Food tech startups have been hit globally as venture capital firms pulled back in certain geographies in the first quarter of 2016. But startups in India and China have been among the luckier ones, although their funding patterns in the sector are at the opposite ends of the spectrum.
In India, deals skewed heavily toward early-stage companies. About 66 per cent of Indian food tech funding deals were in the seed or angel stages. There were hardly any deals at the Series D stage.
That means it might be easy to start a company, but difficult to scale it up. Food tech startups experienced it the hard way last year, when the number of deals in the sector rose to 74, from just 12 in 2014. Despite such heightened activity, several food startups struggled to survive, and some shut shop. Others scaled back their operations.
This is likely to continue. One of the main reasons for lack of later-stage deals is that the worst fear of VCs came true — several startups startups collapsed or landed in serious financial trouble last year. And among the ones that remain and are doing better than their peers, such as Faasos and Swiggy, profitability is still a distant goal. Investors might want to see how these startups perform before committing to further rounds.
On the other end is China, where food tech deals heavily favour mature companies. Thirty seven per cent of Chinese food tech deals went to Series D companies, compared to just 13 per cent of such deals in the US, and 11 per cent in India. Only about 8 per cent of Chinese funding deals in food tech were at the seed or angel stage.
That’s great for companies which have managed to survive and scale. They got more funds to help them become large companies in the industry. But China also got tougher for new startups. Without much funding at the seed level, it would be very difficult for new startups to emerge.
These trends were analyzed using data from research firm CBInsights. Food tech includes online ordering platforms, meal kit delivery, grocery delivery and prepared food delivery.
In grocery delivery, Bangalore-based BigBasket scored the higher funding round in the world in Q1’16, by raising $150 million in a Series D round. It bucked the India trend of few late-stage funding deals, by building a business that has invested in backward integration with warehouses and producers, and going easy on discounts.
San Francisco-based grocery delivery service DoorDash ranked second, with a $127 million Series C. Following them is San Francisco-based Juicero, producer of high-end juicers and cartridges, which raised $70 million Series B round.
Not like 2015
Globally, food tech funding and deal count climbed steadily from 2012 to 2014, and then skyrocketed in 2015, to 273 deals totaling over $5.6 billion.
However, this year might not see the same kind of VC interest. The category has raised just $684 million in the quarter, the lowest quarterly funding total in the category since Q4’14.
Going by the current runrate, the number of deals and funding in food tech might be much less than last year.
Last year, China’s Ele.me, which delivers food from restaurants, accounted for a big chunk of global foodtech funding. The startup’s multiple rounds ballooned in size over the course of the year, from a $350 million Series E in Q1’15, to a $630 million Series F in Q3’15, and a $1.2 billion corporate minority in Q4’15.
These rounds added up to $2.2 billion in total, and 39 per cent of funding to food tech in the year. Following Ele.me was Chinese food imports site Womai, which raised $220 million in a Series C round. Indian local food delivery startup Grofers raised $120 million.
Venture funding in Asia has picked up again, so foodtech companies in the region might have better luck raising more funding than those in other regions, depending on how they perform. Indian startups will need to prove they can cut costs, and expand their marketshare. And the big startups of China will be hoping to scale to the next level, and ultimately provide an exit to their investors.