Food startups are struggling in the current economic environment. As the Bloomberg article below reports, the packaged food industry is illustrating this point well. Food startups were all the rage in 2021, with brands that had barely left the gate being snapped up by venture capitalists for huge amounts of money. Now, with interest rates having risen, money is less forthcoming. VC poured $1.9 billion into food and beverage deals in the fourth quarter of 2021, but less than a quarter of that for the same period of 2023. Founders of food startups are responding by holding onto (or, in the case of jerky maker Krave, even reacquiring) their babies and continuing to grow them organically, no pun intended.
That doesn’t mean acquisitions have stopped, just greatly slowed. “Instead of making 10 bets, you can only make two,” the article quotes Mike Graziano of consulting firm RSM US as saying of the acquisition mindset of the biggest brands. And since those two bets have to pay off, acquirers are looking for more scale in potential targets, typically $100 million in annual revenue, according to another of the article’s sources, John LeVert of Solomon Partners. “Basically, by the time an emerging brand is attractive to Big Food these days,” the piece concludes, “it’s already emerged.”
What all of this means is that founders are now being forced to create more initial growth internally. Some have done this extremely well and have been rewarded with outside money. The article mentions meat-stick maker Chomps, which was nearing $100 million in revenue when it received $80 million in 2022 from a private equity investor. But not everyone can expect to emulate the Chomps model, especially in 2024. Whether big outside money is waiting at the $100 million level or not, founders need to find ways to develop profitable business models earlier and faster than ever.