Strauss-owned Israeli investment vehicle on the challenges and benefits of partnering its start-ups with global food giants
The Kitchen Hub is renowned for helping establish the first foodtech businesses in Israel’s now thriving sector, back in 2014. The accelerator has long-supported novel and unique start-ups entering into the now highly competitive space, in part via its close-knit relationships with huge, global food groups like Mondelez, PepsiCo and Danone.
NutritionInvestor sat down with The Kitchen Hub’s VP for business development Amir Zaidman to discuss the early days of foodtech in Israel and why partnering start-ups with major CPGs is hugely challenging and mutually beneficial for both parties.
When did your career in foodtech start and what did the industry look like in its infancy?
I joined the founding team of The Kitchen Hub back in 2014, so I’ve been at it for almost seven years. My background is in innovation with or within start-ups. So, either investing in start-ups and supporting them or working within them. Before joining The Kitchen Hub, I spent almost 15 years in the medical technology field. When I joined the food industry, I brought with me the understanding of early-stage investments and building start-ups from the ground up.
I thought that foodtech, back then in its infancy, was a fascinating field that would have a lot of impact on the environment and humanity, on how we can feed the world and improve our health. It has such a big influence and impact on us as a society and humanity and I was fascinated by the field.
How have you seen the industry shift in terms of innovation over the last six years?
When we started The Kitchen Hub there were a few start-ups in Israel and a few around the world. Beyond meat was already around and maybe Impossible Foods. But there weren’t many start-ups and there weren’t that many investors. I feel we were very lucky to be there from almost the beginning to help in building the Israeli and global ecosystem around foodtech and foodtech start-ups.
There was very little money in foodtech at the beginning. Now there is a lot of money to be invested in good teams and disruptive technologies in the space. I also think there is much more specialisation in the space, with investors looking specifically at alternative proteins, personalised nutrition etcetera.
Because foodtech is more mature, there is segmentation between different types of start-ups. However, some things that haven’t changed are the biggest investments and exits are in delivery platforms, which was the case back in 2015. Back then Instacart was huge and meal-delivery services like Blue Apron and HelloFresh gained traction. I can understand the interest there as people are changing the way that they consume and purchase food and meals.
In terms of foodtech, there’s so much more happening now in future foods, mostly in proteins and alternative proteins, but also in unique technologies for ingredients and for improving production processes and producing certain enzymes in food.
What’s your investment mandate at The Kitchen Hub?
We’ve done 20 investments to date and I’m really hoping that we will be able to announce two more within a few weeks. We’re working on two others that are essentially closed but we cannot announce them yet.
I would say the most important thing is that we are only investing in impactful start-ups that are doing something that is not only good business but also good for the environment or society. There has to be an ESG angle.
Secondly, we are an incubator/accelerator, so we only invest in early-stage businesses and we only invest in Israeli-based companies. This has to do with the fact that we are partially government-sponsored and we cannot invest this money outside of Israel. Our interest is in the food supply chain starting from post-harvest.
Not going back upstream into the farms and agricultural technologies. This is because our partners and our collaborators are food companies and not the agricultural companies. We are owned by Strauss but we also maintain partnerships with a number of CPGs like PepsiCo, Mondelez and others.
Why did you establish yourselves as an incubator/accelerator over a traditional VC?
The answer is divided into two. One is, when we started in 2014 it seemed almost essential to start with the very early-stage, pre-seed ventures and actually help establish them because there was not a lot of more advanced deal flow out there. The right model seemed to be this type of accelerator/incubator.
And once we realised that this is where we wanted to be, we also tapped into the government incubator programme which is sponsoring some of our investments. That’s allowing us to leverage some government money, but on the other hand it’s restricting us now to stay in this area of incubation and early-stage businesses in Israel.
You mentioned partnerships with some of the largest CPGs. What do those entail?
The owner of The Kitchen Hub is Strauss Group, Israel’s largest food group. It markets itself across the world under local brands and businesses in the US that are in partnership with PepsiCo and others.
These partnerships are mostly for the benefit of the start-ups in our portfolio. They also serve to give the CPG corporates access to more open innovation. Our start-ups are able to understand how large CPG companies work, including gaining market access and developing technological capabilities. We do sometimes do some scouting for the big food companies if they’re looking for a specific technology or innovation.
They are exposed to the start-up mentality of our portfolio companies and we generate joint projects between start-up companies and those CPGs. The mindset of start-up companies and how they perceive the world is valuable enough for corporates to get some things going and shift the way they’re thinking.
I have to say that there are also many challenges for start-ups working with corporates, as both have very different mentalities. But we find ways to overcome that. The first step is to acknowledge that they both have different cultures and different schedules. To sync both sides’ calendars and book in a meeting is always challenging but we try to find ways to bridge those different mentalities and schedules. I think the most value we bring to our portfolio companies is in the partnerships we have with the CPGs.
Are global CPGs really open to adopting the innovations and mentality of start-ups? According to some industry folk this isn’t the case.
I think three or four years ago things started to change and they became more open to outside innovation and advice. It was absolutely our experience in the past that CPGs were closed off and uninterested but I think they are changing. It’s not easy for them to adopt new approaches and innovations.
Big CPGs are typically like huge aircraft carriers and in order to make any type of shift, it takes a lot of power, energy and time. But now they are learning to collaborate with start-ups. I think all the big global food businesses have some sort of programme or accelerator or open innovation challenge open to early-stage businesses. It wasn’t like that five years ago.
What are the biggest challenges for start-ups in foodtech and what key differences set a successful start-up apart from others?
I think that start-ups have to have a very clear and very unique value proposition. But what separates a good and successful start-up from others is one that wants to conquer the world, right? It wants to make a significant change or to be a billion-dollar business. There are many factors for success. I would say the obvious one is having a good team and going after a big market with a real need for innovation and probably some technological barriers for entry for the competition.
Why is Israel such a hotbed for foodtech innovation and investment?
First of all, Israel’s culture is very entrepreneurial in spirit. We’ve been a start-up nation for the past two decades. It’s derived a lot from our culture and character, as well as other factors like the military helping to generate entrepreneurs within its intelligence units.
People here want to be entrepreneurs. They sit and look for little problems worth solving that they can build a start-up around. On the other side, we had to have some expertise in all aspects of agriculture and food because we had to be able to provide for ourselves. So, there is a strong basis here in agriculture, food and the environment.
What key trends do you foresee the foodtech space moving into next?
We need more innovation because you don’t see enough. I think there are two major areas where we would like to see more innovation. Humanity is going to need to reduce its plastic use drastically in food packaging and in single use utensils and water bottles. And I would like to see much more innovation coming from that area. The second area is food-waste reduction to decrease the enormous amount of food that is being thrown away. We need to be much smarter in the way that we handle the entire supply chain of food.
Where I see things progressing is in the very hot area of alternative proteins and plant-based foods. I think that going forward we’re going to see more innovation there. If the first generation was companies like Beyond Meat and Impossible Foods, I think we’re going to see more specialised innovation going forward.
Another area is personalised nutrition. I think this sector is growing and needs more innovation. With new technologies incorporating artificial intelligence and maybe 3D printing, I can see our nutrition becoming more personalised with people eating foods that are based on their specific health profile preferences.
The final area I think will develop is robotics within the food industry, across the supply chain. I think there’s room for technology to improve beyond automation in plants and factories. You will see the introduction of robotics in production facilities, logistics and distribution centres, supermarkets and restaurants.
Date published: 25 August 2021