When Nadav Berger and Erich Sieber launched PeakBridge in 2018, foodtech was red hot. But with decades of experience in the industry behind them, the pair kept their feet firmly on the ground while the sector began to overheat. Investing in food, says Berger, is a marathon, not a sprint.
That said, AI is beginning to change the game with tools that can save time and money and unlock mass personalization in record time, without breaking the bank, he says.
“Another domain I really believe in is restaurant tech. In the US, food consumed away from home is about 55% of calories but it’s still a very unsophisticated industry with huge challenges, especially around labor and HR.”
Above all, he says, investing is about people. “It’s kind of like a marriage,” he says, except it’s “almost impossible to divorce from your investors.” As a result, he says, founders should do their due diligence.
“First you date, you meet the family, you go away for a weekend, you spend some time before you commit. You should speak to other portfolio companies of your potential investor. Maybe [you’ll learn that] they’re not nice, that they won’t add any value. Find out what they are like in the rainy days, not just the investment stage, when everything is great.”
AgFunderNews (AFN) caught up with Berger (NB) to talk about dry powder, disciplined bets, and why solid 3x returns beat risky 10x dreams.
AFN: Where are we in the foodtech investment cycle?
NB: We’re getting close to the bottom. 2021 [a time of high valuations and cheap money followed by an exodus of generalist capital from the agrifoodtech sector] was a wakeup call for everyone.
You don’t get easy wins and quick returns in food. Probably the multiples will not be 10x but will be 3x, 4x on a good day. But the odds of success are much higher. So foodtech is investable and it’s here to stay, because the addressable market is so big.
It’s also a nascent industry, really just 10 years old. But investors are becoming more professional, including us. If I look at our processes today compared to five years ago, we do far better deals, but it took time.
AFN: Tell us about the origins of Peakbridge
NB: My business partner Erich Sieber and I both spent our lives in the food space before starting Peakbridge [in 2018]. Erich was at Nestlé for 18 years and I co-founded [food applications hub] FoodLab and [foodtech investment firm] FoodLab Capital.
And then we added Yoni Glickman, who brought his amazing experience at [flavors & natural ingredients firm] Frutarom [sold to IFF for $7.1 billion in 2018] with him. He’s not a GP, but his influence and impact is tremendous. And then we created a scientific advisory board with some really smart people that actually know food. The idea was to be the bridge helping entrepreneurs to get to the peak. What could we bring beyond money?
AFN: Describe your funds, focus, and strategy
NB: We came from the food industry, and mainly from ingredients, so we decided to focus on b2b with scalable, protected technologies, not just applications and recipes.
Our five pillars are ingredient innovations, alternative protein technologies, digitalization & food system 4.0, nutrition & health, and alternate farming systems. In software, you can get early wins and theoretically exit more rapidly whereas ingredients will take longer.
Our seed fund was €26 million ($30 million), the growth fund was $40 million and we’re now at our third fund, which is $186 million, so quite substantial. Investing at A, B, and maybe C [stage] is our sweet spot, but we have an allocation to also do small investments [at a seed stage] with less complicated processes.
Having the ability to do small checks, let’s say half a million, allows us to create proprietary deal flow for ourselves and “date” startups before we commit fully to a marriage with a bigger check. We’re halfway in the investment phase, so we still have a lot of dry powder.
AFN: How has your strategy evolved over the years?
NB: I think that now our pencils are sharper and we’re very risk averse when we see an opportunity that will require a lot of CapEx investment. I also think looking at unit economics, we’re better at that today. Are you building a sustainable business or are you building a business to raise money?
Most of what we do is [invest in] companies with proven business models that will do 2x to 3x [ROI] but without losing too many [that go under].
AFN: How would you characterize the current investment climate and how challenging is it to get LPs on board?
NB: We’re at the last phase of the cleanup of free riders who joined this industry without a real understanding of the challenges. There are now fewer players, but the remaining are more focused and value add, which is what this industry needs. The challenging part is the follow-ons and co investment.
AFN: Have you executed or considered secondary sales as part of your strategy to return money to LPs?
NB: Secondaries could be twofold. This could be us selling our equity to someone else internally, without going to an external pricing round, and the second, which we have done multiple times, is secondary buying out or helping entrepreneurs where it made sense for them and for us.
In many cases, as companies grow, one of the original founders wants to exit or partially exit and so in at least five cases, we have helped them to meet some kind of liquidity and bottom out.
At end of the day, we’re in the business of HR. It’s all about people. And in some cases, companies start with two founders, and one wants to go fishing… or they don’t get along. So the HR component of what we do is so important, from choosing the right people to helping them excel and develop and evolve and, unfortunately, resolving issues between founders and replacing management and so forth.
AFN: Are you seeing more pay-to-play situations in food and ag investing where investors commit to future rounds?
NB: Yes it’s a kosher approach where resources are limited. We participated in a few and got diluted by not participating in others. The decision whether to participate is based on a potential returns/best use of AUM [assets under management] and portfolio review.
We’ve done it multiple times in the last 18 months. But in some cases, we decided not to participate and we got hit. As a fund, you do your math, you can’t think just about each company by itself, you have to have a portfolio approach.
In any portfolio, unfortunately, not all of the companies will succeed, so you [have to] choose [what to prioritize].
