“The most compelling presentation will get these persimmons and this pineapple guava straight from the Idea Garden,” declares Will Rosenzweig in front of a packed theatre-style room in Cheit Hall on the campus of the University of California-Berkeley’s Haas School of Business.
It’s late November and the first ever offering of the Food Venture Lab on a B-school campus is at its apex. One-by-one, 14 teams of MBAs with freshly minted food ventures sashayed to the front of the room to impress Rosenzweig and a panel of food experts and investors. Along with the persimmons and pineapple guava from Rosenzweig’s patch of Northern California land he’s dubbed the Idea Garden, class grades and potential investments were at stake. The most exceptional of the Shark Tank-style pitches could garner classroom bragging rights. Not to mention the potential beginnings of the next disrupter in a burgeoning line of foodie startups with MBAs at the helm.
The Food Venture Lab is an extension of the Culinary Institute of America’s Food Business School, based in St. Helena, California and where Rosenzweig is dean. The school launched about a year ago, and with the intertwining of elite MBA faculty and Napa Valley chefs, left national headlines in its wake. It’s the first school of its kind and the fact it even exists says quite a bit about the current food business climate. It also empowers the entrepreneurs aiming to prey on the growing vulnerability of long-standing and deeply established big food brands. Rosenzweig, who has been on faculty at Berkeley-Haas since 1999, brought the course to Berkeley’s campus with the urging and inspiration of Berkeley-Haas MBA for Executives student Caroline Yeh.
At Berkeley-Haas, the Food Venture Lab is essentially a one-unit accelerator for students keen on food innovation and entrepreneurship. Originally set to be an 18-person class for Berkeley’s MBA for Executives program, it ballooned into a class of more than 60 students. It also drew students from the school’s full-time and evening and weekend MBA programs–the first time Berkeley-Haas has offered the same section and course across all three of its MBA programs. Seasoned middle-aged executives sat next to and worked on teams with the largely millennial full-time MBA population.
ENORMOUS INDUSTRY AND CULTURAL SHIFTS
“We’re living at a moment where it feels like everything about food is changing,” Rosenzweig tells Poets&Quants before rattling off examples of the changes. “From what we’re being told to eat, how things are being grown, the conditions in which food is being grown is changing dramatically, the way food is getting to market, the way food is being delivered to people’s homes and plates.”
And Rosenzweig would know. He was the founding CEO of The Republic of Tea, a premium tea purveyor, and was on the founding board of natural juice and smoothy company, Odwalla. He founded and is a managing partner at venture capital firm Physic Ventures, a $160 million fund “focused on investing in keeping people healthy.” Revolution Foods, which has raised nearly $100 million in venture backing and is changing the way food is served in schools around the country was founded in one of his classes.
But this is just one class on one B-school campus. The Food Venture Lab is very much a microcosm of a greater phenomenon—small, fledgling ventures preying on vulnerable established food Goliaths. Whether it’s the immigrant selling food in a truck on the side of the road, a farmer selling produce at a market, or a food delivery system trying to figure out how to scale with its newfound millions in VC backing, food entrepreneurship is hot.
“One indicator [showing how] food entrepreneurship is trending in terms of starting businesses is the number of food-related incubators, accelerators, boot camps, services–what I call food entrepreneur services–that have exploded in the last couple of years,” says Rachel Greenberger, the director of Babson College’s Food Sol, an “open source action tank for food entrepreneurs of all kinds” for those in and outside of the Babson community.
“They’re everywhere,” she adds.
She’s right. From obvious spots for food innovation like San Francisco and New York City to unlikely hubs like Cincinnati and Detroit, food incubators and accelerators are popping up in droves. And the country’s food heavyweights are paying attention.
Will Rosenzweig, dean of the Food Business School and Berkeley-Haas professor. Courtesy photo
VENTURE CAPITAL BACKING OF FOOD & AGRICULTURE AT ALL-TIME HIGH
At the end of last September, Whole Foods co-CEO, Walter Robb said the food industry was going through a “tectonic shift,” after his company laid off 1,500 employees. Then a couple months later, Whole Foods reported a historically bad fourth quarter. In October, General Mills announced a new VC arm in their company that will likely focus on buying out upstart rivals. The Minneapolis-based giant has already purchased Berkeley, California-based natural macaroni and cheese revolutionizer, Annie’s. In May, Fortune produced a robust report, called “The War on Big Food,” in which Campbell and General Mills executives discussed the necessity for altering the way they’ve done business for decades.
