What “Big Ideas” In Food Get Funded In Silicon Valley?

Much has been written about the ascent of Silicon Valley (SV) as the go-to global incubator for transformational change.  SV has become the Jerusalem of the techno-optimist religion. In venture capital doctrine, the absolution of humanity’s sins begins with seed financing for the next spate of Big Ideas. And in an America where the federal government no longer functions (quite literally), Silicon Valley has taken on new gravity. It is ground zero for ingenuity as cathartic salvation.

The unsustainability of the modern food system is one of humanity’s biggest problems. So, it’s worth taking a look at which Big Ideas in food the leading SV venture capital firms (VCs) are voting for. Where are VCs placing their bets for the salvation of food? (Note: this piece will focus on venture capital financing, but not crowd-funding, angel financing, or later-stage private equity financing, all of which also play an important role in advancing Big Ideas in food.) SV’s rising focus on food has already received attention from the mainstream press.

Before diving in, it’s important to bear in mind a few truths about the VC business model. To have a chance of being funded by a VC, a company must “walk and talk” like a high-growth technology firm. VCs look for: a) billion-dollar marketplaces; b) game-changing innovations; c) short innovation cycles that can quickly lead to high-margin revenue; and d) a promising path to “liquidity” (meaning the sale of the VC firm’s equity shares in the company). One problem cited by food entrepreneurs is that food businesses often don’t fit this profile. So as you peruse the ideas below, it’s also important to consider what’s not being financed. But, more on that later.

Agriculture Inputs: Information, Resource Management, Seeds

VCs love agriculture input innovations. Why? Inputs undergird all of food production, and thus represent massive marketplaces. Plus, VCs understand the imminent scarcity of inputs such as water and petroleum-derived fertilizer. If technology can reduce or supplant the need for threatened resources, it can probably be monetized. (However, because such technologies often hinge on bets about unforeseeable commodity price trends and/or government distortion of markets, they bear resemblance to some of the “cleantech” investments that burned VC firms in recent years.)

VC graphic 1

A good place to start is with the recent sale of The Climate Corporation (CC) to Monsanto for over $1 billion. Having liquidated for about ten times the $109 million in venture funding the company has received since 2007, CC is rightly hailed as a successful venture investment, and was backed by big-name firms such as Founders FundKhosla Ventures, Google VenturesNEAIndex Ventures and Atomico. CC is a “Big Data” company that processes historical and real-time weather data with predictive algorithms, and then intelligently prices crop insurance and weather informatics for farmers. CC produces something that tech-oriented VCs can understand, and they’ve cracked into the multi-billion dollar insurance and business intelligence marketplaces. While we may not think about risk management and production intelligence as agriculture inputs, farmers certainly do! CC is an important case study because it shows VCs that they can make money playing in agriculture.

Another interesting information-seller is Solum, which produces soil sensors and an accompanying analytical platform aimed at reducing fertilizer inputs. The company provides farmers with detailed knowledge on the health of their soil to enable precise decisions on how much additional application is needed to maximize crop yields.

VCs have also focused on companies trying to reduce water use. The Roda Group financed mOasis, a company developing a polymer gel that retains soil moisture and reduces watering intensity in arid climates. Both Banyan Water and PureSense offer technology platforms to economize water application on irrigated landscapes. And Khosla Ventures backed NanoH2O, a membrane technology company that lowers the cost of desalination (and brings farmers one step closer to using abundant salty water for their fields).

Seeds are an additional big focus of VC firms. Kleiner Perkins has two non-GMO seed companies in its portfolio: Kaiima and VoloAgri. Both are trying to coax better productivity out of crop lines without directly altering genetics, a la Monsanto.

Note that what all these companies are really selling are data-derived intelligence or intellectual property that could shift entire marketplaces. They are high-risk, but potentially high-return, with global applicability.

Ag Production & Food Processing: More Efficient Protein, Process Automation

Another concept that VCs love is substitutes for conventionally produced animal protein. If you know anything about how resource-intensive it is to raise a cow, you realize it’s probably possible to produce protein far more efficiently. Furthermore, the market for proteins is large and growing as more middle-class consumers come online worldwide.

VC graphic 2

The animal protein alternatives market is currently dominated by next-generation plant-protein synthetics that closely mimic real meat. The most “buzzy” among them is Beyond Meat, which leads a class of startups investing heavily in food science and processing technique to bring the flavor, texture, and visceral eating experience of their substitutes as near as possible to “the real thing.” The promise for VCs is that these companies will make delicious products with a much lower production cost, thereby carving out a large fraction of the global market by virtue of a favorable price point. Also in this vein is Hampton Creek, an egg substitute with exceptionally promising early market traction, and Lyrical Foods, which is going after cheese.

Further down the pike are companies attempting to grow real animal cell cultures (and ultimately complex animal tissue compounds) in a lab. Rather than originating from a cow in a field, your hamburger would come from “in vitro cultivation” in an industrial incubator. Again, the investment promise of companies such as Modern Meadow is that they will someday streamline production and drop costs – although today, a single “cultured” burger costs $325,000.

(Keep an eye on one more animal protein substitute: farmed insects. While I am not aware of any insect companies currently being financed by institutional VCs, they are thriving on crowd-funding sites such as Kickstarter.com.)

Another well-attended class of ventures is those that are automating processes in the semi-structured environment of food production. For example, Blue River Technology is using computer vision technology to automate in-field weeding and plant selection processes, which have historically relied on manual labor or excessive application of chemicals. Primary backer Khosla Ventures envisions a future where autonomous robotic vehicles diligently roam every agriculture plot around the world. A similar company is Rowbot, which is focused on fertilizer application.

