite of limiting.
Remembering What Food Is. As we head into 2019, one of things that we are reminded of is what food stands for. We all sort of knew it, but we relearned how important food is for most of the things we value in life, including culture, strength, health, community, livelihood, celebrations, family meals, endurance, brain development and so many other things in our lives. The old adage “you are what you eat” is top of mind with so many of us. Keep voting with your pocketbook and buying food that is healthy and sustainable. We are humbled to be working with entrepreneurs that are changing the food industry one meal at a time!