Still, it’s hard to imagine the food giants keeping up when the collective disruptive minds and powers of Sand Hill Road combine. According to AgFunder, a San Francisco-based investment marketplace for food and agriculture, food startup investments are higher than ever before. By a lot. After hovering around half a billion U.S. dollars in investments from 2010 through 2012, food startup investments saw an uptick to just under $1 billion in 2013. In 2014, total food startup investments jumped to $2.36 billion. And halfway through 2015 (the most recent report available), investors had already backed food startups to the tune of $2.06, with VC heavyweights like Khosla, Google Ventures and Andreesen leading the way.
According to the 2015 AgFunder mid-year report, the majority of investments were made in food E-commerce. To be sure, B-school grads are sifting through a large portion of that dough. Blue Apron, which was founded by Harvard Business School grad, Matt Salzberg, secured a massive $135 million Series D seed round in June and was given a $2 billion valuation. Along with Salzberg, fellow HBS grads Josh Hix and Nick Taranto co-founded Plated, which also closed a massive seed round this summer. Hector Beverages, founded by Wharton grad, Suhas Misra, just raised nearly $29 million in its July Series C.
B-SCHOOLS SERVING AS FOOD STARTUP HUBS
Specific to this year’s Poets&Quants’ Top 100 MBA Startups rankings, food and agriculture-focused ventures dot the top of the list. Mediterranean casual dining chain VertsKebap, founded by a team from the University of Texas McCombs School of Business and WHU – Otto Beisheim School of Management, has raised $36 million. Harvard Business School founded Maple, a New York City-based food delivery venture that has raised $29 million. Farmer’s Business Network, a Stanford GSB-founded agronomics company, has raised nearly $24 million. KitchIt and EatFirst, two more food delivery platforms, both raised around $8 million in VC backing.
If Babson’s Greenberger is correct, and the sign of a trending interest in food entrepreneurship is an uptick of “food entrepreneurship services,” B-schools are proving to be a hub. Food and agriculture clubs exist on campuses from the Bay Area to Boston Harbor. Foodie startups are sprinkling the top of new venture competitions around the country. Last June, food startup Maestro won Chicago Booth’s startup competition—netting $70,000. FOCUS Foods, a rooftop aquaponics venture co-founded by Julia Kurnik 2015 Wharton MBA grad, has been setting startup competitions on fire, earning $130,000 along the way.
‘MASS PRODUCED’ FOOD HAS ‘LEFT THE DOOR OPEN FOR SMALLER PLAYERS’
Vincent Ponzo, the director of Columbia Business School’s Eugene Lang Center for Entrepreneurship, believes the ‘tectonic shift’ that Whole Foods’ Robb announced has left the door open for many voracious entrepreneurs.
“Everything from GMOs to farming, to how food is sold, what the messaging is around food, it all for the most part hasn’t changed in a long time,” Explains Ponzo. “Generally speaking, food has been mass produced and that has left the door open for smaller players wanting in.”
And Ponzo has seen some of those small players come through CBS recently.
“There are many ways to slice a huge market that hasn’t been sliced before,” reasons Ponzo, rattling off a slew of CBS ventures including Daily Harvest, AeroFarms, which just raised $20M and Beyond Meat, then adding the food startup area is “in the early stages of disrupting a very broad frontier.
“It’s a huge continuum,” Ponzo continues. “How to farm the food, how to serve it to people, and everything in between. There’s a huge opportunity.”
Rachel Greenberger, founder and director of Babson College’s Food Sol. Courtesy photo
FROM ETHIOPIAN TEFF FLOUR TO ZERO CALORIE DRINK MIXERS
Rosenzweig says the same ideas were the genesis of the Food Business School and the Food Venture Lab. “It turns out this sector has become incredibly attractive to entrepreneurs and innovators and business school students,” concedes Rosenzweig.
At Harvard Business School, Jodi Gernon, the director of the Arthur Rock Center for Entrepreneurship, says she’s seeing more business students using the Rock Center for food-related ventures of all sorts. Gernon says there are two food-related ventures using the Rock Accelerator program now. Issima is a fast-casual food chain and the other, theSaladBar, a natural nutrition bar.
“I think there definitely is increased interest and I think it has to do with people understanding some of the different options out there,” Gernon explains, citing upcoming HBS startup, Be Mixed, which produces and sells zero calorie cocktail mixes and took second at the Rock Center’s most recent new venture competition.
“Would I have said five years ago we would have a company that was importing teff flour from Ethiopia or creating a zero calorie drink mixer? I don’t think I would have said yes,” Gernon continues. “I think we would have guessed to see a lot of things around technology or fashion technology or financial technology.”
BABSON’S FOOD SOL LEADING FOOD INNOVATION
But if any B-school is leading in food entrepreneurship and innovation, it’s hard to argue against that school being Babson College. Greenberger co-founded Food Sol alongside Cheryl Kiser, her faculty advisor and the executive director of the Lewis Institute for Social Innovation, as she was completing her MBA at Babson. “I had no background in the food industry, just a lot of desire,” says Greenberger.