And not far off will be a series of investments in flying drone vehicles used in food production. I don’t know what these will look like, but some have ventured a guess.

Storage, Distribution, and Consumption: Supply Chain Traceability, Numerous Consumer Applications

VC graphic 3

Information is of paramount importance in distribution. Since supply chain traceability is of interest for food safety, cost control, and consumer education purposes, VCs have bolstered technology company HarvestMark, which can help track fresh food items down to the package level.

Further along the supply chain is the intersection of food and consumer purchases. Because “consumer Internet” (the intersection of internet technology and the traditional consumption of goods and services, the latter of which composes over 70% of U.S. GDP) has been such a massive area of investment for VCs, the ecosystem of ventures that allow people to seek out, buy, and consume food is extremely robust. Instead of trying to catalogue notable investments in this space, I will refer readers to Brita Rosenheim’s exhaustive map of “Food Tech and Media” companies. For ongoing coverage, Food and Tech Connect monitors this space very well.

What’s Being Left Out?

Anything that is regionally oriented, serves a small market, or fails to provide an “exit opportunity” for VC investors is unlikely to be funded. The reason such investments are left out is because the business of venture capital is to make money, and do so relatively quickly. VCs raise investment funds from limited partners (smaller investors), and promise to “close” a pool of funds and deliver returns within five to seven years. What that means is that even a company that receives investment early in the five-to-seven year life of a fund doesn’t have a tremendously long time to grow and go public, be bought by a competitor, sell to a private equity firm, or otherwise recapitalize to “liquidate” equity shares. If the “exit opportunity” never manifests, the VCs can’t make money, and they won’t make the investment in the first place.

Contrast the five-to-seven year exit timeline with the life cycle of most agriculture and food businesses. Pistachio trees take seven years to mature after planting. Converting land from conventional to certified organic takes at least two years (and probably closer to four in practice). Building sales and distribution in a physical sales network takes much longer than in an e-commerce network. VCs simply aren’t willing to wait for many food businesses to generate a competitive return on their investments.

And, even if VCs waited, a competitive return may never appear. Most parts of the food value chain generate modest profit margins. Contrast the 15% operating margin of Kraft Foods (a mature and profitable food company) to the 34% operating margin of Microsoft (a mature and profitable software company). For a VC chasing “superior” returns, the profit profile of a business matters a lot.

So what “progressive food” business models are unlikely to be courted by VCs? Big Ideas that are a bit ahead of their time (such as vertical farming); “low-tech” agriculture production technologies; local foodshed farming operations; regional food processors or distributors; artisanal “mom and pop” food manufacturers; most restaurant chains; retailers targeting “food deserts”; niche cooking or nutrition education platforms; and most publications or blogs. VC is not interested in Slow Food or Slow Money. And it’s important to recognize that many of the changes needed in the food system simply don’t fit in the “techno-optimist” paradigm. For those changes, alternative investment channels are springing up, but may never develop at all. Future posts will address complementary avenues of investment in other parts of the food system.

In the meantime, cutting-edge food start-up incubators such as Local Food Lab and Accel Foods, and investment enablers such as CircleUp, are trying to close the broad gap between new food businesses and institutional VC financing. As more Big Ideas (and laudable Small and Medium Ideas) in food continue to emerge, stay tuned to the evolving infrastructure of support for food companies.

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Rip van Wafels: SF-based startup brings a new coffee routine to American consumers

logoRip van Wafels unveiled a brand-new website this month (featuring awesome infographics) detailing the unique, ritual consumption of its product. Beyond creating a deliciously authentic Dutch-inspired stroopwafel (two thin layers of wafel surrounding a caramel filling), is determined to redefine the American coffee break. Founder Abhishek “Rip” Pruisken describes how placing their wafel over your coffee can enrich your entire day:

btyStroopwafel460x320“We believe that a short break goes a long way. It’s important to unplug and relax from time to time to put things into perspective. A Rip van Wafels with coffee allows you to do just that. So we are not just selling a product, we aim to improve people’s lifestyles as a whole via their coffee breaks.

Americans are willing to wait in line for 20min get a quality cup of coffee. We believe they are also willing to wait 2 min for their coffee to cool down. While it cools, the steam will heat the filling and infuse the aroma of the coffee in the wafel. The ritual makes coffee a more engaging experience.

Our product is also healthier than the baked goods in coffee shops, with only 150 calories and 8g of sugar you can indulge responsibly.”

I’m pretty sure this ritual needs a name (Strooping? Wafeling? Or, probably my favorite Dutch word ever, swaffelen? Yes, there is a word for that…) but I’ll leave that question to the experts…

I love the website’s timeline of the founding of the company. It’s a pretty cool story (go Brown! I’m feeling lots of alma mater pride) and encapsulates the playful brand voice. It also does much of my job for me in summarizing how Rip (and co-founder Marco) built this company from the ground-up:

  • 2006: Where are the wafels? Amsterdam native Rip Pruisken arrives at Brown University. Rip heads to the dining hall for koffietijd—a mid morning coffee break enjoyed with a warm wafel. Finding decent coffee but no wafels, Rip is horrified to learn that most America is without his favorite snack.
  • 2009: Starting out of a dorm room? Three years and 1,625 wafel-less koffietijds later, Rip’s had enough. He buys a waffle iron and begins pressing the first batch of homemade stroopwafels in his dorm. His cookies are inedible. Undeterred, he tries again…and again.
  • 2009: Visiting Wafel Factories in Holland? Rip visits Holland to learn from the wafel masters.
  • 2010: First Sale on the Main Green. Rip sets up shop on the campus Main Green and slings handmade wafels to kids on their way to class. One strange day in late April, hundreds of confused-looking students pour onto the quad clamoring for a bite. He can’t keep up with demand.
  • Etc…
Founder Rip Pruisken

Founder Rip Pruisken

From there, Rip raised preliminary funds from a kickstarter campaign in the summer of 2010, recruited a co-founder (Marco De Leon), joined and won the Brown Entrepreneurship Program startup competition, traveled around the country promoting the product, and relocated to San Francisco. They’ve proven so popular here that Rip van Wafels has just recently moved into a brand new office!

