As an active investor backing food-tech entrepreneurs for a healthier, more sustainable and more efficient food system, we were pleased to speak to Niccolo Manzoni, Managing Partner at Five Seasons Ventures to find out about their recent investments and next opportunities in the food-tech space.

As an international investor, what do you look for in a food-tech start-up partner or investment?

COVID-19 has shown that food is extremely resilient. This is not totally unexpected because we have got to eat three times a day at least, you can postpone buying a new car but you cannot postpone eating.

Resilience was to be expected but resilience came in places where there were already some really strong trends, such as direct to consumer, and COVID-19 definitely accelerated those trends.

In the early stages of COVID-19, in some countries there was the impact of pantry feeling – so packaged food companies and CPG companies benefited from this, especially those selling toilet roll, canned foods and products of this sort. Then the trend of pantry feeling faded away as people became reasonable and realised we were not going to run out of food.

But direct to consumer saw a further acceleration because it was a trend that was already happening within the food industry. It is not just about their choice of channel i.e. selling directly to consumers, but it is everything around getting consumers on social media and engaging with a tribe of consumers who not only buy a product on a regular basis and engage with the brand in a way that large CPG companies have lost the ability to do so, but it is also responding quicker to consumer needs in times of stress like during COVID-19. So I think the trend was already ongoing pre-COVID19 and certainly accelerated during the pandemic and I believe it has probably been fast forwarded by about a year.

When we look at our portfolio companies and all the companies we look at each year (1,000s of companies), we are seeing that definitely the trend of direct to consumer is getting a big push.

Direct to consumer is definitely emerging as the biggest winner. Food is overall emerging as a big resilient industry and winner out of COVID-19, it is a silver lining and for direct to consumer within food even more.

Recently there has been a lot of disruptions in business strategies. What has been the most exciting or surprising investment so far this year, despite the unprecedented challenges?

In our portfolio we have closed pretty large rounds of investment just before and during COVID-19.

We have seen some trends towards the supplement space and immunity-related products. For example, if you look at how people are looking for things that will make them stronger.

People are looking for supplements that are helping them to either boost their immunity or their mental performance – as you have to manage juggling children, managing the house, three meals a day and your job, you are under a lot of stress and pressure. People are looking to hack their bodies to get through this pretty strange time.

The supplements / holistic health area has been a trend that was already on going but this has been accelerated by COVID-19.

In terms of funding, I would expect funding to slow down a bit, especially in terms of Q2 and the second half of Q1/Q2, but we still seeing pretty good rounds of finance.

We have seen Oatly close a $200 million round – that’s exciting. As long as the fundamentals are strong and the fundamentals of those companies are getting even stronger during COVID or due to COVID then there is going to be financing for the successful companies. In a way the pandemic is shaking the tree to get the bad apples out for the financial services industry as there is less noise and more good apples.

We take a medium to long term view with investing. We invest in early stage companies for them to grow not over the next quarter but over the next years, so because of that this is one event and there will be many events between now and the time these companies will be exited. It is one event it has been overall positive for the food industry and food-tech and we still believe there is going to be plenty of good flow and we still see plenty of good flow.

With COVID-19, investment activity will slow down. As investors we want to see the teams that we invest in and because of travel restrictions we cannot fly over to meet the teams. Since we cannot fly over to meet them, we can do a lot of the work over Zoom and in fact we closed two investments during COVID-19 – one was where conversations had started before and one that we still had some due diligence to do and we had  a virtual tour of their warehouse on their webcam.

What milestones are you looking for in new start-ups, given that the normal metrics aren’t really available in these strange times?

We are trying to filter out the COVID-effect – if a company has a spike in sales in Q2 we want to make sure the spike in sales is not just due to COVID, but it is sustainable.

Secondly the marketing metrics, during COVID-19, big spenders on social media platforms for marketing and customer acquisition stopped spending, so it became cheaper to acquire customers. Customer acquisition costs (CAC) has gone down across the board on average and so your numbers look better. You have to spend less to acquire more customers so we want to make sure the metrics are solid and understood, not just riding the wave of COVID-19. It may happen that some companies get funded because they had this COVID-spike, but for most investors it is (mostly) a relationship-building exercise as well so unless conversations were pre-existing before COVID-19 then I don’t think investors will fall easily for that.

A month ago we started to meet people at least locally, so the pace will pick up and we will see in Q3 if there is a second wave which may happen. Hopefully it won’t be a national lockdown, but localised. There are lots of big question marks going forward.

Find out more about Five Seasons Ventures:

Niccolo will be joining us at Future Food-Tech on September 17-18 and will be a shark panelist during the start-up showcase as innovative entrepreneurs showcase their solutions.