Foodtech and ag-tech startups in Montreal and beyond have reason to smile these days. That’s because Hamnett Hill and his partners have raised $10 million in capital for a new fund called Edō Capital, which will invest in sustainable food-related businesses over the next 24 months.
We’re witnessing “massive changes” in consumer taste for food, Hill told MTLinTech this week. That coupled with a perfect storm affecting traditional big food is translating to big opportunity for new ventures offering alternative options for consumers.
“Consumers in waves are turning away from processed and industrial foods towards organic, local, non-processed, non-GMO, low-carbon footprint, ethical and humane food,” he said. “That whole movement is kind of a backlash against big food.”
‘Big food’ refers to the large food-producing conglomerates that control large swaths of market share, like PepsiCo, Dole, General Mills and more. However, the underlying cost infrastructure of big food is getting squeezed. The amounts of oil and water they use is unsustainable, as is the pollution they create. Top-line pressures are increasing as customers turn away in favour of health-conscious alternatives.
“Out of that,” said Hill, “we think there’s a lot more innovation and opportunity happening in food.”
Hill is a well-known, yet concealed character in the Montreal tech scene. Both Hamnett and his brother Austin Hill came to Montreal in the mid-1990s from Calgary and helped start what is today’s Montreal tech community. Over the next three decades the brothers built up and cashed out of different businesses relating to online privacy, like TotalNet, ZeroKnowledge and RadialPoint (Hamnett continues to be chairman and the largest shareholder of RadialPoint). Austin Hill also played a large role in the beginnings of Montreal venture capital with Real Ventures.
Fast forward to 2015, where Hamnett Hill is knee-deep with his new fund for sustainable food innovators, Edō Capital. It was started last summer with a couple other high net-worth Montrealers and now boasts three portfolio companies: XpertSea, which develops technological products for the aquaculture industry; Alveole, which provides urban beekeeping equipment, services and training; and Les Vins Dame Jeanne, which imports and distributes underrepresented local and international wine brands.
But those food startups looking for their big break may have to think again before setting a meeting with Hill. Edō wants to invest in those companies with at least half-a-million in revenue (and for what its worth, a ceiling of around $10-15 million). They want businesses who’s models are proven, and they aren’t willing to settle for less. “We’re not so much venture or into funding a lot of losses. We want break-even or a pretty clear path to get there in the next 12 months,” said Hill. “We’ll probably invest $100-250,000 in about 12 companies and for those who can really use the help we’ll invest $1.5-2.5 million in four or five of them.”
That’s not to say Hill’s resume is sparkling clean – he admits that while he’s earned a nice living for himself over the years: “we’ve had some that have worked out and some that haven’t.” Still, he knows where he wants to look, particularly because Hill see’s a huge funding void, and a huge opportunity in a certain kind of food venture.
As Hill explained, the amount of consolidation within the food industry has grown wildly over the past 20 years, to the point where four or five companies control all the world’s grain trade. They’ve grown so much that it’s difficult for them to respond to changing customer demand towards organic, sustainable foods. In fact, Fortune Magazine published a cover story in late May titled “The War on Big Food,” detailing how major packaged-food companies lost $4 billion in market share alone last year. Heinz, the popular ketchup-king, was mentioned after its profits heavily dropped last year.
“It’s like the perfect storm: their costs are going up an getting unpredictable, consumers are turning away and the conglomerates are not able to respond because structurally they’re just too big,” said Hill.
These conglomerates used to wait until companies had at least $50-100 million in top-line revenue before an acquisition, but as they’ve scrambled to adapt to the changing tides of foods “you’ve got all these acquisitions that are happening in the $20 million range because they need more of this organic friendly product to replace all the Heinz ketchup that’s not being sold.”
The newer, smaller companies targeting sustainable and organic foods have quietly gone about success, many to the point that they’re struggling to match consumer-demand. Where they run to for support is a problem, too. Unlike traditional tech, which is flooded with everyone and their uncle who can lend their expertise as mentors, there’s little in the way of help for food tech startups once they experience growing pains.
That’s where Edō Capital thinks it can make a dent.
They feel they have the experience as primary handlers in the industry and they want to inject money before traditional finance steps in. “A lot of these guys have put out a product that they’re passionate about and they’re killing it, but they have no idea how to get stuff financed and how to build a team” said Hill. “And that’s where we hope we can help.”
Edō Capital certainly isn’t the first to notice the trend though, as Hill referenced several high-profile deals that have already happened within this new food space. In many cases, it is those giant food conglomerates that activists consider so evil who actively target the darlings of health food. Case in point: in late 2013, Monsanto paid about a billion to acquire the Climate Corporation, which employs hundreds of scientists to analyze weather data to help farmers.
Meanwhile, a plethora of mature startups in the industry have raised gigantic amounts of money to stimulate their growth sans acquisition. Grocery delivery startup Instacart, started by among others a former Amazon exec, raised $220 million on a $2 billion valuation in December 2014. In April a food delivery service that specializes in healthy on-demand meals called Sprig raised $45 million. There’s plenty more stories where these came from.
Before they can get to the big $50 to $250 million cash raises from the Aaron Levies and the Andreessen Horowitz’s though, these businesses need to start somewhere.
For Hill, these new and interesting types of models will work for his fund. Specifically, he’s interested in sustainable foods and consumer good and services; distribution and distribution technology; and production and production technology, like new tech helping existing big food to use less resources and be more sustainable.
“We’re not looking to invest in buddy’s ketchup business: we’re focused on is a specific disruption that’s happening in big food,” said Hill. ”
Edō Capital is made up of Hill, founder and principal, Julian Giacomelli, principal, Stephane Gagne, principal, Roxanne Turcott, principal and Stephanie Saheb, marketing and operations manager.