Rip’s not the only one to have identified and attempted to remedy our country’s lack of stroopwafels (and our ever-busy, Starbucks to-go excuse of a coffee break…). However he’s the only one approaching the market via the coffee shop scene (e.g., Honey Stinger makes a stroopwafel aimed at the cyclist market, though I’m not sure I really see the product-market-fit there…). Although Rip van Wafels has a strong presence in Bay Area coffee shops, there’s a ton of opportunity for growth: both geographic as well as product line. On what’s next for the company, Rip shares,

“Specialty coffee and tea varieties differ in flavor profiles. We will be developing new Wafel flavor varieties to compliment the flavor profiles of these hot beverages.”

Rip is leading the company in its fundraising efforts (which, as of last Monday is officially legal to share publicly via the JOBS act) and, although they’ve gotten a majority of their commitments for funding in place, they’re happy to meet with investors who are passionate about coffee, consumer products, and/or food. You can reach out to Rip directly via email.

If you’re in the Bay Area, here’s a list of coffee shops where Rip van Wafels are sold. If you’re not in the area, you can order the product online. Or, even better, let your local cafe know that they’re missing out on providing the ultimate coffee break experience.

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Careers In Food System Change: Where Should You Start?

By Austin Kiessig

I have had many career path conversations with people who are fired up about changing the food system. These conversations are often tricky. The food landscape is complex, and there are many different ways to plug into the ecosystem of affiliated industries we collectively call “food.” Navigating that ecosystem can be overwhelming.

In my opinion, the easiest way to make sense of the job landscape is to apply filters. Perhaps the most potent filter is passion. I believe people do their best work (particularly if it’s entrepreneurial) when they are in tune with their unique zealousness. Finding it takes some self-reflection. Career-seekers need to begin with the question: What about food fixates you? Then, they can dig into specific opportunities.

I want to introduce a framework for mapping passions for food system change against the “value chain” in food production. We’ll call it the “Food Change Career Matrix.”

Let me note before starting: the matrix outlines a way to think about driving change in the food system. It assumes you think something is wrong in the system and you want to work on changing it. So this is a way to structure a conversation about how people and organizations are (or are not) driving change today.

The Food Change Career Matrix

Slide1

Dimension 1: Whom Do You Want To Impact?

Dimension 1 was inspired by my realization that food stretches across every level of Maslow’s Hierarchy of Needs. Food is simultaneously a basic physiological necessity, an element of safety and security, an expression of love and belonging, an instrument of esteem and respect, and a sophisticated symbol of self-actualization. And I think one can rightly discern a person’s priorities by understanding where they fall on Maslow’s Hierarchy. As go the priorities of the people, so go the priorities of the food system (and the broader economic system). I find that most people tend to have a visceral connection with driving change at one (or a few) levels of Maslow’s Hierarchy. For simplicity’s sake, I’ve reduced Maslow’s Hierarchy from five levels to three.

The priorities for a local, regional, or national food system depend greatly on the economic status of the people served by that food system. Let me illustrate through a set of examples:

a)   People in the global “impoverished class” tend to worry about caloric security. Much of their daily energy is directed towards fulfilling basic needs: are they physically safe? Do they have clean water to drink? Do they have enough food to avoid starvation and malnutrition? In short, their next meal is not guaranteed, and the food system is oriented to provide as many calories as possible as cheaply as possible.

b)   People in the global “middle class” tend to be preoccupied by the integrity of their food. Finding enough calories to survive is not the most pressing issue; rather, people with disposable income now have choices over how to fulfill their caloric needs. The issues of wellness and status emerge: food is both a source of nourishment and a symbol of “doing well.” A bell curve emerges in weight: some people under-eat, and some people over-eat. The role of the food system shifts from producing enough calories to serving a mix of nutritional demands from consumers.

c)   People in the global “upper class” tend to treat food as symbolic, instrumental, and part of lifestyles and contexts. Caloric security is moot, and food consumption becomes a reflection of sophisticated individual preferences and social behavior patterns. Restaurants, retailers, brands, and novelty matter. In a vast sea of purchase options, consumers use their money to vote for particular food systems, forms of nutritional richness, or their unique social station. The role of the food system is to provide many options across a wide spectrum of preferences.

Different people are passionate about driving food system change at different levels of economic development, and none is “better” or more worthwhile than another. Someone may see value in helping feed the poor, for instance, but they may see more value in developing sophisticated food systems in “upper class” societies that can then be replicated across less-developed economies. Indeed, many disruptive technologies and systems originate as experiments in wealthy economies.

Dimension 2: Where In The Food Value Chain Do You Want To Work?

When we picture food production, there are different stages along the path from field to fork. Segmenting the stages and studying what occurs in each is another effective filter in understanding where change can occur.

a)    Agriculture inputs: soil, water, seeds, fertilizers. Resource development and management.

b)   Agriculture production: farming, tools and technologies used in growing, agricultural systems.

c)    Food processing: converting food from a raw state to a consumable state, and creating a brand identity.

d)   Storage & distribution: getting food to market. Includes commodities.

e)    Consumption–retail: points of sale where people buy groceries and bulk foodstuffs.

f)     Consumption–restaurants: points of sale where people buy prepared food in a social setting.

g)    Consumption–cooking/other: points of consumption where people eat at home or in other settings.

