How Digital Product Development is Reshaping the Food We Eat

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iSelect hosts a Deep Dive webinar on a novel innovation topic on the first and third Wednesdays of each month at 9 a.m. central. Our most recent session focused on digital product development for food and beverage companies and how, among the world’s largest food companies, more than half of revenue is generated by products that have been introduced in the last five years. Many food producers are now using digital technology to stay ahead of this curve and bring innovative new products to market faster than ever before. We spoke with iSelect venture associate, David Yocom, about what this all means for the foods we eat and the companies that make it all.

Tim Sprinkle: So, we’ve got David Yocom here from iSelect Fund talking about digital product development for agriculture companies. David, let’s talk about what digital product development really means.

David Yocom: So, one of the things that we come across a lot when we’re thinking about food tech investors, as opposed to in-field ag investments, is for things like ingredients how they get incorporated into how food companies bring new products online.

That’s something that we talk a lot about but maybe hadn’t done a full sort of deep dive into. We have expertise on the team who understand that really well. But for me in particular, it was a good learning experience.

So, what we were focused on this last week was trying to figure out ways in which companies, like new startups, are finding ways to incorporate data or to digitize portions of food product development.

The idea of going from an ideation of “I want to create a new type of snack or a new type of Cheeto or a potato chip that has these various types of factors” all the way to a successful product and market. Largely because there’s an incredibly high failure rate for certain types of food products, as high as 90%. So, trying to find ways to either shorten that development cycle, increase the longevity of products or reduce the cost of development was the focus of the conversation.

TS: And how does a food product fail in the marketplace? Does that just mean people don’t like it or don’t want to buy it?

DY: So, when you’re going to create a new food product, there’s a lot of different considerations you have to take into account. Not only what you think consumers are looking for, but what consumers are looking for that’s sustainable.

You have to think about trends versus fads, just to think about whether or not you have the technological or food processing capabilities to actually produce a food product that you’ve thought up. Is it going to require you to bring in a new ingredient? Is it going to require you to bring in different formulations than you have to use in the past? Is it going to be too expensive?

There are many ways that food products could fail in the product development cycle.

They can also fail in the market. One thing I read through said that the baseline for a new food product from a major food company in the first year would be about $50 million in revenue. So, companies that don’t hit that threshold are numerous.

Today there are more and more small brands in the market. They’re helping consumers find opportunities to clean label high protein, animal-free foods and those that are free of byproducts. And the degree to which those new products are being turned out by smaller companies, it’s a lot faster than how the big food companies are responding.

So, one of the big challenges is how those large food companies cope with that rate of change.

TS: Do you have any examples of what smaller, more innovative startups are doing in this area and what they’re bringing to the market that big guys can’t do yet?

DY: Typically, the main places that we’re seeing it is in vegan, vegetarian, high-protein, gluten-free, clean label, etc. So, it’s ingredients that everybody can identify that are either all-natural ingredients or all well-known ingredients. So those types of things are aligned with nutritional aspects.

They’re able to try to take these products to market with a lower risk as opposed to when a major food brand puts out a product. In those cases, it’s a massive undertaking. The expectations of success are much higher, because the scale has to be much higher when the cost is much lower.

So, you can come into the market with a premium product that will target a specific audience and you don’t face maybe as many of the scalability issues that you might if you’re trying to service a large portion of the market. Plus, you don’t have to face some of the same cost issues because there are consumers are willing to pay a higher price.

TS: Interesting. That’s helpful. Thanks David. I appreciate the rundown. We’ll talk to you next time.

DY: Thanks Tim, anytime.

Consideration

With 2021 well underway and with public markets still strong, we think it is an important time to highlight some of the key private market, venture investment themes that iSelect fund has identified for the year. We believe technologies transforming the Agriculture, Food and Wellness markets will flourish, with a focus on four areas: technologies that enable better food choices to drive better health outcomes, technologies that drive better, more profitable farm operations, technologies that drive the Consumerization of Healthcare, and biome-based treatment technologies. At iSelect, we invest for impact AND performance. We offer qualified investors access to emerging growth companies through our national venture capital strategy. Our unique structure allows our investors to continue to invest in these companies as they develop.

Timing

Why is now the right time for venture? The answer is that now is not explicitly the right time. Venture is something we need in our economy at all times. Now is not better than any other particular time. The question is, why ever stop? When we look at the challenges we’re facing in food and healthcare the reality is there is someone, somewhere who has an insight about how to build a product that will solve those problems. And if they put the right resources to it, they will succeed. As long as we need new technology to make life better or make our lives more enjoyable, we need venture capital to help fuel those entrepreneurs.

What is iSelect as a product?

iSelect is a very unique product, but when you break it into its parts it’s fairly easy to understand. On the front end we’re a traditional venture capital fund. We have a diligence process. We have an investment process. We have categories of industries where we have focus and real expertise, and we invest in companies in those areas that meet requirements for the fund. On the back end we’re unique in that we don’t raise a large amount of capital at one time and deploy it over the life of our fund. Each deal that we bring onto the fund, our investors have to prove and determine to invest in that deal. We have to constantly prove our diligence standards. It’s accessible, transparent and easy for investors to come in and see our comprehensive process.

What is the ideal iSelect company?

We are looking for founders that are passionate and we want the problem they’re trying to solve to be big, real, and painful. We want the solution to be revolutionary and we want our capital to be able to help them solve that problem. We want to know that they have customers involved and that the solution they’ve come up with actually meets those customers’ and market needs. And we want the team to be capital efficient with the money they’re spending.

What does the ideal iSelect company look like?

We’re looking for a company that has an opportunity to have a 10x return to our investment or greater in a period of three to seven years. What excites us at iSelect are companies that are solving big problems. We want companies that are going to be the Monsantos of the future. Not just in the size and the scope, but the impact they have on people’s lives. We want to create positive impacts on people’s lives, so we invest in areas like agricultural production and areas like producing healthy foods for our kids. They are problems that impact real people’s lives on a daily basis. That’s what we’re trying to do at iSelect. We’re trying to solve the big problems out there. Find ways to bring capital to the entrepreneurs who are the real heroes out there getting up every morning, beating away at these things that are problems that you and me and everyone else faces in their everyday lives.

What is iSelect?

iSelect is a venture capital firm. What that means is we look at hundreds and hundreds of different companies and we apply tough diligence standards to each of them, looking at whether the team has a good plan for growing the business, whether the team is qualified and credible, and more. We do that to resolve the few who provide the best opportunities for investors. And then iSelect takes that smaller set of investments and goes to investors who are interested in venture capital and provides a way for them to invest in these companies, either individually or all at once. We co-invest alongside other venture capitalists. We source transactions through to an exit where the company would become public or get bought. And we manage that whole investment process on behalf of our investors.