VCs serve up a large helping of cash to startups disrupting food

Here is what your daily menu might look like if recently funded startups have their way.

You’ll start the day with a nice, lightly caffeinated cup of cheese tea. Chase away your hangover with a cold bottle of liver-boosting supplement. Then slice up a few strawberries, fresh-picked from the corner shipping container.

Lunch is full of options. Perhaps a tuna sandwich made with a plant-based, tuna-free fish. Or, if you’re feeling more carnivorous, grab a grilled chicken breast fresh from the lab that cultured its cells, while crunching on a side of mushroom chips. And for extra protein, how about a brownie?

Dinner might be a pizza so good you send your compliments to the chef — only to discover the chef is a robot. For dessert, have some gummy bears. They’re high in fiber with almost no sugar.

Sound terrifying? Tasty? Intriguing? If you checked tasty and intriguing, then here is some good news: The concoctions highlighted above are all products available (or under development) at food and beverage startups that have raised venture and seed funding this past year.

These aren’t small servings of capital, either. A Crunchbase News analysis of venture funding for the food and beverage category found that startups in the space gobbled up more than $3 billion globally in disclosed investment over the past 12 months. That includes a broad mix of supersize deals, tiny seed rounds and everything in-between.

Spending several hours looking at all these funding rounds leaves one with a distinct sense that eating habits are undergoing a great deal of flux. And while we can’t predict what the menu of the future will really hold, we can highlight some of the trends. For this initial installment in our two-part series, we’ll start with foods. Next week, we’ll zero in on beverages.

Chickenless nuggets and fishless tuna

For protein lovers disenchanted with commercial livestock farming, the future looks good. At least eight startups developing plant-based and alternative proteins closed rounds in the past year, focused on everything from lab meat to fishless fish to fast-food nuggets.

New investments add momentum to what was already a pretty hot space. To date, more than $600 million in known funding has gone to what we’ve dubbed the “alt-meat” sector, according to Crunchbase data. Actual investment levels may be quite a bit higher since strategic investors don’t always reveal round size.

In recent months, we’ve seen particularly strong interest in the lab-grown meat space. At least three startups in this area — Memphis Meats, SuperMeat and Wild Type — raised multi-million dollar rounds this year. That could be a signal that investors have grown comfortable with the concept, and now it’s more a matter of who will be early to market with a tasty and affordable finished product.

Makers of meatless versions of common meat dishes are also attracting capital. Two of the top funding recipients in our data set include Seattle Food Tech, which is working to cost-effectively mass-produce meatless chicken nuggets, and Good Catch, which wants to hook consumers on fishless seafoods. While we haven’t sampled their wares, it does seem like they have chosen some suitable dishes to riff on. After all, in terms of taste, both chicken nuggets and tuna salad are somewhat removed from their original animal protein sources, making it seemingly easier to sneak in a veggie substitute.

Robot chefs

Another trend we saw catching on with investors is robot chefs. Modern cooking is already a gadget-driven process, so it’s not surprising investors see this as an area ripe for broad adoption.

Pizza, the perennial takeout favorite, seems to be a popular area for future takeover by robots, with at least two companies securing rounds in recent months. Silicon Valley-based Zume, which raised $48 million last year, uses robots for tasks like spreading sauce and moving pies in and out of the oven. France’s EKIM, meanwhile, recently opened what it describes as a fully autonomous restaurant staffed by pizza robots cooking as customers watch.

Salad, pizza’s healthier companion side dish, is also getting roboticized. Just this week, Chowbotics, a developer of robots for food service whose lineup includes Sally the salad robot, announced an $11 million Series A round.

Those aren’t the only players. We’ve put together a more complete list of recently launched or funded robot food startups here.

Beyond sugar

Sugar substitutes aren’t exactly a new area of innovation. Diet Rite, often credited as the original diet soda, hit the market in 1958. Since then, we’ve had 60 years of mass-marketing for low-calorie sweeteners, from aspartame to stevia.

It’s not over. In recent quarters, we’ve seen a raft of funding rounds for startups developing new ways to reduce or eliminate sugar in many of the foods we’ve come to love. On the dessert and candy front, Siren Snacks and SmartSweets are looking to turn favorite indulgences like brownies and gummy bears into healthy snack options.