I think there are also career options outside the strictly defined food production “value chain”:

h)   Food education: nutrition, general health and wellness, food policy, food systems.

i)    Investing: providing capital to food-related entities.

Examples: The Matrix In Action

Food Careers image 09.24.2013

A career-seeker might start by considering the personal resonance of each dimension, and then do research on which companies fit into applicable parts of the matrix. Some illustrative examples are below:

  • Food safety + Agricultural production: Kickstart International manufactures hand-operated water pumps for farmers in developing economies. These pumps obviate the need to carry buckets of water to the field by hand. They also displace the use of pumps powered by diesel generators, which are both expensive and environmentally unfriendly.
  • Food integrity + Food processing: Stonyfield Organic introduced tasty, affordable, organic yogurt to the mainstream marketplace. Stonyfield was one of the first organic food products to be carried by WalMart, which had a resonant impact throughout the entire dairy industry.
  • Food culture + Storage & distribution: Farmigo is a software company that connects farmers to consumers. Shoppers can use Farmigo software to order a basket of customized of high-value goods from local area growers and artisanal food producers. Products are delivered to shoppers’ doors or to a centralized pickup location.

A Valuable Starting Point

The matrix can help people dig into what they feel most strongly about changing in food, and where they might apply their unique backgrounds, talents, and passions. It’s a way to structure thinking and conversations.

I welcome your feedback on this tool and any suggestions for improving it.

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Event recap: San Franola Summer Food Summit

San Franola co-founder Matt Teichmann kicks off the summit

San Franola co-founder Matt Teichmann kicks off the summit

This is a shamefully late post but better late than never. I wanted to share some musings from an event last month: San Franola Granola, a local freshly-roasted granola producer, hosts quarterly food summits with the goal to “bring together some of the best minds in the space and have a productive conversation about the future of food and what that means for us all” (from the San Franola recap of the event). Sounds like pretty good mission to me!

The summer summit (held at Sourcery’s soma offices) featured speakers Katie Fitzgerald, business development associate at CircleUp, and Nate Miyaki, fitness author and coach. The speakers addressed pretty distinct topics so I’ll cover them individually.

Katie Fitzgerald, CircleUp

Katie Fitzgerald, Senior Associate, Business Development, CircleUp

Katie Fitzgerald, Senior Associate, Business Development, CircleUp

CircleUp is a crowdfunding platform enabling accredited investors to identify and invest in mid-sized consumer and retail businesses. It’s gotten a lot of press over the past six months (WSJ, PandoDaily, VentureBeat) and fills a previously-unoccupied niche in the funding ecosystem, enabling funding for companies that are too small for private equity dollars and too limited in terms of growth potential for venture capital.

Katie shared that, to date, CircleUp has facilitated the funding of 18 companies with a total of $18M. However it’s not easy to get onto CircleUp (and they’re clearly attracting a lot of attention): only 2-3% of companies which apply make it onto the platform. Katie didn’t share how many companies are eliminated because they don’t meet the size requirements (CircleUp focuses on companies with $500K-$1M in annual revenue) or because their business model or product falls short (more here on how CircleUp informs its decisions). She did share that, more recently, CircleUp is open to working with companies under this revenue threshold provided the team has a strong entrepreneurial track record (and even better if they bring some of their own investors to the table).

Rip Pruisken, founder of Rip van Wafels, enjoys the speakers

Rip Pruisken, founder of Rip van Wafels, enjoys the speakers

One question Katie got (which I’m sure they often get) is, “where do you send companies that don’t make it onto the platform?” Katie had a few suggestions: small business loans, friends and family, and kickstarter. Although CircleUp is filling a niche for a select small group of consumer products companies, the majority of food startups face the same funding options they always have, with the exception of kickstarter. Katie was quick to disclaim that “it’s hard to convince consumers to pay upfront for a granola bar.” I guess that’s true, unless you’re Exo and you have the insect hook – in that case it seems you can do pretty well on kickstarter

Companies CircleUp has worked with/are working with in the food space include:

Nate Miyaki, fitness coach

Nate Miyaki

Nate Miyaki

Nate is a former professional wrestler, a bodybuilder, an author, a fitness coach, and a nutritionist. His website offers his training and nutrition tips and sells his books.

The gist of his message, which I couldn’t agree with more, is that there’s a preponderance of confusing, misleading, and, in many cases, conflicting messages about what we’re supposed to eat. Nutrition standards are set by lobbyists and influenced by big food companies: the ADA (recently renamed to be the Academy of Nutrition and Dietetics) is the largest US organization of food and nutrition professionals and has a significant voice in shaping the national discourse around nutrition. It also boasts corporate partners and sponsors including Kellogg, Mars, ConAgra, Coca-Cola, PepsiCo, and General Mills. One of my favorite illustrations of how misleading nutrition studies can be is detailed in the Columbia Journalism Review piece, “Survival of the Wrongest.” Seriously, it’s a fascinating read.

So what to do in a world of mixed messages about what comprises a healthy diet? From Nate’s experience, there’s not a “one-size fits all” answer. For people who are more sedentary (exercise <3 days a week), he is a strong advocate of the paleo diet: Hunter-gatherer-inspired with fish, meat, vegetables and fruits but no grains, dairy or refined sugar. However for more active people, especially cross-fitters engaging in substantial anaerobic activity, he’s seen disastrous results from the paelo diet including a lack of energy, a lack of libido, and the confusing “skinny-fat” syndrome. For people engaging in serious exercise Nate recommends more carbohydrates (root vegetables, tubers, rice) to fuel demanding exercise. Read all about his nutrition guidelines on his website.

