Venture capital in the baking and snack industries shows no signs of slowing. Stalled for growth, the largest companies are partnering with start-ups to breathe new life to market with innovative snacks and baked foods. Among concepts capturing investor attention are convenient nutrition, plant-based foods and functional ingredients.

“The old, established model, increasingly, is not working,” said Timothy P. Cofer, executive vice-president and chief growth officer of Mondelez International, Inc., Deerfield, Ill. “The way we innovate and the way we address a rapidly evolving consumer needs to change.”

That insight helped fuel the creation and November 2018 launch of SnackFutures, an investment hub that is operated as an independent unit within Mondelez. A key piece of the platform is collaboration with venture capitalists, entrepreneurs, scientists, accelerators and incubators to create “an unconventional ecosystem,” Mr. Cofer said.

SnackFutures has allowed Mondelez to embrace opportunities it could not otherwise while using the resources it already has.

“We do not have all the answers inside the four walls of Mondelez,” Mr. Cofer said. “Obviously we bring … deep route to market, incredible R.&D., strong marketing prowess and digital capabilities, and we bring capital we can invest.”

Strategic areas of focus include well-being snacks and ingredients, premium snacks and ingredients and digital platforms. SnackFutures’ minority investments have included Uplift Food, an early-stage business focused on prebiotic functional foods, and Hu Products, a snack company that manufactures clean label, paleo-inspired products, including chocolates and grain-free crackers.

“As the global snacking leader, we’re on a mission to lead the future of snacking and push the boundaries of what’s possible,” Mr. Cofer said. “Investing in Hu offers our company an opportunity to do exactly that. The Hu brand sits at the convergence of key growing consumer trends.”


Increasingly, the industry’s largest companies are launching venture funds, accelerators or incubators in pursuit of innovation. In March, Starbucks Corp., Seattle, announced a $100 million investment in a venture capital fund focused on food and retail technology, and Mars, Inc., McLean, Va., unveiled a new business accelerator to nurture “the next generation of food innovators.” Product categories of interest to the company include flavors, plant-based foods, convenient meal solutions, “responsible food” and “creating with care.”

“Big food’s inability to quickly innovate creates continued opportunity for smaller, more nimble brands to disrupt and innovate within the market,” said Jon Sebastiani, founder and chief executive officer, Sonoma Brands, Sonoma, Calif. “While the landscape has certainly become crowded with these smaller brands, the truly innovative and differentiated brands will excel and garner attention from strategic, propelling M.&A. activity.”

Mr. Sebastiani founded specialty meat snack company Krave Pure Foods in 2009. The brand was acquired by The Hershey Co., Hershey, Pa., in 2015. A year later, Mr. Sebastiani established Sonoma Brands, which is described as a “specialist growth equity firm exclusively dedicated to disruptive, high-growth consumer brands.”

“When looking for brands to add to our portfolio, we seek disruptive brands that are true category leaders or category builders within the better-for-you space,” he said. “We also seek to work with extraordinary founders and talented leadership who are passionate and have an authentic story to tell.

“The brand needs to stand out in the crowd and be a leader and innovator within its given space. This can come in the form of providing a functional benefit, sexy packaging, new usage occasions, delicious taste or superior quality.”

“Truly buzzworthy products combine great passion, purpose and remarkability.”

John Haugen, 301 INC.

Conversely, several factors may make for a bad investment, Mr. Sebastiani said, referring to “weak leadership, disorganized vision, a flailing category, lackluster branding or a product that is simply following a passing fad.”

Investors also should be wary of products that are too narrow in their appeal or too early in the lifecycle and may not catch on, said Mark Crowell, principal culinologist at CuliNex, L.L.C., Tukwila, Wash.

“Investors tend to gravitate to high-growth segments like beverages and snacks,” Mr. Crowell said, citing specific interest in sugar replacers, upcycling, paleo, gluten-free, nut and seed milks, and vegetable protein products.

Problem-solving products

Beyond solving the food industry’s innovation problems, solving environmental issues is also a motivator behind the investments of several venture capital funds. Start-ups committed to regenerative agriculture, sustainability and plant-based products have become attractive targets.

Renewal Mill, a food ingredients company committed to tackling food waste by transforming byproducts into nutritious and functional ingredients, has received two investments within the past year. The company upcycles the byproducts of food manufacturing into premium ingredients and products such as okara flour, a versatile, high-fiber, gluten-free flour harvested from the pulp left over from soymilk processing.

Renewal Mill

“We created Renewal Mill to provide large-scale food manufacturers a sustainable, scalable and reliable solution for their production waste,” said Claire Schlemme, founder and c.e.o. of Renewal Mill.

In July 2018, Renewal Mill received an equity investment from Techstars Farm to Fork Accelerator, which was formed in December 2017 by Cargill, Techstars and Ecolab. The partnership was formed to explore additional applications for Renewal Mill’s okara flour, including extruded products.