The quest for good-for-you sugar also continues. The latest funding recipient in this space appears to be Bonumuse, which is working to commercialize two rare sugars, Tagatose and Allulose, as lower-calorie and potentially healthier substitutes for table sugar. We’ve compiled a list of more sugar-reduction-related startups here.

Where is it all headed?

It’s tough to tell which early-stage food startups will take off and which will wind up in the scrap bin. But looking in aggregate at what they’re cooking up, it looks like the meal of the future will be high in protein, low in sugar and prepared by a robot.

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EAT Club acquires healthy food startup Farm Hill

EAT Club, the corporate lunch service with a customer base that includes Flipboard, Mastercard and TaskRabbit, has acquired Farm Hill, a lunch box delivery service, to solidify and expand its presence in the San Francisco Bay Area. Terms of the deal were not disclosed, but Farm Hill had previously raised $4 million in capital.

EAT Club also brought on Doug Leeds, the former CEO at IAC Publishing and former executive in residence at August Capital, as its new CEO. Leeds is EAT Club’s third CEO since 2016, when its first CEO Frank Han moved into the COO role. Han left the company entirely in November 2017, according to his LinkedIn. Following Han’s departure as CEO, EAT Club brought on Mike Griffith, who served as president and CEO for less than two years. Griffith left in March because of a cultural mismatch of sorts, EAT Club co-founder Rodrigo Santibanez told me. With Leeds on board, the plan is to “build a big company,” Santibanez said.

“We understand that the stronger the team we have, the better chance we have of building a long-lasting company,” Santibanez said. “At a stage right now where we’re looking for someone who can set the strategic direction of company based on expertise.”

Leeds has the expertise EAT Club seems to be looking for, as the former CEO of IAC Publishing and Ask.com. While running IAC, Leeds’ role evolved through acquiring other companies, he told me. Those acquisitions meant his job was essentially to manage other CEOs, rather than the day-to-day operations of the business.

“I wanted to get back to a world where I was operating a company,” Leeds said. “When I thought about my life and what I’d want to operate, I wanted to bring joy to people’s lives where if what I did went away, customers would be upset.”

EAT Club, he said, came to the top of the list for him, due in part to the fact that he was a customer while at IAC. The company is also in a position to grow and scale, he said.

EAT Club says it makes money off of every meal the company delivers in California. EAT Club, which currently serves over 1,000 companies in three markets, says the average order amount per company is $500. To date, EAT Club has raised over $46 million from investors like August Capital, Trinity Ventures and Sodexo Ventures.

Munchery shuts down operations in LA, New York and Seattle

Munchery, the on-demand food delivery startup, has shut down its operations in Los Angeles, New York and Seattle, the company announced on its blog today. That means the teams from those cities are also being let go.

“We recognize the impact this will have on the members of our team in those regions,” Munchery CEO James Beriker wrote on the company blog. “Our teams in each city have built their businesses from scratch and worked tirelessly to serve our customers and their communities. I am grateful for their unwavering commitment to Munchery’s mission and success. I truly wish that the outcome would have been different.”

With LA, New York and Seattle off the table, Munchery says it’s going to focus more on its business in San Francisco, its first and largest market. This shift in operations will also enable Munchery to “achieve profitability on the near term, and build a long-term, sustainable business.”

The last couple of years for Munchery has not gone very well, between scathing reports of the company wasting an average of 16 percent of the food it makes, laying off 30 employees and burning through most of the money it raised.

During that time, Munchery tried a number of different strategies. Munchery, which began as a ready-to-heat meal delivery service, in 2015 started delivering meal recipes and ingredients for people who want to cook. Then, Munchery launched an $8.95 a month subscription plan for people who order several times a month. In late 2016, Munchery opened up a shop inside a San Francisco BART station to try to bring in new business.

But it’s not just Munchery that has struggled. The on-demand food delivery business is tough in general. Over the last couple of years, a number of companies have shuttered due to the now well-known fact that the on-demand business is tough when it comes to margins. The most recent casualty was Sprig, which shut down last May, after raising $56.7 million in funding. Other casualties include Maple, Spoonrocket and India’s Ola.