“This was early 2010, and at that time, really no business schools were rallying around the food industry flagpole or food entrepreneurship,” recalls Greenberger, adding she spent her entire second year of her MBA incubating the idea and notion of Food Sol. “I don’t think the term ‘food entrepreneurship’ was really being used at all. Not that I’d seen.”
Passion grows in her voice as Greenberger explains behind Food Sol was the desire to “illuminate the break downs in the food system and illuminating people, organizations and initiatives that were doing hard work with their noses to the ground and didn’t necessarily have the time and energy to look up and see who is near them to be an ally and partner.”
Konstantin Zvereff, co-founder of BlueCart and Georgetown McDonough MBA. Courtesy photo
BLUECART BLOSSOMS FROM GEORGETOWN’S MCDONOUGH
For Konstantin Zvereff and Jagmohan Bansal, the initial development of their now multi-million backed food supplier management platform, BlueCart, happened at Georgetown’s McDonough School of Business. While Zvereff was working towards his MBA, him and Bansal took on an operations project for salad-focused fast-casual chain, Sweetgreens. “They spent many, many hours sending phone calls, faxes, emails with all their vendors,” explains Zvereff. “And at the same time, were having to manage orders coming in using the exact same system. Phone calls, faxes, emails, text messages, messages through their website, it was a very fragmented communications channel.”
As a B-school project, Zvereff and Bansal set out to create an easier and more efficient communication chain. So they created Improvonia, a platform for restaurants and hospitality providers to connect and order from their suppliers. And then they began winning B-school competitions at Georgetown and globally, not to mention an interested industry. “At the end, we realized this was something more than just a business school project,” recalls Zvereff.
The duo graduated in 2011 and spent three years working full-time and developing Improvonia, which eventually switched to the name, BlueCart, on nights and weekends. At the time, Zvereff was working with small businesses and farmers in East Africa. Zvereff says during his time there, he was around more than 9,000 rural farmers.
“The farmers had abundant resources. They had access to land, water and labor but no access to technology,” Zvereff says, noting he watched small farmers unable to compete or sell their products because of large farms and corporations. “And they had a much better product that the large corporate farms,” insists Zvereff.
Zvereff found another need and development for BlueCart. “This cannot be a one-sided marketplace,” concedes Zvereff. “It has to serve the producers and the buyers.”
TAPPING IN ON UNTOUCHED ‘BACK OF THE KITCHEN’ SPACE
With that in mind, BlueCart launched and went live in July, 2014. In the first quarter of existence, Zvereff says they were hoping to get 16 restaurants on board. Instead, they had 159 restaurants sign on. “The second quarter, we wanted to get another 160 restaurants in our system and we got over 1,000,” says Zvereff. Currently, they have more than 4,300 restaurants and hospitality services on the platform and have raised $4 million in VC backing.
Everything from “little mom and pop restaurants to huge corporations” like Kaiser Permanente, Marriott, Ritz-Carlton and Four Seasons are now using BlueCart, Zvereff says. While food delivery companies and services like Munchery, Instacart or Amazon Fresh have focused on the front of the kitchen, the backend of the kitchen has largely gone ignored, Zvereff believes.
“There’s been tremendous innovation in the front of the kitchen,” explains Zvereff. “Those are the companies that connect businesses with customers. But the back of the kitchen has been very neglected. All of the innovations in the front of the kitchen have essentially primed these technologies to work in the back of the kitchen. It has prepared them to use these technologies to address problems they’ve had.”
Restaurants can order anything from linens to microbrews to seafood from their suppliers on the platform. BlueCart differentiates itself form competitors like Sourcery or Chef Mode by providing the service for free. They make money by selling advertisements on the platform and will soon be unveiling a premium service that will come at a cost.
THE CHALLENGES OF FOOD AS A COMMODITY
But Zvereff, who is a Peace Corps alum, believes their success has also stemmed largely from sensitivity to the culture surrounding the food industry as well as how personal food innately is. “Food is part of what defines a culture,” believes Zvereff. “If you’re not sensitive to these things, you can have certainty that you’ll be out of business soon. It’s a very sensitive industry. People are very particular about their food and they’ve always been that way. Anyone who wants to commoditize or standardize across the industry, if they do it without sensitivity, you can count on them falling out of business.”
And for aspiring (or current) food entrepreneurs, Zvereff has a word of advice and caution.
“You can raise a lot of money and subsidize an inefficient system, but that’s not going to last,” Zvereff says of some food delivery platforms. “People like Munchery and Blue Apron that have distribution centers can really drive those economics, those are the ones that are going to make it. If you have someone driving one trip to a restaurant and one trip to a house, it’s going to be very difficult to make money off of that–no matter how aggressive fundraising efforts are.”
