Eighteen94 Capital, the corporate venturing fund launched by cereal producer Kellogg last month, was established in response to the pace of change in the food industry, according to Kellogg vice-president of investor relations Simon Burton.
Kellogg announced 1894 two weeks ago, committing “approximately $100m” in capital for investments in starups, and portfolio companies will be able to work with the firm as well as its organic cereals subsidiary, Kashi.
“It has really been driven by the pace of innovation in the industry, which seems to be ever increasing,” Burton told Global Corporate Venturing. “We recognise that, and this is a good way of getting involved in that trend and capturing some of those great ideas as they begin. It is really an addition to our current R&D efforts.”
The formation of 1894 comes as more and more packaged food producers establish corporate venturing units. Danone’s newly formed Danone Manifesto Ventures unit is lining up its first investment, while Campbell Soup and General Mills have both entered the game in the past year, but Burton stated the competition was not a factor in Kellogg’s thinking.
“It is an idea we arrived at independently and it was driven by the overall speed of change within the industry, not by what has happened elsewhere in the industry,” he said.
“The overall growth of natural organic [has been a notable development] and within that there have been lots of trends. Non-GMO [products] has been interesting, that is a big one. I guess it depends on category but there seem to be so many new ideas across basically all the categories in which we play that made it an interesting idea for us.
“Part of it is you want to capture things early on so it is less about us attempting to capitalise on something that has become a big deal already. It is more about the ideas we think are going to become big.”
1894 has not disclosed details of any planned investment period for the $100m it has been allocated, but Burton said it will chiefly target companies that already have some revenue on the board, rather than foodtech startups still in the laboratory stage.
“What we are looking at is the sweet spot between $5m and $10m in revenue,” Burton explained. “But when we look at those obviously we recognise those could be later-stage investments that might be a little more risk and a little on the larger side of investment.
“But if it is a good fit for us we consider that as well, and the opposite is true in that we also look at earlier stage companies – those $5-10m revenue companies have to come from somewhere – and again, it becomes a decision on risk and fit and the structure of the portfolio at that time.
“[It would be] about a $1m to $3m cheque size for us, but again with a little bit of flexibility depending on what the opportunity is. That would fit into that sweet spot for revenues, with a little flexibility, and we are happy to either lead or be part of a syndicate – either is okay for us. We rare not requiring rights of first refusal for an exit or anything like that, we are pretty flexible.”
1894 is working with venture capital firm and corporate venturing fund manager Touchdown Ventures to source portfolio companies for the unit, but it will be managed independently and will offer resources and strategic assistance through a panel of experienced food industry figures.
Burton confirmed the unit would invest in emerging companies in core or adjacent categories to Kellogg’s business, as well as enabling technologies, adding: “We are not going to step too far away from what we know, for a couple of reasons.
“Having said that, you can never be quite sure what the next disruptive business or trend or business model might be. You do not necessarily know what is coming so you cannot be too descriptive with it, but there are categories, adjacencies and technologies that will enable the business.
“We have a significant team of nine or 10 experts from Kellogg that are going to help us here, and they are experts in different functions around the business. There is a sales expert, marketing and e-commerce, there is a rep for sustainability from Kashi on there, we have supply chain, R&D and obviously, where those people bring some expertise is within their functions.”