It’s been a rough couple of years financially for even long-established businesses trying to survive in the world of COVID – imagine being a startup. But while the pandemic has taken its toll, some “newbies,” particularly those tackling food waste, are experiencing healthy funding flow. Private investors committed about $4 billion in 2021 alone to address a problem that’s heavily on the minds of policy makers and, increasingly, consumers, with operations like Elemental Excelerator among those who see the emerging business of diverting food from landfill and putting it to use as a very investible market.
Elemental Excelerator is a global technology organization that backs startups addressing climate change. To date, it’s invested in over 115 growth-stage companies. Specific to addressing food waste, it has shelled out up to $500,000 to each of five companies thus far, with more to likely come in the future, says Mitch Rubin, director of Innovation, Elemental Excelerator.
“We look for companies committed to solving climate change, while also increasing equity and access. We invest in for-profit companies of many sizes, from seed to Series C and beyond,” he says.
The company favors startups that have a scalable solution; technologies that have been validated by a third party and market demand; and experienced teams with a proven track record.
“In terms of food systems, we're interested in companies with new technologies at the nexus of carbon sequestration and soil health, as well as companies across the supply chain that prevent waste, enhance food system resilience, reduce greenhouse gas emissions, and improve economic well-being for farmers around the world,” Rubin says.
ReFED has kept a pulse on funding options for young food waste prevention and reduction companies, as well as worked to pump investments. Alejandro Enamorado, ReFED's Capital, Innovation & Engagement manager, points to three trends: Food waste reduction companies are getting more active with acquisitions. Crowdfunding has gained traction. And venture capital funding is flowing nicely to some early-stage online marketplaces.
On the acquisitions front, recent activity includes Apeel Sciences’ buyout of ImpactVision. Through this transaction, Apeel, creators of protective edible coating, got ahold of the company’s hyperspectral imaging technology to help determine which produce should move first, according to current shelf life.
And agricultural tech company Plant Response bought food waste-based fertilizer producer WISErg. Plant Response’s plans are to scale WISErg’s technology that converts recovered food to nutrients, growing domestically and internationally.
Enamorado speaks especially of private sector funding, with venture capital activity the hottest, while crowdfunding is also generating steam.
“Crowdfunding has become a popular funding source for food waste startups, particularly those that are consumer facing [where consumers will be the end user]. They are creating [products or services] that are easily accepted and understood by the general public. So, consumers can see their value,” he says.
This funding model is doing well to advance upcycling especially, with goods like nutritional snacks made from manufacturing byproducts motivating people to reach into their pockets.
But venture capital has been the biggest private funding source.
Among the categories shining brightest are imperfect foods – they’re edible but don’t make the grade aesthetically for grocery stores or restaurants; or they’re oddly shaped or sized for packaging. Also swaying venture capitalists are products that extend shelf life such as those edible coatings of Apeel.
“Venture capital funders gravitate especially to solutions that address a well-recognized problem that they believe will bring them good financial return: the need for systems to more efficiently get food from its starting point to the consumer and in between,” Enamorado says.
A growing focus on fixing a broken supply chain while addressing related environmental issues has resulted in more on-line food ordering. With this trend, new food models are gaining traction; consumers can get food cheaper while keeping it from going to waste. And their interest is drawing investors.
Elemental Excelerator’s business picks to date? Full Harvest for its B2B marketplace, where farmers sell imperfect produce. Rebound Technologies for its proprietary freezing process that keeps perishables at food-safe temperatures. Grub Tubs, who collects food waste from restaurants and converts it to animal feed. Goodr, whose technology enables companies to schedule pickups of surplus food for donation; tracks that surplus; and provides social impact reporting analytics. And last, Full Cycle Bioplastics, whose innovation transforms organic waste into a compostable alternative to oil-based plastics.
Creating a complex product is costly for a startup due to the long R&D process, multiple rounds of prototyping, and often steep manufacturing costs. This doesn’t include other operational expenses such as customer acquisition, marketing, and the supply chain infrastructure.
“It adds up, and you have to constantly check that what you’re developing has a plausible route to market within a price range that your users are willing to adopt,” says Spencer Martin, CEO of Clew.
The young company makes a countertop food waste recycler that grinds, heats, and dries most residential food waste in under two hours. The output can be refined into compost, placed in organics bins, used in gardens, or dropped off at a collection site.
The Alpha prototype is a month or two away, which Martin projects will assist the team in its fundraising, and ultimately in laying out expected costs to achieve a near-production-ready Beta.
“We started Clew in August 2020. Beyond what we’ve currently spent on R&D there will be additional operational and prototyping expenses moving towards our production-ready units. We also have to consider manufacturing lines, tooling, certifications/safety, and other costs.
But we’ve been fortunate to raise nearly $400,000 for development and to have incredible engineering and design partners who are not only developing our product but are also invested in Clew,” Spencer says.
Besides these partners, he has lassoed support from angel investors, and WeFunder crowdfunding; Clew’s WeFunder round ends Nov. 4. The search for more capital is ongoing. Spencer is speaking to more values-aligned angel investors and venture capital funders and has begun exploring grants with cities, states, and federal agencies to potentially help with some of their net-zero goals.
What’s fundamental to Clew’s pitch?
“We tell [investors] … we are developing a strong brand centered around authenticity and transparency; we take ownership for the products we make and their effects on the environment; and we’re in the beginning stages of strategic partnerships, which will help increase our reach.”
This vision is what has sold his backers to date, he says, adding that most of the ones who haven’t put up cash like the concept but either need a more finalized product or a more built out go-to-market strategy “and meeting those expectations comes in lockstep with our prototype development.”
ReFED is working to spur more investments in this space.
“We do it through education. We meet with capital providers like philanthropists and venture capital firms to speak to them about food waste prevention and reduction. We want them to see that investing can help them meet their own social, environmental, and profit goals,” Enamorado says.
“And we are thinking of ways to engage capital providers together. We want to educate a lot more people and connect them to opportunities, which we are working toward in order to scale our effort and to affect change.”