Eve Turow Paul, author of A Taste of Generation Yum and millennial food expert. Courtesy photo
THE MILLENNIAL FOOD CALL
Eve Turow Paul, the author of A Taste of Generation Yum, also has some ideas about why food and agriculture related ventures are surging–and why she doesn’t think food delivery startups will all last. “I’m a little confused by food delivery,” admits Paul. “I think it offers a level of convenience that people are always going to want. But I do think that food delivery systems in places like San Francisco are being over-invested in.”
Paul’s book sets out to answer why the Millennial generation seems to be so obsessed with food. After years of researching the question, Paul concludes the obsession is a direct result and response to a generation that grew up in a digital landscape. Specifically, Paul says, food serves the four areas of sensory depravation from screen time, the compulsion of self-branding, taking control of something in their lives and experiencing community.
“Millennials are on their phones more than any other generation except when it comes to eating,” concedes Paul. “We are more likely to be on our phones during religious services, while driving, in bed, in the bathroom. But when it comes to eating, we are less likely to be on our phones than Gen Xers and Boomers. We’re using this time with food to connect with one another and connect with our ingredients and to take a step away.”
‘THE CORE REASONS WHY WE ARE ENGAGING WITH FOOD ARE NOT SATISFIED BY FOOD DELIVERY SYSTEMS’
And that step away doesn’t mean keeping Postmates on speed-dial.
“The core reasons why we are engaging with food are not satisfied by food delivery systems,” believes Paul. “The core reasons why we are engaging with food can be amplified through more nutritious food, through more organic foods, through community agriculture programs, through in-home agriculture products. And I think there’s an immensely interesting future for food in the United States and I don’t think that Postmates is really it.”
Instead, Paul says, the world needs smart and thoughtful approaches to improving the many avenues for food growth and consumption in the world.
“There’s so much improvement to be made,” explains Paul. “Everything you know about successful startups is they are serving some gap in the system. There’s an opportunity to do something better. To make a process easier. To make something more efficient. To be delivering something people want and need that they don’t even know they want and need.”
And Paul believes successful and failed startups alike can make improvements. “I don’t know that you can come up with one solution to fix the food system and that’s where you need startups to do some brainstorming and experimenting and to get these investments and see what works and what doesn’t work.”
AN OVERWORKED GENERATION AND WASTEFUL GROCERY SYSTEM?
In a follow-up email to Poets&Quants, Paul explained she believes the amount of money and energy going into food delivery is a sign of “two very different things.” First, she believes people are working too much and secondly, there’s an inefficiency in the grocery system that is one of the last areas in food to be disrupted.
“This is a generation that graduated into the recession, when many companies learned that they could survive with less employees who simply worked more,” Paul wrote. “At the same time, a mentality in Silicon Valley arose that it was perfectly acceptable to work 80 hours a week. Mix this with the Millennial love for good eating and it’s a no brainer that people will want gourmet quinoa bowls to eat at their desk, since they really don’t have the time to go out and meet with friends.”
But, according to Paul, there could be vast opportunity in grocery. Paul describes the current grocery system as “incredibly wasteful” and “inefficient.” Paul says companies like AmazonFresh are “just the tip of the iceberg in terms of re-thinking the way we produce, distribute and sell our groceries.”
OPPORTUNITIES AND IMPROVEMENTS CONTINUE TO GROW
Paul’s definitely not alone in being skeptical of food delivery.
“They’re not instantly sustainable businesses,” Columbia’s Ponzo says of food delivery companies. “You have to grow a local customer base. Food is a multi-sense experience, it’s not just clicking on a computer. It’s a rich experience for consumers to have and there are a lot of variables going into if your brand is a good one or not. It’s not like a website where you can flip a switch and have a million customers.”
Ponzo and Rosenzweig mirror Turow’s beliefs on this generation of MBA student and foodie. “This generation of B-school students want to do something both good for the bottom line and good for the general population,” claims Ponzo. “Food startups are a shining light on the traditional value while making an impact on the world.”
The improving–or simply sustaining–the world and how humans consume food is a interesting and increasingly complex issue, believes Rosenzweig.
“Today people are really interested in working on food problems because they see the magnitude—with the growing global population—great disparity across the world in the links between food and health and food and sustainability are all very rich with both challenges and opportunities,” says Rosenzweig.
Indeed, the possibilities continue to seem immense, and business students are poised to pioneer the innovations.
“Now, food is not just what you go out and eat. It’s environment. It’s politics,” says Paul. “And in a lot of ways, it’s so exciting that some of these young business students could go out and make an incredible impact, not just in their communities, but globally, through some small or big invention they come up with. There’s an opportunity to re-imagine what food looks like. From how to source to how to grow to how to consume.”
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