Thanks San Franola for getting a great group together for beers and discourse! The next summit will be held on Wednesday, November 13th from 6-9pm at the Four Seasons SF. Email food@sanfranolaco.com to get on the list.

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The burger will cost you a buck. But the bad ideas are free!

By Austin Kiessig

Amidst the preening flock of sanctimonious food-related articles that flit across our social media newsfeeds or strut into our inboxes each month, there is occasionally a dark horse.  Dark horse pieces in contemporary food writing stand out not because they proclaim that the current industrial food system is broken.  Even ardent critics of the food reform movement know deep down that our calorie production infrastructure is untenable and bloated with hidden costs.  No, the dark horse compositions take a bolder stance: they unabashedly lionize the crown jewels of our fast food imperium.  Typically, dark horse authors view themselves as martyrs for the lower classes, standing bravely athwart a runaway torrent of invectives penned by “out of touch” (and probably smelly) vegans, or sneering nanny-state propagandists who want to raise the cost of living for our neediest citizens.

And good for those contrarian writers. A balanced dialogue makes for a healthy social conversation. But Kyle Smith’s recent dark horse piece in the New York Post, “The Greatest Food In Human History,” is little more than a litany of borrowed, scattered, and weak assertions amassed in slapdash fashion under the NYP’s bright red Look At Me! banner. During a casual read, Smith seemingly commands the reader’s fidelity to the argument that poor people need low-cost food and that the obvious leading option for them is “the greatest food in human history” (TGFIHH): the McDonalds McDouble cheeseburger.  The TGFIHH term is Smith’s, but he derives it from a blog post belonging to “Freakonomics” author Stephen Dubner, in which a reader named Ralph writes to Dubner claiming that the McDouble is “the cheapest, most nutritious and bountiful food that has ever existed in human history.”

One should begin by recognizing the voice behind the piece’s core argument.  The voice does not belong to Kyle Smith (whose primary role at the Post is as one of four film critics), nor to Stephen Dubner (a fine writer but a self-described “personality” with provocative views), but to Ralph. Who’s Ralph? A guy. We don’t know. But Smith is happy to mention Dubner and (John Bates Clark Medal-winning economist) Steven D. Levitt by name, even though Levitt is not tied to the blog post in any way.

Smith and Dubner hold aloft the following statistics about the McDouble: it has “390 calories, 23g (half a daily serving) of protein, plus 7% of daily fiber, 20% of daily calcium and so on. Also, you can get it in 14,000 locations in the US and it usually costs $1.”  It is, in Smith’s words, an “unsung wonder of modern life.” Ok, Kyle. Ready for this? I agree! It’s a “wonder.” That’s a lot of stuff for $1 out of my wallet. But is it TGFIHH? Big question. And I was sort-of kind-of understanding the logic until I re-read the subtitle of the article: “In terms of cost per calorie, no locavore, organic veggie can compete with the McDouble.” 

Willful Confusion

When you get the game wrong, you crown the wrong champions.  Smith starts clearly: we’re talking about cost per calorie. But then he starts cavalierly offering other arguments. The McDouble is not only cheap, but it’s “nutritious” and “bountiful”. Bountiful, maybe. Keep in mind that Dubner’s blog post is titled “The Most Bountiful Food In Human History,” not “The Greatest Food In Human History.” But “cheap” and “nutritious”?

Cheap?

Addendum to the original post (added 8/14/13): It’s been brought to my attention that $1 menu items at major fast food chains, particularly the burgers, are “loss leaders” for those chains. Meaning, they lose money on each unit sold. Why would they sell items at a loss? Because few customers buy only a $1 burger. They also buy high-profit items like soda, which net the fast food chains 90% profit margins. That fact is critical to this cost debate: there is no such thing as a $1 burger. Even McDonald’s is McSubsidizing the consumer to artificially lower the direct cost of the burger. Food system cost distortions abound, even where you least expect them. And it’s critical to keep this in mind as you consider the true cost of a McDouble.

It’s on the cost dimension that Smith really goes bananas.  “Produce may seem cheap to environmentally aware blond moms who spend $300 on their highlights every month, but if the object is to fill your belly, it is hugely expensive per calorie…Junk food costs as little as $1.76 per 1,000 calories, whereas fresh veggies and the like cost more than 10 times as much…A 2,000-calorie day of meals would, if you stuck strictly to the good-for-you stuff, cost $36.32.”

I’ve already submitted in previous writing that I’m well aware that eating fresh, high-quality produce is expensive and doesn’t necessarily appeal to many American palates. But Smith paints this as an “either/or” proposition where (A) fast food is cheap and (B) fresh produce is prohibitively expensive.  Here’s why this “fill your belly” argument is simple and dangerous:

  •     Is the object in America to fill our bellies? FeedingAmerica.org does not even offer figures on how many people in the U.S. are starving or chronically hungry—meaning, at a true calorie deficit. Instead, they use the term food insecurity, defined as when someone does “not always know where they will find their next meal.” FeedingAmerica asserts that one in five children are food insecure, and are unable to “consistently access nutritious and adequate amounts of food.” Note that “nutritious” is first in line, ahead of “adequate amounts.” So why isn’t FeedingAmerica offering stats on how many young Americans are starving? My hypothesis is that starvation (albeit a real problem) is a much smaller issue in contemporary America than lack of nutrition. It is hard to argue that our most pressing issue is “to fill our bellies” when:

In sum total, our bellies are not full. They are overfull. The majority of Americans are not ravenous when they go to bed. They are bloated. We need to ask not whether we can fill our bellies, but with what, and for how much. Which leads me to:

