Corporate Venturing in the Food System: a solution, or a solution in search of a problem?

Big food and agribusiness companies are pulling out all the stops these days to be more innovative. This is no different than in other industries: disruption is a real threat. Large firms are built for stability, not radical innovation. According to a study done by consulting firm Innosight, over half of the S&P 500 will be replaced — as in, gone, dead, disrupted- in the next ten years.

In the food system in particular, the threat is strong and growing as digital technologies transform farming, the growing population demands healthier foods, and climate change threatens natural resource availability. For corporations, this is scary. Entrepreneurs see it as an opportunity.

“Yes, as in every other legacy industry, Disruption (with a capital “D”) is here. Big Food is under attack from Startup Granola.”

— Fortune’s Special Report: The war on big food

Enter Corporate Venturing

Corporate venturing (CV), or Corporate Venture Capital (CVC), is an external innovation strategy that companies in other industries have used with mixed results. In some circles, CV still has a bad reputation. But, overall, the amount of firms with CV units is increasing and CVCs are lasting longer. According to CBInsights and the NVCA:

  • In 2014 CVCs invested $5.4 billion in the U.S. across 775 deals, equivalent to 11.0% of all venture investments. CVCs participated in $16.7 billion invested across 1245 deals;
  • In 2015, CVCs participated in $28.4B of funding across 1301 deals;
  • Since 2014, 127 new CVCs have formed

CVC activity is blowing up in the food and agriculture industry as well. Here are a few:

  • Unilever Ventures
  • Coca-Cola’s Venturing and Emerging Brands
  • Campbell’s Acre Venture Partners
  • Hain Celestial’s Cultivate Ventures
  • Syngenta Ventures
  • Monsanto Growth Ventures
  • General Mills 301 Inc.
  • Bayer Crop Science
  • Nestle’s Inventages

What is Corporate Venturing?

But let’s back up. What is CVC and can it really help corporations in the food system be more innovative?

You can think of a CVC as a venture capital (VC); but, while the money that traditional VC firms invest often comes from many limited partners (LPs), CVCs only have one LP: their parent company. Also, while VCs are trying to maximize financial returns, the point of a CVC is to add strategic value to their parent company in addition to returns.

This idea of having a “strategic” goal is important to understanding CVCs and their role in the innovation ecosystem (quick aside: it’s also why CVCs are often called “strategics” or “corporate strategics”). The strategic value, at a high level, is to fill a gap between R&D (too slow, too expensive) and M&A (expensive, messy, and limited impact on bottom line). (For more on various aspects of strategic value, I’d suggest this old but really helpful HBR piece).

BEYOND EQUITY INVESTING

Traditionally CVCs tried to realize strategic value by making equity investments into startups: coming to the table with capital got them a front row seat to the activities of entrepreneurs and other investors. Making equity investments still happens (e.g., Syngenta Ventures’ $17M in Blue River Technologies; Monsanto Growth Ventures’ $7.5M in Understory).

Increasingly, though, the range of CVC activities is broadening to include things like:

Is corporate venturing the answer?

Corporate venturing has a mixed reputation. Are corporates just paying lip service to innovation (see: corporate innovation theater)? Is CVC necessary for companies if they want to fend off disruption and stay relevant? Or is CV a bandwagon that everyone’s jumping on- a solution in search of a problem?

In food and agriculture it’s too early to tell. Will equity investing, an in-house incubator, sponsoring a prize, or some combination be most effective? Can companies find ways to add value to startups and their parent company? Will other investors continue to welcome CVCs to the table as the environment gets more competitive?

I do think it’s clear, though, that corporate involvement in the early-stage food and agriculture innovation ecosystem is critical to building the food system of the future. You can’t change a system you don’t understand. And who knows the food system better than the corporate giants that built and benefit from it?

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