Building and investing in SaaS companies has a familiar set of metrics that we use to track progress. In deep tech this is harder and, the deeper the tech, the further away the metrics are from SaaS.
I am involved as an investor and a builder in a number of deep tech food companies including v2food, Every Company, Nourish Ingredients, Eden Brew. Meat, eggs, fats and dairy with no animals involved in production.
The goal posts are always moving. There was a time when it was possible to raise a Series A for one of these companies like a pharmaceutical biotech company by demonstrating that they could make the molecules.
Now valuations are going up, and investors want more proof.
Here's what we have learned investors want to see for a slam dunk financing in 2022.
#1: Proof that it can be made and it is exquisite
Show the alchemist and the artist.
It is not enough to show spectrometer charts and photographs of test tubes. Food companies need to demonstrate that all this effort will produce a food experience that is expected. If Eden Brew says it can make milk, then investors need to have a drink and smile afterwards with a big white moustache.
Volumes are likely low at this stage, but the more people can try it, the better.
#2: Proof that customers want it
Collaborate with customers to target what is produced and generate pull.
Two years in a lab isn't enough anymore. The whole food system is in motion and the customers who will buy these new ingredients and collaborate in joint ventures are looking for solutions.
Food companies that get out there are learning SPECIFICALLY what they need to build first and can speak to investors about who they are working with.
#3: Proof that the story is electrifying
Food is a habit that we have learned from childhood. Changing habits is hard.
If a company is going to successfully move a market to adopt a new way of producing an otherwise traditional food, they need to be able to describe it will and get consumers excited to buy it.
Investors want to see a company experimenting with this and making breakthroughs.
#4: Proof that it can be made at a cost that customers need
Science can produce all kinds of ingredients but no one is going to buy milk at $200 / litre.
At the Series A, there is likely much work yet to do here, but this one is like tracking SaaS metrics for conversion funnels. Investors want to see an actively worked techno-economic model that shows the new ingredients heading down in the cost of production.
#5: Proof of IP and freedom to operate
At the heart of these products is a unique invention which makes the company possible.
How unique is this? Can it be defended and monetised as the company grows? Companies need a good handle on this at the start and then to embed it in the operations of the business. Most of our companies have on-staff capability.
#6: Proof that regulation is progressing well
Regulation can take a long time.
The tension here is that regulators like FSANZ in Australia can only review a food that has a stable formulation. Companies are very actively working on the formulation and this delays the formal start. When the process begins it can take years, so that delays the ability to launch a product.
The secret is to start the relationship with the regulator early, start building the documentation and know very clearly what needs to be done.
I'd love to hear your thoughts
If you are building a food company, let me know on Twitter how you are demonstrating progress to investors.