  • Fast food is not all that cheap! Sure, there are cost advantages that McDonald’s passes on to consumers thanks to operational scale and efficiencies. Your local farmer’s market doesn’t offer those same competitive advantages. But as a good student of economics, I must continue to flog this point: externalities matter. You pay far more than $1 for a McDouble. How? You pay through your taxes (inefficiently, mind you) for the government subsidies that make corn, soy, and wheat cheap, and thus make the meat from cows that eat those crops cheap. You pay for the massive environmental degradation that concentrated animal feeding operations levy on each ecosystem they operate in. You pay for the strain on resources that burger ingredients impose: think of all the water, energy, and other inputs that go into a burger but aren’t reflected in the price (for example, water prices are blunted by politics but water scarcity is a huge and growing problem; energy prices are blunted by politics but energy production is laden with externalities, such as atmospheric carbon and geopolitical turmoil; etc.). You pay for the ballooning public and personal health costs caused by avoidable chronic disease (because, let’s face it, we’re likely eating that McDouble with fries and a soda). On the last point, America has the highest health care cost burden of any country in history. Think that might be related to our cheap food?
  • Finally, produce and “healthy eating” do not have to be ruinously expensive. Fresh, organic produce is certainly costly. But many frozen or canned fruits and vegetables are not that costly, nor are many fresh selections. There exists a broad spectrum of options between 2,000 calories of McDoubles at $5.12 (direct cost; the fully loaded cost with externalities is substantially higher) and 2,000 calories of produce at $36.32. There is real choice. And we can afford to pay more than 6% of our household income if doing so offsets real economic externalities that we pay for anyways! A penny spent wisely is a penny saved somewhere else, particularly when it comes to our health.

Nutritious?

Even Dubner asks on his blog, “if you attack on the ‘nutritious’ dimension (I suspect you will), be very specific.” Let’s do it. We’ll go macronutrient-by-macronutrient through fat, carbs, and protein, and of course let’s talk about micronutrients as well.

The McDouble has 19 grams of fat, which accounts for roughly 170 of the 390 calories, or 44%. That means almost half of those cheap calories are fat. Fat can be OK, but the 8 grams of saturated fat are bad for you. By eating a McDouble, you’ve exceeded one-third of the government-recommended daily limit of saturated fat via one-fifth of your government-recommended daily calories. And the bulk of those grams are from the meat and cheese, which, taken together, are nearly devoid of any meaningful micronutrient benefit (particularly on a per-calorie basis): no fiber, 4% of daily vitamin A, no vitamin C, 8% of daily iron, and 8% of daily calcium.

The 33 grams of carbs equate to roughly 132 calories, or another 34% of the total calorie count.  28 grams of those calories come from the bleached wheat flour bun, whose third-most-voluminous ingredient (after flour and water) is high fructose corn syrup. From this bun you get 5% of daily fiber, no vitamins A or C, 10% of daily calcium, and 10% of daily iron ensconced in simple carbs that are fast-metabolizing and obesogenic. Not a great tradeoff there.

Finally, you get the 23 grams of protein at roughly 92 calories. Arguably, this macronutrient is the best “bang for your buck”. The government recommends that an adult eat about double this amount per day. But remember that this is beef and cheese, so that protein is bound up with a considerable amount of fat.

To put this all in context, let’s compare what you get above to a serving of frozen spinach. 45 calories of spinach provides 366% of daily vitamin A, 20% of daily calcium, 14% of vitamin C, 16% of iron, and 18% of daily fiber. This comes with 1 gram of fat, 6 grams of protein, and 7 total carbohydrates.

Nutrition table

Note: the cost of 5.5 ounces of frozen spinach was derived from the per-ounce price ($0.14) of frozen spinach on Safeway.com.

So if we’re trying to award the mantle of “most nutritious,” it’s not much of a contest. The table below highlights the difference: except on total calories and protein, spinach is cheaper than the McDouble (and that’s without factoring in the agriculture subsidies and other economic externalities that favor the McDouble). And spinach has less fat and fewer simple carbohydrates than the McDouble, so it wins on those fronts too. If your aim is to simply “fill your belly,” then the McDouble wins. But if you care about what you’re putting in your body, spinach is a very economical champion.

Equivalency Cost table

Keep in mind again that we talk about the lack of “nutritious” foods available to the food insecure before we talk about “inadequate amounts” of foods available to the food insecure. In America, lack of nutrition means lack of vital micronutrients more than lack of vital macronutrients. Let’s face it: fat and carbohydrates are cheap.

And although protein is not far behind fat and carbs on a cost basis, it may be the exception here: protein is clearly the best thing going for the McDouble. Protein is indeed important to development and health, but there are innumerable sources of protein that are reasonably priced (the reviled “McBoiled Lentils” that Smith casually dismisses; or soy; or chicken; or fish) and, unlike beef, don’t have the same amount of fat bundled up with each gram of protein. And I have to emphasize yet again: our beef ain’t all that cheap when you tally up the externalities.

So the “nutritious” argument may be somewhat relative, particularly when you map nutrition against cost, which forces subjective prioritization. What is “nutritious” depends on your personal goals. Want to bulk up with a side of heart disease, but get your protein on the cheap? Spend on the McDouble. Want an “unsung wonder” of multitudinous micronutrients critical to your health? Buy the spinach. What do your intuition and your brain tell you is the “greater” food for you?

Nobody – probably not even Smith – would argue with a straight face that the McDouble is more “nutritious” than spinach.

Just for fun: Bountiful?

According to Smith, there are 14,000 McDonald’s storefronts in American. That’s a lot.

