The food tech scene is booming in Israel, where its start-up ecosystem is striving to be ‘number one’ in the game. So what makes this country a hotbed for food tech innovation? FoodNavigator hears from a food manufacturer, a start-up incubator and a venture capital firm.
The term ‘food tech’ is relatively new to the start-up scene, yet momentum, and investment, is on the rise. The Beyond Meat IPO boom certainly helped raise the sector’s profile when it became the first plant-based meat company to go public on the Nasdaq Stock Market this year. However, other factors are also at play.
Increased awareness of growing population numbers and determining how best to ‘feed the future’, for example, is encouraging entrepreneurs, food companies, policymakers, and venture capital funds, to look to technology for answers.
In Israel, home to a thriving high-tech start-up scene and a fast-growing food tech ecosystem, this is certainly one ingredient in the ‘secret sauce’ driving sector growth.
Sustainable consumption and investment
At Israeli food giant the Strauss Group, executives have observed a shift in food tech growth over the last few years, and in investment, in the past 18 months. The ‘turning point’ for the sector, according to the Group’s chairperson, Ofra Strauss, was when key players acknowledged that continuing ‘business as usual’ was not an option.
“If we continue with the system that we have today, with our [current] food supply chain, we cannot serve another billion [people],” she told FoodNavigator during a press briefing in Tel Aviv. “If we continue what we are doing now, we will deploy all the water, all the earth, we will continue to waste, and of course pollute the world with plastic. Agriculture is not sustainable as it is today.”
This is what prompted the Strauss Group to create food tech accelerator The Kitchen Food Tech Hub in collaboration with the Israeli Government. The two-year programme supports who The Kitchen predicts to be ‘disruptor’ entrepreneurs develop their technical expertise as well as their business models.
The Kitchen’s CEO Jonathan Berger said he also perceives the sustainability agenda to be driving growth, and in particular investment growth, in the food tech space.
“People now realise that if you want to make an impact fund, or if you want to [focus] on double bottom line, or if you want to make a sustainable investment, food tech plays a significant role in that,” he told FoodNavigator alongside other journalists at FoodTech IL last week. “So we are seeing more investors and many family offices coming to this space.”
And the figures appear to back this up. Israeli’s food tech ecosystem raised US109m in 2018, whereas at mid-2019 the sector had already secured close to U$100m, Berger continued. “We have doubled the pace. The ecosystem has matured, start-ups have grown up, they [have become] closer to market…I think this attracts investors,” he added.
Israel’s food tech scene fits within its impressive start-up ecosystem – the world’s second largest behind Silicon Valley. The country welcomes 1,000 new start-ups every year, and is home to 420 accelerators and start-up communities.
According to Vintage Investment Partners VP Orly Glick, the nation’s culture is responsible for a big part of this growth. In a country that historically did not have a lot of wealth, Israelis see entrepreneurship as a way to get ahead, she explained on the eve of FoodTech IL. “Everyone has a start-up…the country is very entrepreneurial. That is the culture.”
For Glick, one aspect of Israeli culture that sets itself apart from its tech colleagues in Silicon Valley, is its mandatory military service. At the age of 18, Israelis are required to serve in the army for a minimum of two years. ‘Gifted individuals’ are selected for Israel’s Intelligence Corps unit 8200, which provides soldiers with high-level training in technology, leadership, and budgets. “They have the freedom to innovate. After several years, they leave [the army], form start-ups and are funded by VCs or investors that were in the same unit as them,” she explained.
The Kitchen’s Berger similarly suggested that Israel’s mandatory military service was an influencing factor in the start-up scene. “Each country has their own success factor. In Israel, it is a lot about networking. It seldom happens that when we are about to make an investment in a start-up….we rarely don’t know [the entrepreneur] through a friend.”
The CEO continued: “You can get the best interviewers but it’s nothing like knowing the person for a few years because you went to college together or because you served in the same military unit, or because you worked in the same company. Within two degrees of separation, you can get that.”
Government-backed innovation
Another key ‘ingredient’ lies in the Israel Innovation Authority, which was set up as a government institute in 1992. The Authority was instrumental in the creation of Israel’s start-up ecosystem and continues to provide entrepreneurs with free grants to encourage business growth.
Indeed, the government played an important role in getting The Kitchen off the ground. In 2015, Strauss won a governmental bid to initiate a food tech incubator, which the food giant saw as a win-win model: “We didn’t have the money to invest in creating research and development for ourselves, and we thought ‘let’s make Israel the number one in food tech, and we will enjoy the ecosystem’,” explained Strauss’ chairperson.
Today, the government actively funds food tech entrepreneurs via The Kitchen’s programme. In a public-private partnership, the duo invests US$700,000 in each start-up accepted into the programme. The Kitchen receives 20-50% equity in return. Thirteen start-ups have been selected into the incubator to date.
Of course, The Kitchen itself is also helping grow the sector. The accelerator identifies as a ‘company builder’, CEO Berger explained. By learning from ‘many mistakes’, The Kitchen now has the recipe for the ‘secret sauce’ in start-up development: from how to build a company, to deciding when to take it to market, to constructing a team, protecting the technology, and speaking with investors.
“We like to perceive ourselves as a machine,” he continued. All the ‘ingredients’ go in, and two years later the company is fundable, “so other investors can jump in and join us. Then the company is standing on its own [two feet]”.
A number of The Kitchen’s start-ups are heading in that direction. Better Juice, for example, which has developed technology that reduces the amount of sugar in fruit juices while increasing dietary fibre content, recently announced a partnership with Brazilian orange juice giant Citrosuco.
Clean meat start-up Aleph Farms, which is producing cell-grown bovine meat, is another in the spotlight. The start-up secured US$12m in series A funding in May this year from backers including Cargill, VisVires New Protein (VVNP), and upscaled investment from Strauss Group itself.
Other start-ups in the 13-strong cohort include insect protein-focused Flying Spark and plant-based yoghurt manufacturer Yofix.
And The Kitchen is not the only food tech incubator out there. Berger told us his team willingly consults on other ‘Kitchen’ concepts around the world, and indeed has done so in Singapore, Brazil, and France.
Competition is edging closer to home, however. Earlier this year, the Israel Innovation Authority selected a consortium – made up of food processed cooperative Tnuva, Tempo Beverages, crowdfunding platform OurCrowd, and US agritech and food tech fund Finistere – to establish a food tech incubator in the north of Israel.
The Kitchen Hub welcomes the competition, the CEO revealed, predicting that competing with the ‘northern incubator’ on deal flow will force The Kitchen to improve its value proposition to start-ups. “We think that the competition makes us better.”
