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Food Angels
An interview with Prof. Wolf Michael Nietzer, Food Angels

Investments in food companies

Innovations in the food industry have led to a growing trend over the past few years: investments in food companies. A group of investors got together to form Food Angels and invests in innovative start-ups.

Food Angels invest in start-ups. Why have you focussed on the food industry?

Food Angels met for the first time in Heilbronn about three and a half years ago. We are five experts from the investment sector, and based on the professions of two Food Angels, we established a direct relationship with the food industry. And investing in the food sector is also associated with many tastings, which is good fun! Food is something you can touch, get a sense of - it triggers real emotions. But in principle we also invest in quite traditional firms.

But doing business with start-ups of course also involves risks.

Absolutely, doing business with major companies as well as small ones involves risk. With the big players, the risk is smaller, of course, because they are already established on the market, but then the selling price dimensions are also quite different. With a start-up, opportunities and risks are extremely closely linked - especially in the initial phase. As a rough guide, you can divide investment into three phases: pre-seed, early stage and series A. An increasing amount of capital is needed from phase to phase. In the last phase, series A, usually one, two or three million Euros will be looked for. The later you come on board as an investor, the lower the risk, of course, because the firm has got a bit further in its development. So the risk reduces from phase to phase, but at the same time the valuation also grows. If you get on board in the most risky segment, i.e. at an earlier stage, you get more shares for your money. With a lower risk and higher valuation, logically it’s the exact opposite. But that’s an individual question which every investor must ask himself in advance.

Why do you prefer to choose small food companies and not the big players?

That’s really easy to answer: to invest in the big players, you also need big money! Which would exceed our resources. The money we have to invest comes completely from our private assets. A few times we would, of course, have been able to get on board large companies with the appropriate financing, but we would have had to invest time quite intensively in monitoring the project, and we don’t have the resources for that either. Basically, as I’ve already said, that’s not our approach. If you decide to invest in a big player, you have to become a professional in more specific areas. That means simultaneous time and budget planning, and in some cases even appointing a portfolio manager.

"It’s my view that soon something radically new will appear."

Is there a recipe for success for start-ups?

Yes, mostly the right product was launched at the right time with the right team. All combined with appropriate financing. Of course, marketing is also extremely important. Outstanding packaging, for instance, can do a lot. A second option is to invent radically new products, and re-interpret things afresh. But a lot depends on the team. If the product is on the weak side, but there is a top-notch team, this can compensate to some extent. It’s my view that soon something radically new will appear. What is known as “foodtech” has a major influence - “vertical farming”, for instance. We have important questions to answer. How will food be produced in future? Are enormous cattle farms still a modern solution? The CO2 emissions alone are worrying. And in view of the rising world population and water consumption, it becomes critical. There will be, and will have to be, many innovations in that area in future. It will also be a lot to do with interpreting the route to the customer afresh.

Is there one area of food which is developing into a trend for this very reason?

No, you can’t define it that easily. One firm in the USA has specialised, for instance, in bringing meals similar to astronauts’ food onto the market. They went into the chemistry lab and put something new together. The business concept is to develop food which contains all the important building blocks which the body needs. Meat replacement foods are also an exciting area. There are American firms which are replacing meat quite easily with new components. At the moment it’s still quite unrealistic, however, as the whole thing is incredibly expensive. But nutrition of the future is also an interesting subject. Will we feed ourselves on insects in future, to give our food a higher protein content? “Functional food” will become very important.

Investment in the food industry is basically rather a niche interest. Do you think that interest on the part of investors might increase in future?

Definitely, I can see two different kinds of potential investors. On the one hand, the large companies, as they are building up their own funds for exactly that purpose. These companies see it less as a long-term investment, however, but rather a short-term skimming off of ideas and innovations. Ironically, these firms have so far found it incredibly difficult to be innovative. So they are investing in small start-ups, to stay close to the market. The second group are investors who club together and form a fund. There are a few who say: “I am collecting 100 million dollars to invest in the agra-tech area, or the food-tech area.” As Food Angels, we belong to the second group, but we are small fry as far as that is concerned. A few years ago I said: “Food is the next big thing!”. The new sales channels, offline and online, have taken off rapidly in the past few years, and have become even more important. The delivery services have also been throughly shaken up as a result.

"There are great opportunities, but also corresponding high risks."

So can we say that the upturn in the food industry has developed into a global topic?

I wouldn’t say so yet, at least not as an investment trend. You would have that when the banks decide to set up major funds and sell them professionally. With investments, you always have to consider who the potential investors are. For a pensioner, the risk is always much too high. Someone with average earnings would also be frightened off. There are, as I said, great opportunities, but also corresponding high risks.

So how do you see the opportunities which might develop into a trend over the next few years?

Food, and the opportunity to earn money for it on the market, will develop in an upwards direction as an investment trend, not least due to the rising world population. But precisely that requires such great financial resources at the moment. And I am also sure that large funds will be set up which will be interesting for your average consumer. But at the moment I think it’s still too soon.

Does this development also have an influence on the logistics industry then?

I think that companies like the Nagel-Group will benefit from it.

Why is that?

Because it will be possible to provide the cold chains required, and the corresponding logistics centres already exist. Of course, you also have to keep an eye on the current situation. I’m thinking here of a major online retailer who wants to manage the logistics itself in future. The big players will have to watch out that they are not overtaken.

Food Angels

Food Angels are a professional network of experienced experts in the food industry. The Food Angels teams comprises Prof. Wolf M. Nietzer, Dr. Günther Rodemeyer, Horst Schlegel, Alexander von Wedel and Daniel von Wedel – professionals in research and development, sales, entrepreneurship, business and transactional law, financing. The joint aim is to stand alongside innovative companies in the food industry as long-term partners and reliable advisors. Food Angels are particularly interested in innovative young start-ups. For every investment the focus is always on investing in a sustainable development and either driving product development forward or launching products which are already market-ready onto the market. Investment is made in the pre-seed phase as well as in the early stage and series A.

More information: food-angels.org

Profile

Prof. Wolf Michael Nietzer, Co-founder of Food Angels, is an Angel investor and corporate lawyer. The German corporate lawyer decided to invest in a food company five years ago. Previously he had focused primarily on non-food companies. Nietzer is licensed to practise as an Attorney at Law in the USA. In 1992 he was called to the German bar, in 1993 he qualified as a Master of International Law in the USA and in 1999 obtained his WHU / Kellogg Executive MBA.

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