Munchery has raised more than $120 million in capital from Menlo Ventures, Sherpa Capital and others. In March, the company was reportedly seeking $15 million in funding to help keep its head above water.

I’ve reached out to Munchery and will update this story if I hear back.

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How did Thumbtack win the on-demand services market?

Earlier today, the services marketplace Thumbtack held a small conference for 300 of its best gig economy workers at an event space in San Francisco.

For the nearly ten-year-old company the event was designed to introduce some new features and a redesign of its brand that had softly launched earlier in the week. On hand, in addition to the services professionals who’d paid their way from locations across the U.S. were the company’s top executives.

It’s the latest step in the long journey that Thumbtack took to become one of the last companies standing with a consumer facing marketplace for services.

Back in 2008, as the global financial crisis was only just beginning to tear at the fabric of the U.S. economy, entrepreneurs at companies like Thumbtack andTaskRabbit were already hard at work on potential patches.

This was the beginning of what’s now known as the gig economy. In addition to Thumbtack and TaskRabbit, young companies like Handy, Zaarly, and several others — all began by trying to build better marketplaces for buyers and sellers of services. Their timing, it turns out, was prescient.

In snowy Boston during the winter of 2008, Kevin Busque and his wife Leah were building RunMyErrand, the marketplace service that would become TaskRabbit, as a way to avoid schlepping through snow to pick up dog food .

Meanwhile, in San Francisco, Marco Zappacosta, a young entrepreneur whose parents were the founders of Logitech, and a crew of co-founders including were building Thumbtack, a professional services marketplace from a home office they shared.

As these entrepreneurs built their businesses in northern California (amid the early years of a technology renaissance fostered by patrons made rich from returns on investments in companies like Google and Salesforce.com), the rest of America was stumbling.

In the two years between 2008 and 2010 the unemployment rate in America doubled, rising from 5% to 10%. Professional services workers were hit especially hard as banks, insurance companies, realtors, contractors, developers and retailers all retrenched — laying off staff as the economy collapsed under the weight of terrible loans and a speculative real estate market.

Things weren’t easy for Thumbtack’s founders at the outset in the days before its $1.3 billion valuation and last hundred plus million dollar round of funding. “One of the things that really struck us about the team, was just how lean they were. At the time they were operating out of a house, they were still cooking meals together,” said Cyan Banister, one of the company’s earliest investors and a partner at the multi-billion dollar venture firm, Founders Fund.

“The only thing they really ever spent money on, was food… It was one of these things where they weren’t extravagant, they were extremely purposeful about every dollar that they spent,” Banister said. “They basically slept at work, and were your typical startup story of being under the couch. Every time I met with them, the story was, in the very early stages was about the same for the first couple years, which was, we’re scraping Craigslist, we’re starting to get some traction.”

The idea of powering a Craigslist replacement with more of a marketplace model was something that appealed to Thumbtack’s earliest investor and champion, the serial entrepreneur and angel investor Jason Calcanis.

Thumbtack chief executive Marco Zappacosta

“I remember like it was yesterday when Marco showed me Thumbtack and I looked at this and I said, ‘So, why are you building this?’ And he said, ‘Well, if you go on Craigslist, you know, it’s like a crap shoot. You post, you don’t know. You read a post… you know… you don’t know how good the person is. There’re no reviews.’” Calcanis said. “He had made a directory. It wasn’t the current workflow you see in the app — that came in year three I think. But for the first three years, he built a directory. And he showed me the directory pages where he had a photo of the person, the services provided, the bio.”

The first three years were spent developing a list of vendors that the company had verified with a mailing address, a license, and a certificate of insurance for people who needed some kind of service. Those three features were all Calcanis needed to validate the deal and pull the trigger on an initial investment.

“That’s when I figured out my personal thesis of angel investing,” Calcanis said.

“Some people are market based; some people want to invest in certain demographics or psychographics; immigrant kids or Stanford kids, whatever. Mine is just, ‘Can you make a really interesting product and are your decisions about that product considered?’ And when we discuss those decisions, do I feel like you’re the person who should build this product for the world And it’s just like there’s a big sign above Marco’s head that just says ‘Winner! Winner! Winner!’”