AFN: How are your funds performing?
NB: Our fund is performing OK although it is too early to say. People need to understand that this is a long-term play and not necessarily about quick and risky 10x exit models.
This is a huge industry with many challenges. There’s a craving for tech and change but it’s slow and doesn’t pay a premium.
AFN: Where do you see exits coming and what role do you see corporates playing at every stage?
NB: Corporates are critical. Startups should interact with strategics from day one and learn how they see the world and the future. Working with strategics or funds like ours which are partially backed by strategics, also helps in understanding the regulatory landscape.
In our space, exits will come from M&A and strategics in very specific areas and rarely via IPOs. When you understand that, you understand how critical it is to build a sustainable profitable business. I hardly can see in our portfolio any IPOs… well maybe one which will be a fund maker.
But not all strategics are the same. Ingredients players and IT/software players can buy tech. The rest will buy businesses and profitability.
AFN: What agrifoodtech areas are most interesting to you right now?
NB: Within the five pillars we focus on, two are becoming more of a focus: the intersection between health and nutrition, and the usage of AI and Gen AI in the value chain process in food.
Another domain I really believe in is restaurant tech. In the US, food consumed away from home is about 55% of calories but it’s still a very unsophisticated industry with huge challenges, especially around labor and HR.
AFN: Is AI eating venture capital dollars and deflecting capital from sectors like agrifood?
NB: AI is eating everyone’s lunch so let’s understand that and ride the waves. The principles are clear. AI is technology. What matters is how you use it and what problem you are trying to solve.
AI and Gen AI could be great tools to better understand consumers. With AI we can offer better solutions to more people based on their personalized needs.
It can also save labor costs by improving processes. Maybe you don’t need 20 people in the consumer insights department when you can [generate insights at the] click of a button.
AFN: In a world where AI is widely accessible, what differentiates AI as a true moat in companies you assess?
NB: AI must be relevant to this specific industry and not a generalist tool. We’re also looking for a real business case which can prove it is giving better and more accurate results in real time, increasing success rates in NPD, improving R&D capabilities, and saving time and money.
There are things CPGs can do in-house with AI , but they don’t generally have the resources to create their own AI team and develop their own tools. Even if you have the resources to hire 100 very smart people to develop your own AI tools, by the time they join, the tools outside will be smarter and faster.
AFN: Can you talk about the challenges facing Israeli startups since Oct 7?
NB: The main problems have been [the negative impact on] travel and raising money, but I believe the world still appreciates Israeli tech and entrepreneurship. The way the local industry has coped is moving the commercial part of their operation abroad and maintaining R&D in Israel.
Israelis are very resilient, creative, and persistent, so everybody has also had to become leaner and more efficient.
AFN: Were you able to avoid getting your fingers burned through the hype cycle of 2019-22?
NB: We avoided the alt protein hot air by understanding, as food people, that it’s all about taste and texture and can’t be more expensive than animal sourced proteins. We decided not to play in the CPG space after close discussions with the team and scientific advisory board on potential exits, horizon, and how it relates to our five pillars.
AFN: Any insights on the future for alt meat?
NB: What we see more and more is a hybrid model. So take [portfolio company] 50CUT [formerly Mush Foods, which targets the US foodservice market with mycelium to blend with meat].
We spoke to their number one client, a huge foodservice company, and the business case was not about saving [the planet] but saving money. By using 50CUT they could reduce costs [as the mycelium retain moisture and improve yield].
AFN: What do you look for in a founder?
NB: Exceptional founders create exceptional companies, but you have to have the ability to raise money. Without that, nothing else matters.
AFN: Name a startup you wish you’d invested in
NB: inKind [fintech startup that provides restaurants with upfront capital in exchange for food and beverage credits, avoiding debt and equity. The company sells these credits to consumers through a mobile app]. I think they’re up to something amazing.
AFN: Can you share any pet peeves as an investor?
NB: Some entrepreneurs are overselling and it’s easy to find that out quite early, so don’t do that! First impressions are critical. Unit economics are also key. Can you actually make money?
The other area where I see room for improvement is due diligence. Some startups don’t do sufficient due diligence on their investors. Investing in startups is kind of like a marriage. You’re in it for the long term as it’s almost impossible to divorce from your investors.
First you date, you meet the family, you go away for a weekend, you spend some time before you commit. But startups often raise money when their back is to the wall, and they don’t do their homework.
You should speak to other portfolio companies of your potential investor. Maybe [you’ll learn that] they’re not nice, that they won’t add any value. Find out what they are like in the rainy days, not just the investment stage, when everything is great.
It’s also a case of not wasting time. If startups come to us about a new CPG brand, for example, we only invest in b2b, so they are wasting our time and theirs.
Further reading:
Rockstart’s Mark Durno on agrifoodtech’s next chapter: ‘Quality deals with defensible valuations’
🎥 Matt Crisp on agtech investing: ‘We need to get small in order to get big again’
Where Siddhi Capital is placing its bets: ‘GLP-1 is our AI. It’s a huge opportunity’
Rich Products Ventures MD: ‘We have to get results, but we don’t have to answer to Wall Street’
The post PeakBridge’s Nadav Berger on people, partnerships, and portfolio discipline: ‘At the end of the day, we’re in the business of HR’ appeared first on AgFunderNews.