But there are 36,536 grocery stores. Let’s say half carry frozen spinach at prices comparable to, or less than, Safeway (which I used in my cost analysis above). That’s more than 18,000 stores.

Nearly everything is bountiful in America. And that’s part of the problem. You can have too much of a good thing.

Senselessness: Cheaper Than A McDouble!

The newsstand price of a weekday issue of the New York Post is $1.00, the same price as a McDouble. For that money, I can read Kyle Smith’s movie blog, or his occasional foray into a critical social debate that demands meaningful economic deliberation. Alternatively, I can just read those pieces for free on the Internet. But both the burger and the blogger come loaded with hidden costs: the burger’s are outlined above; the blogger’s are oversimplification and cavalier grandstanding.

Smith says that “class snobs, locavore foodies and militant anti-corporate types” are “completely heartless when it comes to the other side of the equation: cost.” It’s an eye-catching line, and has some roots in truth. But are economists heartless when they take into account real externalities? Am I heartless for pointing out that micronutrients critical to health are far less costly in produce than in burgers? Or that we’re literally eating ourselves to death because of our collective belief that food is always better when it rings in cheaper at the register?

If Smith were a respectable conservative thinker, he’d admonish the government for lavishing subsidies upon food producers and the industries that support them (energy, etc.). He would be irate about the massive economic inefficiencies caused by artificially cheap fat and carbs. But he’s not. He’s just grabbing attention by defending the status quo against “Marxists” like me who have been taught to think by the nutty leftists at a top graduate program in business. Are the poor people that Smith defends doing better because of the ascent of the McDouble? Look at the stats on obesity. Or the broadening real income gap that’s catalyzing the slow death of a once-vibrant middle class. That gap has been widened by higher health care costs. It certainly has not by closing thanks to industrialized food costs.

The status quo is the McDouble. Is that the best we can do? Is that The Greatest Food In Human History? For our sake, I sure hope not.

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The Future of Protein: Event recap

On Thursday night, I organized an event on behalf of the Food Startups group focused on innovation in protein. We featured a panel of entrepreneurs and investors working on both plant-based and insect-based protein sources. Wade Roush from Xconomy did a stellar job moderating. The panel comprised:

My highlights from the panel:

Josh Tetrick, Founder and CEO, Hampton Creek Foods

Josh Tetrick, Founder and CEO, Hampton Creek Foods

It was truly a treat to listen to Josh talk about his strategy for Hampton Creek. I didn’t know much about the company before the event and now I’m smitten. His mission is to take down the battery-cage egg industry by creating a plant-based egg substitute. However he’s approaching it from an angle that doesn’t require consumer behavior change (which is hard): for products which contain eggs as an ingredient, he’s partnering with manufacturers to replace the egg with a cheaper, more sustainable, more humane substitute. Because consumers aren’t buying cookies for the egg itself, they likely won’t care if the egg becomes an egg substitute, particularly if the price comes down. What’s so appealing about Hampton Creek is that it’s not focusing on the niche coastal foodie market. According to Josh, “we solve the problem when get at people who aren’t thinking about these issues.” His barometer for success is “when we’re dominating the Piggly Wiggly in Birmingham, Alabama,” which is where he grew up. Hampton Creek can dominate the Piggly Wiggly because it’s able to be 20% more affordable than battery-cage eggs with a 50% margin. Pretty impressive.

Josh also shared some of Hampton Creek’s upcoming innovations: Just Mayo, a mayonnaise made with an egg substitute which will hit the stores next month in the prepared foods section of Whole Foods, and Just Scramble, a plant-based product which scrambles in the same way eggs do, is ~6 months away. Josh did acknowledge that the scramble product represents a bigger challenge on the consumer front because the egg is the main dish, not just an ingredient. However the product should also be ~20% more affordable than eggs. I’ll be curious to hear how Just Scramble does at the Birmingham Piggly Wiggly.

Wade Roush, Xconomy

Wade Roush, Xconomy

I’m also really intrigued by entomophagy (eating bugs) and its potential to meet our growing calorie demands worldwide. Both Gabi and Dan talked about the potential for edible insects. In terms of behavior change, globally the hurdle isn’t as high: almost 100 countries already rely on insects as a food source. Within the US, popular acceptance is not right around the corner. But Gabi offered a great parallel with sushi: in the 1960s, most Americans considered raw fish to be disgusting. However when a chef in LA reconfigured sushi into the California roll, it caught on. I think it’s fair to say that by now sushi has entered the mainstream in the US. Gabi and Greg are hoping their exo bar will do the same for insect protein (for more on Exo see previous post). Dan also expressed that the trend is being driven from the top as high-end chefs and restaurants are incorporating insects into haute cuisine (e.g., two Michelin star Noma in Copenhagen).

On the investor side, both Scott and Amol shared their rationale for investing in alternative proteins. For Founders Fund, the Hampton Creek investment was attractive because of the company’s potential to make a big impact on the food system without confronting consumers directly and by achieving a lower price point than eggs themselves. Amol from KPCB shared that his motivation for changing the food system stems from his past experience working at Cargill and witnessing firsthand the inefficiency of animal-based protein. He has led Kleiner’s investment in Beyond Meat and has a few other food and agriculture investments in the works.

