Who has an appetite for foodie startups?

| John Davis

From bijou bakeries to waste-not warriors, we’re always seeing innovative new startups in the food and drink sector. But who are their backers – aside from the well-publicised crowdfunders?

Crowdfunding platforms were responsible for the majority of fundraisings into food and drink SMEs in 2015, particularly at seed-stage. But Venture Capital and Private Equity firms accounted for the lion’s share of investment. Accel Partners and Index Ventures alone invested £274m in 2015 – almost 85% of the year’s total.

Venture Capital and Private Equity firms typically occupy venture and growth stage territory in this sector, rather than investing in extremely early stage startups. But there are some institutional investors who have an appetite for these seed-stage companies.

Index Ventures

Founded in 1996 by the Rimer brothers and Giuseppe Zocco, Index Ventures has principal offices in London, San Francisco, and Geneva. Currently backing 160 fast-growth companies across 24 countries, the firm has made investment headlines with several UK unicorns – including Asos, Deliveroo, and Funding Circle. In February this year, the firm announced the launch of a new £870m fund aimed at startups it believes will ‘redefine the tech landscape’.

Former Twitter boss Dick Costolo is the latest high profile entrepreneur to join the Index investment team, which is also home to former head of product at Dropbox, Ilya Fushman.

In February, Index found itself in hot water after selling shares in fast-food aggregator Just Eat. The firm – which has also made follow-on investments into competitor Deliveroo – defends the move as execution of its business model.

“We’re in the business of venture capital. Our job is to invest in the earliest stages”, says Index partner Ben Holmes. “The reason we’re selling is so we can return funds to our investors and they can invest in our next fund”.

The battle for dominance continues within the increasingly crowded online food ordering space, with UberEAT the latest to enter the fray. Speaking to the FT earlier this year, Just Eat chief executive David Buttress revealed:

“We’ve looked at every market in the world. There’s no greenfield left”.

Total investment into food & drink SMEs

£229m

Average amount invested

£32.8m

Average stake taken

21.3%

BGF Growth Capital

A subsidiary of the Business Growth Fund, BGF Growth Capital is backed by five of the largest banks in the UK: Barclays, HSBC, Lloyds, RBS, and Standard Chartered. Typically investing between £2m and £10m, the fund always takes a board seat and prefers to have a minority stake.

The BGF prides itself on a ‘strong local approach’, with 8 offices across the UK. In the past the fund has co-invested alongside Scottish Equity Partners, and NVM Private Equity. BGF recently backed historic Birmingham property consultancy Anstey Horne, as well as leading independent operator of UK forecourts: MPK Garages.

The firm’s foodie endeavours include TD4 Brands – the company behind chain outlets Boost Juice Bars, and The Shake Lab – Thai restaurant chain Giggling Squid, and purveyors of Mexican food BarBurrito.

“Three years on from their original investment, we are really pleased that BGF shows continued support and confidence in the successful expansion of our company”, says TD4 CEO Richard O’Sullivan.

BGF investor Jon Simon also enthused about the partnership with Giggling Squid:

“We are excited to now have the opportunity to invest in this established casual dining brand, with a strong track record of organic growth and a compelling expansion story”.

Total investment into food & drink SMEs

£27.4m

Average amount invested

£3.42m

Average stake taken

23.4%

MMC Ventures

Kensington-based MMC Ventures has a star-studded portfolio of UK startups, across a range of sectors. The firm’s recent ventures include Brighton-based smart content platform StoryStream, and flexible gym marketplace PayasUgym.

Earlier this year MMC Ventures appointed Jon Coker as Co-Managing Partner, and David Kelner as Investment Director and Head of Research.

MMC Ventures typically invests between £2m and £3m, with an average exit horizon of 3 to 5 years. In the past the firm has co-invested alongside Eden Ventures and Notion Capital.

The firm’s food and drink success stories include Gousto – one of the startups embodying the recipe box-kit movement. Founded by young guns Timo Schmidt and James Carter in 2012, Gousto has secured follow-on investment from MMC Ventures. The company was also a 2015 Startups Awards winner

However, MMC-backed Pact suffered a step back last month when it was forced to abandon its crowdcube campaign. The company cancelled with just days to go, after realising it would fail to hit the £1m target.

“There was a good steady trickle”, a Pact spokesman told the Business Insider, “but there was no way we were going to get to the million. There were lots of small investors, but the more sophisticated investors that make these crowdfunding campaigns successful weren’t going through”.

Total investment into food & drink SMEs

£17.2m

Average amount invested

£4.3m

Average stake taken

33.1%