Tech Money in Food: Where it can go wrong

Tech Money in Food: Where it can go wrong

Silicon Valley money is famously moving into food (Hampton Creek, Beyond Meat …) but investor Rufo Quintavale is not sure “disrupting” food is a wise course.

The headlines proclaiming Silicon Valley moving into the food industry would seem to herald a new era in food technology, but more than a few doubt the predicted “disruption” of food. And others question how the VC values translate into the nutritional space. Ruvo Quintavale, an investor managing inherited wealth to match an environmental mandate, caught eyes with his “Food Doesn’t Grow in Silicon Valleys” piece in the Stanford Social Innovation Review, and NBJ features his observations in the current issue (What Can Tech Teach Food & Beverage).

This extended Q&A goes deeper into some of the issues that rise when tech money begins playing in the food space.

NBJ: Does the Silicon Valley start-up model have a place in the food and beverage industry?

Quintavale: Yes, if it focuses on getting fresh or minimally processed food to market and on reducing wastage.  This could be IP and tech driven - improved storage, transport and refrigeration techniques.  But a tech approach which focuses on new forms of processed food and selling farmers new kinds of inputs is essentially just tweaking the status quo.  One of the things that seems to distinguish a "start-up" from previous generations of new companies is that start-ups tend to employ fewer people.  This is an area of concern to me not just in the food and beverage industry but also from the point of view of the broader economy and job creation.  Job destruction in the rural economy seems particularly damaging since it reduces the resilience of small communities and increases urban migration which brings with it a myriad of social and environmental problems.  And farming and food processing are big rural employers. 

NBJ: Where do you think venture capital investors can help the American food system improve in terms of sustainability?

Quintavale: The logistics of setting up regional (as opposed to purely local) food networks.  A choice between direct sales (farmers markets, CSA schemes, etc.) and conventional agribusiness supply chains is never going to change anything.  If sustainably produced and healthy food from a multitude of smaller producers can be aggregated, processed and delivered to schools, hospitals, prisons, etc., that will allow farmers to get on with the farming!  There are important logistical problems to be overcome here - how to balance sustainable systems of production which favor diversity and seasonality with consumers who demand a certain degree of homogeneity and predictability.  But I am sure that these can be overcome with the right brains and money.

NBJ: Where do you think venture capital investors can improve access to healthier food for people who might not be able to afford it?

Quintavale: I am not sure the returns are high enough for VC folks to get involved in this area.  This seems to me an area that the government is better equipped to deal with - i.e. through existing schemes that double the value of food stamps for purchases of healthy and sustainably produced food.  But one of the effects of improving logistics (see answer above) will be to bring down the price of healthy and sustainable food and make it more affordable - maybe not to to those right at the bottom of the pile but at least to a broader segment of society than is currently the case.  This would make it easier for government to provide coverage to the socially vulnerable who are disproportionately affected by poor nutrition.

NBJ: How do you think this rise in venture capitalist investment in food is going to end? Is it a long -term model for financing in food or a short-term story with lots of headlines?

Quintavale: The VC model is looking for big exits in a relatively short time frame.  If it can find them in food it will stay. If it can't, it will move on.  I think the return expectations of VC firms can put unreasonable pressure on young companies and am not convinced it is a long-term model for financing ANY kind of industry.  The economy has been flooded by cheap money over the last few years; some has flown into the stock markets and some has flown to VC firms who are sitting on a lot of cash at the moment.  They need to invest this money and this is driving very high valuations and loading young companies with cash.  There are parts of the food value chain that could do with a big injection of cash in order to make them more sustainable - irrigation, cold storage, regional processing plants.  But these are long term infrastructure type investments which offer slow and steady returns and are hence unattractive to the VC firms.  I guess my only real hope is that VC involvement in food ends with an orderly retreat and not with the bursting of a bubble.


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