Wade closed the panel by asking each panelist for their one piece of advice for food entrepreneurs; running down the list:

  • Gabi: Go to market with testing as soon as possible (don’t spend long trying to get the product perfect; i.e., embrace the minimum viable product)
  • Dan: Along similar lines, start moving soon; food companies take much longer to build than a software company (chemistry, cooking, supply chains, “de-bugging…”) so don’t drag your heels
  • Scott: Figure out what your technology is, and what makes you better equipped to do it than others
  • Amol: Resist the temptation to think small; focus on global impact
  • Josh: Pursue the goal of taking down animal agriculture; “there so much room for innovation and disruption, and animal agriculture is liked to fostering so many of today’s problems”

2013 08 Future of protein 148In addition to the panel, attendees also were able to enjoy samples from the following companies:

  • BisonBison – meatballs made with ground bison (pre-order via their indiegogo campaign)
  • Chirp – banana muffins made with cricket flour
  • Exo – cacao nut protein bar made with cricket flour (pre-order via their kickstarter)
  • Hampton Creek Foods – chocolate chip cookies made with Beyond Eggs plant-based egg substitute
  • Tiny Farms – mealworm brittle

Special thanks as well to our event sponsor: Dice, and to SoMa Central for hosting us. And thanks to everyone who attended and participated!

EB Moore and Sam Rust from BisonBison

EB Moore and Sam Rust from BisonBison

Megan Miller from Chirp

Megan Miller from Chirp

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Exo: Is that a cricket in my protein bar? I hope so!

exo_spread_1

Exo bars are made with cricket flour, raw cacao, dates, almond butter, and coconut

I’ve been fascinated by the concept of entomophagy (edible insect consumption) ever since I heard about Don Bugito when visiting La Cocina in the summer of 2011 (Don Bugito is a San Francisco street food operation serving dishes inspired by pre-Hispanic Mexican cuisine in which insects play a starring role). When I think about the challenges of feeding the population of 2050, edible insects make a lot of sense: raising them is economically efficient (with ultra-low start-up costs), the operations are infinitely more environmentally-friendly than farming animals, and they’re healthy: packed with protein, good fats, and fiber. The May 2013 UN report on edible insects helped to fuel my excitement on the topic (for a summary, this National Geographic article is great).

exo_title_screenI was even more excited to learn that two recent Brown University graduates are launching a food product with insects as a key ingredient. Exo is a protein bar made with cricket flour. Founders Greg Sewitz and Gabi Lewis have launched a Kickstarter project to raise $20,000 over the next 30 days. The Kickstarter page has a bunch of data and rationale supporting the entomophagy movement. They also have a pretty interesting story of how the idea came about. Check it out. I’ve included their press release below as well.

founders

Founders Gabi Lewis and Greg Sewitz

If you’re interested in meeting the founders, trying the product, and learning more, we’ll be featuring them at the next Food Startups event on Thursday, August 8th. The panel on “the future of protein” will feature Gabi along with founders/investors from two plant-based protein startups: Hampton Creek Foods and Beyond Meat, and another insect venture: Tiny Farms. Tickets are limited and available for $20 at https://cosemble.com/foodstartups/the-future-of-protein.

Exo to Make Protein Bars from Crickets
Innovative food start-up launching Kickstarter campaign to make first large batch of cricket-based bars. Crickets are exceptionally nutritious and uniquely sustainable

BROOKLYN, NY — Exo seeks to introduce entomophagy (the eating of insects) to the West through a protein bar made from cricket flour. The company was founded by Gabi Lewis and Greg Sewitz, college roommates since their sophomore year at Brown University. Lewis has an obsession with everything health related—from nutrition to powerlifting—and was searching for a protein bar that would satisfy his high nutritional standards.

He couldn’t find one. He realized that there was a market opportunity for an all-natural, paleo-friendly protein bar and set out to create it. Sewitz, having just returned from a conference at MIT hosted by His Holiness the Dalai Lama on climate change and resource scarcity, suggested insects as a protein source. After much iteration—and a few runaway crickets later—they have created a bar that solves both of the issues that inspired it.

Exo uses crickets because they are very high in protein, iron and calcium, and are much more sustainable than traditional protein sources. Cricket protein is also exceptionally good quality: it has high bioavailability and contains all the essential amino acids. Additionally, eating insects represents the first viable solution to the 70% expected rise in food demand by 2050. They require almost no water, a tiny amount of space, and very little feed. Some studies suggest that raising crickets for protein is 20x more efficient than cattle.

“Eating insects is sustainable in every dimension: nutritionally, environmentally and economically,” says Lewis. “In that sense, insects are a true superfood.”

About 80% of the world already eats over 1,681 insect species, and with the recent May 2013 UN report on the benefits of eating insects, governments and private investors are taking note. Nordic Food Labs, the research arm of Noma restaurant, named the World’s Best Restaurant by San Pellegrino for three years running, has just won a 3.6 million Danish Kroner grant to develop gourmet insect-based food.

The product has been formulated with the help of Three Michelin Star Chef Kyle Connaughton, the former Head Chef of R&D at the Fat Duck Restaurant in England, making it unique amongst protein bars for its emphasis on taste. In addition to crickets, the bar contains almonds, dates, cacao, honey and sea salt; it contains no gluten, grain, soy or dairy. Exo will be among the first insect food products widely available in the US.

“We’re really using sushi as a model,” says Sewitz. “As crazy as it sounds, in the 1960s, the idea of eating raw fish seemed disgusting to Americans. But a chef in LA mixed the fish with cucumber and avocado, wrapped it in rice, and people loved it. Now of course people even love sashimi. We hope our bars will act as a similar vehicle to introduce insects to the mainstream.”

Exo’s Kickstarter campaign launches July 29th, with a goal to raise $20,000. This will cover their first large production run, including kitchen rentals, equipment, ingredients, and packaging.

About Exo
Exo was formed in early 2013 by Gabi Lewis and Greg Sewitz during their final year at Brown University. Motivated by the nutritional and environmental benefits of entomophagy, Exo seeks to normalize the practice of eating insects by creating healthy, delicious, and sustainable protein bars.

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