Kellogg launches a VC firm to put money into food startups

Corporate VCs have been on the rise, and they now make up 12% of all firms

Updated with additional comment from Simon Burton

Corporate VCs have been on the rise this year, to the point where they now make up nearly 12 percent of all venture capital firms. In 2010 there were only 124 of these types of investment firms, and by last year there were 321 of them.

That means that it's not only going to be the kinds of companies you'd imagine making these types of investments, such as Intel, Google, Dell and Twitter, but also spaces you may not expect to see such activity. That includes the food industry, where there have been a number of companies creating their own VC firms.

The latest to break into the space is cereal maker Kellogg Company, which has announced the launch of eighteen94 capital, also known as 1894, to "make minority investments in companies pursuing next-generation innovation, bolstering access to cutting-edge ideas and trends."

The fund will be managed by Simon Burton, Vice President of Investor Relations at Kellogg Company. Kellogg has also partnered with Touchdown Ventures, which specializes in corporate venture capital, to assist with management of the fund.

1894 plans to invest approximately $100 million in businesses that are "pioneering new ingredients, foods, packaging, and enabling technology." While it says it will be "stage-agnostic," the fund also notes that it will be ab emphasis on early stage opportunities with "companies that have demonstrated good product and market fit and have generated initial revenue." (Basically, that sounds like Series A to me)

"As consumer preferences move toward more diverse tastes and trends, the pace of innovation in the packaged foods industry continues to intensify. By investing directly in the most promising ventures, Kellogg can benefit from game-changing ideas and trends. Along with greater visibility to emerging trends, 1894 is a great addition to our existing capabilities by enabling us to take action with greater speed and agility," Burton told me.

"These businesses will increase our exposure to game-changing ideas and trends. Along with greater visibility to emerging trends, they also offer greater speed and agility."

Kellogg is just the latest food company to launch its own venture fund. In October of last year, General Mills debuted 301 INC, a new business development and venturing unit, through which " entrepreneurs and early stage food companies will have access to capital and the deep knowledge and expertise of General Mills to develop, grow and expand their businesses."

Then, in February, Campbell's Soup got in on the action with a VC fund called Acre Venture Partners.

The Acre Venture Partners fund is being managed by outside partners, which are independent of the parent company, rather than internally, like those at Kellogg and General Mills. Less oversight typically gives corporate firms, and their funds, more freedom to invest, without having to worry as much as the interests of the parent company. 

"As consumer preferences move toward more diverse tastes and trends, the pace of innovation in the packaged food industry continues to intensify," Gary Pilnick, vice chairman of Kellogg Company, said in a statement. "By investing directly in the most promising entrepreneurs and ventures, we can increase greatly our access to game-changing ideas and trends that could become significant sources of growth for us."

The rise of corporate VCs

The number of corporate VC firms has gone up each of the last five years. Concurrently, the percentage of corporate VCs relative to all active venture capital firms has also been going up.

All of this has led to corporate VCs getting a bigger and bigger slice of the pie. In 2015, corporate venture groups participated in 17 percent of all the deals in North America, making up 24 percent of the total venture dollars,

In all, a total $74.2 billion was invested in 2015, meaning that, of that, $17.8 billion came from investors that included Google Ventures, Cisco Investments, Dell Ventures and Twitter Ventures. That is double the 12 percent that these types of firms were investing in 2011.

So what does this all mean? I wrote a piece earlier this year on that very subject, speaking to a number of venture capitalists about how corporate VCs differ from traditional firms, and what it means for the companies.

The key takeaway from those conversation were that corporate VCs are slightly more dangerous for the companies they invest in, though they do have some clear upsides.

Corporate VCs have a different end goal. While institutional VCs only make money if the company exits, either it gets acquired or it goes public, a corporate VC doesn't necessarily need an exit to benefit. They can find potential acquisitions, or future partners, through their investments. That means that a company that comes looking for money is also a potential competitor, and giving away too many secrets would not be in the best interests of the smaller company. 

They also often rely on the whims of the corporation backing them, so the firm might simply disappear following a bad quarter, leaving the company out in the cold on subsequent funding rounds. For that reason, Campbell's fund may be a safer bet for investment than the other two firms, which seem more tied into the whims of their respective parent companies.

At the same time, a company can certainly benefit from the insights that a more established company in their space can give them, as well as the resources they have at their disposal.

(Image source: storybookart.blogspot.com)