Investors say new-age food startups have mushroomed in the last four years on the back of increasing demand and smarter ways of offering and delivering food, which has done away with the need to create large spaces for dine-ins or shelf space in supermarkets. (Alamyphoto)
Investors say new-age food startups have mushroomed in the last four years on the back of increasing demand and smarter ways of offering and delivering food, which has done away with the need to create large spaces for dine-ins or shelf space in supermarkets. (Alamyphoto)

Investments in food startups peak since 2016 amid growing demand

  • Food startups have raised $512 mn across 20 deals so far in 2019, double the amount for entire 2018
  • India is expected to see a fourfold jump in consumer spending by 2030, according to a report

BENGALURU : Rebel Foods, the cloud kitchen startup that operates the Faasos brand, has been on a fundraising spree. Since March, the Mumbai-based firm has raised funds through multiple rounds, including $25 million from Goldman Sachs and Irving Investors, according to filings sourced by Paper.vc, a business intelligence platform.

Rebel Foods’ fundraising highlights peaking investor interest in food brands in India. Investments in food startups in the first 10 months of this year are double the amount for the whole of 2018. According to Tracxn Technologies’ estimates, food startups have raised $511.79 million across 20 deals from January to 15 October 2019, compared with an investment of $248.57 million across 24 deals last year, $210.09 million across 50 deals in 2017 and $114.59 million across 46 transactions in 2016.

Investors say new-age food startups offering both fresh and packaged food have mushroomed in the last four years on the back of increasing demand and smarter ways of offering and delivering food, which has done away with the need to create large spaces for dine-ins or shelf space in supermarkets.

“What has happened in the last four years is that the digital infrastructure has opened up," said Vinay Singh, co-founder and partner, Fireside Ventures, an early-stage venture investment fund focused on consumer brands.

“Swiggy has delivered 500 million orders in a year. This kind of delivery infrastructure wasn’t there earlier. So today, a young brand is not bound by the tyranny of high street, where only a few brands with deep pockets can afford the rentals and overheads. Now you can open a cloud kitchen for desserts or just snacks and deliver it across the city."

Fireside Ventures was founded in 2017 and has invested across a slew of segments including personal care, processed foods, lifestyle and home products. Its portfolio includes the likes of Yoga Bar, Samosa Singh, Mama Earth, Vahdam Teas, and Tangy Turmeric (Tasty Tales), a brand of spices and pastes. Earlier this year, the VC firm said that it intends to create 20-25 consumer brands, with a revenue of as much as 1,000 crore each, over 10-15 years.

At the back of this investment thesis is the country’s consumption market. India is expected to see a fourfold jump in consumer spending by 2030, from $1.5 trillion in 2019 to $6 trillion, according to a World Economic Forum and Bain & Co. report released earlier this year. Also, the country will be a young consumer economy with 77% millennials and Gen Z.

Investors say growing popularity of brands, particularly tea chains, dairy products, health drinks, and healthy snacks, indicates that customers will remain loyal as long the offering appeals to them.

However, Indian MNCs are not innovative enough to keep surprising the customers, said Anup Jain, managing partner, Orios Venture Partners.

According to Jain, while most food startups will not attain the coveted unicorn status, investors are fine creating 200-300 crore revenue brands.

“Most food brands will not be unicorns because it’s about valuation. Food companies get a valuation that’s three to four times the sales. To hit a unicorn status, one needs to be very big. For us, creating 300 crore revenue brands is a reasonable proposition."

According to Jain, there are several options available to exit such investments, including initial public offerings and acquisitions.

To be sure, companies are seeing high value in acquiring such business.

Indian snacks and sweets major Haldiram Snacks Pvt. Ltd is in advanced discussions to invest in Bengaluru-based Frozen Bottle, a quick service restaurant (QSR) chain that sells milkshakes and desserts, Mint reported last month.

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