Then in January, Renewal Mill received a $2.5 million investment from HG Ventures, the corporate venture arm of The Heritage Group.

“Renewal Mill is at the forefront of providing innovative and widely available enhancements to the food production value chain,” said Kip Frey, managing director of HG Ventures. “We look forward to supporting the company’s efforts in pursuit of a more sustainable and healthful food production ecosystem.”

Plant-based businesses are a focus of Eighteen94 Capital, a venture fund launched by Kellogg Co., Battle Creek, Mich., in June 2016. In January, the company participated in a funding round for MycoTechnology, Inc., which uses mushroom fermentation to produce functional ingredients. Kellogg first invested in the company in September 2017.

MycoTechnology’s first product, ClearTaste, is a certified organic bitter blocker that helps reduce sugar content in formulations. Another product, PureTaste, is a complete, digestible mushroom protein made from Shiitake mushrooms that has a slight cereal or nutty taste. It is low in calories, fat and carbohydrates and high in vitamins and minerals.

“MycoTechnology’s organic technology addresses growing consumer demand for products focused on health and sustainability, and Kellogg is excited to continue to partner with the company in a number of ways,” said Gary Pilnick, vice-chairman of Kellogg.

Kuli Kuli, Oakland, Calif., producer of plant-based nutrition bars made with moringa, has earned two investments from Eighteen94 Capital, including the venture capital fund’s first investment. In January 2017, Kellogg participated in a $4.25 million funding round for the company.

“After Eighteen94 Capital led Kuli Kuli’s Series A financing in 2017, Kuli Kuli’s retail business tripled,” said Lisa Curtis, founder and c.e.o. of Kuli Kuli.

In March, Eighteen94 Capital joined a $5 million financing round for the company.

Kuli Kuli

“Kuli Kuli was Eighteen94’s first investment and has served as a model for how large food companies can partner with start-ups to the benefit of both,” said Simon Burton, managing director of Eighteen94 Capital. “We’re thrilled to grow and strengthen our partnership with Kuli Kuli.”

Another packaged food brand keen on supporting start-ups to solve industry challenges is Chobani, Norwich, N.Y. Barely a decade ago, Hamdi Ulukaya sold his first cup of Greek yogurt and helped create a multi-billion-dollar category in the United States. Today, the founder and c.e.o. is helping others launch food businesses through the Chobani Incubator.

Unlike traditional investment models, Chobani receives no equity in exchange for its investments. Mr. Ulukaya viewed the project as an opportunity to “pay it forward” to other up-and-coming brands in the industry.

“Our selection criteria for the Chobani Incubator revolves around ‘DNNA,’ which stands for ‘delicious, nutritious, natural and accessible,’” said Zoe Feldman, director of Chobani Incubator. “Chobani was built on this idea of democratizing food; making it better for you and more accessible and affordable, and we want to help smaller companies that share our mission achieve their goals.”

Launched in 2016, Chobani Incubator provides $25,000 grants and three to four months of on-site mentorship programming with company employees and executives, food industry thought leaders, retail partners and program alumni. Participating companies have included Banza, a maker of chickpea-based pasta; Supernatural Kitchen, producer of allergy-friendly baking ingredients; Grainful, maker of oats-based frozen entrees and meal kits; and Masienda, a clean label tortilla company.

“When it comes to the product attributes, we look for entrepreneurs that create natural foods that share in Chobani’s DNNA and have solid growth potential over time,” Ms. Feldman said. “The Chobani Incubator is interested in all categories.”

The latest cohort includes Afia Foods, a mission-driven maker of frozen falafel and kibbeh; Cocina 54, a producer of better-for-you frozen empanadas; and Mason Dixie Biscuit Co., maker of preservative- and additive-free biscuits, among others.

Mason Dixie

“The market is extremely crowded, with an influx of capital that has entered the packaged food industry over the past three to five years,” Ms. Feldman said. “It is a very exciting space, and I’m encouraged by the landscape because so many new companies are bringing exciting innovation to the food and beverage space.”

301 INC, the venture and business development unit of General Mills, Inc., Minneapolis, supports companies that “obsessively put consumer needs first.”

Consumers are looking for convenient, nutrient dense foods that may meet a custom wellness need, such as vegan or plant-based protein to help fuel a workout, or a probiotics-rich snack to promote healthy digestion, according to 301 INC.

“Truly buzzworthy products combine great passion, purpose and remarkability,” said John Haugen, the founder and managing director of 301 INC. “We are experiencing the biggest generational transition in food brand preferences in our lifetime; we’ll look back on this 10 years from now and remember what an amazing time is was to be in the food business. We all have a responsibility to take great ideas and work together to bring them forward, wherever you sit in the ecosystem.”