European venture houses hungry for food tech

This emerging subsector, which encompasses delivery services, food replacements, and restaurant technology and software systems, is fast becoming a target for venture capital firms. Indeed, the Quandoo deal, which saw venture backers DN Capital, Holtzbrinck Ventures and Piton Capital exit the business, follows London-based food services company Just-Eat's £1.4bn listing in March last year.

Perhaps spurred on by the returns generated by Just-Eat's flotation, European businesses targeting the peripheries of the food service industry have raised huge amounts of external investment in the past 12 months. Growth capital sponsor Tengelmann Ventures took a bite out of two such companies at the end of February. Bonativo, which delivers boxes of local produce and raised €3.2m in its series A; and supermarket delivery service ShopWings, which raised €12m, are among a host of start-ups integrating technology with the food sector.

However, aside from Just-Eat's high-profile IPO, the UK has only seen around £100m of investment in the sector since 2011. According to unquote" data, the German start-up scene in particular has benefited from the recent flow of money, having raised more than €1bn in the same period. Berlin-based food delivery platform Delivery Hero has brought in the bulk of the cash. This compares favourably with the larger US market, which saw more than €1bn flow into food tech companies in 2014 alone, according to CB Insights.

US start-ups have proven increasingly popular with venture capital investors. These include: food delivery company Instacart, which raised $220m in a series-C round in late December from backers including Kleiner Perkins Caufield & Byers; and Postmates, which recently raised a €35m series-C and struck a delivery deal with Starbucks. However, food tech can trace its roots back to 1998 with the advent of restaurant reservation platform OpenTable. Initially growing though venture capital investment, the business went public a little more than a decade later in 2009.

Tasty sector
A study conducted by Boston Consulting Group found the online share of the food market worldwide was around 5%. The firm predicts the space to increase in value by $36bn, to reach $100bn by 2018.

Nicolas Wittenborn of Point Nine Capital, which invested in Delivery Hero's series A in March 2011 alongside Tengelmann, argues food tech companies fulfil the firm's investment criteria. "We look for early-stage opportunities that are big and can scale, with a strong investment team and showing confirmation of demand," he says. "Delivery Hero is now the leader in more than 20 countries and is aggregating the market."

At the end of January, Accel Partners led a $25m series-B round for London-based Deliveroo. "In the food delivery market at the moment, you mainly have intermediaries dominating the space," says Luciana Lixandru, vice president at Accel. "I think there is going to continue to be a large player in the pure marketplace model, but there is also room for new business models." Deliveroo differs from Delivery Hero as it not only provides the order platform, but the company also has its own drivers. Delivery Hero may have seen the gap in its services, having just acquired a minority stake in delivery service MyLorry in a deal worth more than €10m.

Room for improvement
Venture capital investors are in agreement that the food services market is ripe for activity. "In the travel sector, the majority of tickets are now being bought online. Fashion has not moved entirely online but it's a high percentage. But food has not seen that much innovation so far," Wittenborn says.

Indeed, Jeff Liebermann of Insight Venture Partners, which invested €10m in HelloFresh alongside Rocket Internet, says such companies have been made possible by "the convergence of mobile computing, payments and connectivity which makes the matching of buyers and suppliers more efficient". Founded more than three years ago and located in Berlin, HelloFresh delivers weekly meal kits to subscribers. Active in Germany, Austria, the Netherlands, Belgium, the UK, the US and Australia, the business generated revenues of €210m last year. "We focus on companies with scalable and repeatable business models," he says. "Food is one of the largest industries in the world. People need to eat."

Start-ups are covering ever more areas of the market in a bid to be innovative. The food box delivery sector in particular is fairly active: High-Tech Gründerfonds (HGTF)-backed Fooboo will enable users to browse recipes and order the ingredients required to make them; while Point Nine-backed Marley Spoon curates recipes from chefs, offering its users a choice of seven mals each week. It then delivers user's choices in recyclable packaging. "We are already seeing trends. There is a lot of activity in the delivery space, for example. At some point we will know whether these business models work and in what circumstances," says Michael Wieser, investment manager at HTGF. "Will they work only in cities, just for professionals or families as well, for high-priced goods or discount grocery chains? Some players will quickly disappear and others will last and occupy the market."

Although food tech companies have proven appealing to consumers, Wittenborn highlights the B2B model as an untapped space. He cedes, however, that it would be a "harder market to crack" than consumer-focused firms. Wieser brings up the question of how to monetise the many online food blogs and communities – an issue that Point Nine's latest portfolio addition, Kitchen Stories, will eventually have to address. The online community provides demonstration videos and step-by-step photo instructions of recipes via an app available in 12 languages. "It hasn't focused on monetisation so far, but there are several options for them and there is a lot of interest from different parties. It's a different play from an e-commerce company which will monetise from day one," says Wittenborn. He cites listed US-based company Cookpad, which charges users a subscription for access, as a possible model. With 3 million users already, perhaps there really is room for everybody – if the appetite is there.

10 most recent food tech investments

HelloFresh (Berlin)
The recipe and meal kit provider raised a further €110m as part of a series-E funding round in February 2015. Backers include Insight Venture Partners and Rocket Internet.

ShopWings (Berlin)
The supermarket delivery service raised a €12m series-A round from Tengelmann Ventures and Rocket Internet in February 2015.

Bonativo (Berlin)
The local produce delivery start-up raised a €3.2m series-A funding round from Tengelmann Ventures in February 2015, with participation from Rocket Internet.

Delivery Hero (Berlin)
The food delivery platform has raised around €922m over eight funding rounds. Investors include Insight Venture Partners and Rocket Internet.

Kitchen Stories (Berlin)
The mobile cooking app raised $1.8m in a seed funding round from Point Nine Capital and Bertelsmann Digital Media Investments in January 2015.

Deliveroo (London)
The food delivery platform has raised around $30m over two funding rounds. The latest $25m of which took place in January 2015 and was led by Accel Partners.

Marley Spoon (Berlin)
The recipe kit service raised €4m in series-A funding led by Point Nine Capital in November 2014. It has raised €5.5m in total.

Fooboo (Unterföhring)
The recipe app received a seed investment of around €790,000 from High-Tech Gründerfonds and Media Ventures in October 2014.

Opentabs (Munich)
The app, which enables consumers to pay for food and drinks in advance, raised €500,000 in seed capital from High-Tech Gründerfonds in September 2014.

Gousto (London)
The company, which delivers recipes and ingredients to consumers, has raised a total of £7.8m over two funding rounds. Unilever Ventures, MMC Ventures and the AngelCoFund have all committed capital to the start-up.

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