Indeed, it looks like Zappacosta and his company are now running what may be their victory lap in their tenth year as a private company. Thumbtack will be profitable by 2019 and has rolled out a host of new products in the last six months.

Their thesis, which flew in the face of the conventional wisdom of the day, was to build a product which offered listings of any service a potential customer could want in any geography across the U.S. Other companies like Handy and TaskRabbit focused on the home, but on Thumbtack (like any good community message board) users could see postings for anything from repairman to reiki lessons and magicians to musicians alongside the home repair services that now make up the bulk of its listings.

“It’s funny, we had business plans and documents that we wrote and if you look back, the vision that we outlined then, is very similar to the vision we have today. We honestly looked around and we said, ‘We want to solve a problem that impacts a huge number of people. The local services base is super inefficient. It’s really difficult for customers to find trustworthy, reliable people who are available for the right price,’” said Sander Daniels, a co-founder at the company. 

“For pros, their number one concern is, ‘Where do I put money in my pocket next? How do I put food on the table for my family next?’ We said, ‘There is a real human problem here. If we can connect these people to technology and then, look around, there are these global marketplace for products: Amazon, Ebay, Alibaba, why can’t there be a global marketplace for services?’ It sounded crazy to say it at the time and it still sounds crazy to say, but that is what the dream was.”

Daniels acknowledges that the company changed the direction of its product, the ways it makes money, and pivoted to address issues as they arose, but the vision remained constant. 

Meanwhile, other startups in the market have shifted their focus. Indeed as Handy has shifted to more of a professional services model rather than working directly with consumers and TaskRabbit has been acquired by Ikea, Thumbtack has doubled down on its independence and upgrading its marketplace with automation tools to make matching service providers with customers that much easier.

Late last year the company launched an automated tool serving up job requests to its customers — the service providers that pay the company a fee for leads generated by people searching for services on the company’s app or website.

Thumbtack processes about $1 billion a year in business for its service providers in roughly 1,000 professional categories.

Now, the matching feature is getting an upgrade on the consumer side. Earlier this month the company unveiled Instant Results — a new look for its website and mobile app — that uses all of the data from its 200,000 services professionals to match with the 30 professionals that best correspond to a request for services. It’s among the highest number of professionals listed on any site, according to Zappacosta. The next largest competitor, Yelp, has around 115,000 listings a year. Thumbtack’s professionals are active in a 90 day period.

Filtering by price, location, tools and schedule, anyone in the U.S. can find a service professional for their needs. It’s the culmination of work processing nine years and 25 million requests for services from all of its different categories of jobs.

It’s a long way from the first version of Thumbtack, which had a “buy” tab and a “sell” tab; with the “buy” side to hire local services and the “sell” to offer them.

“From the very early days… the design was to iterate beyond the traditional model of business listing directors. In that, for the consumer to tell us what they were looking for and we would, then, find the right people to connect them to,” said Daniels. “That functionality, the request for quote functionality, was built in from v.1 of the product. If you tried to use it then, it wouldn’t work. There were no businesses on the platform to connect you with. I’m sure there were a million bugs, the UI and UX were a disaster, of course. That was the original version, what I remember of it at least.”

It may have been a disaster, but it was compelling enough to get the company its $1.2 million angel round — enough to barely develop the product. That million dollar investment had to last the company through the nuclear winter of America’s recession years, when venture capital — along with every other investment class — pulled back.

“We were pounding the pavement trying to find somebody to give us money for a Series A round,” Daniels said. “That was a very hard period of the company’s life when we almost went out of business, because nobody would give us money.”

That was a pre-revenue period for the company, which experimented with four revenue streams before settling on the one that worked the best. In the beginning the service was free, and it slowly transitioned to a commission model. Then, eventually, the company moved to a subscription model where service providers would pay the company a certain amount for leads generated off of Thumbtack.

“We weren’t able to close the loop,” Daniels said. “To make commissions work, you have to know who does the job, when, for how much. There are a few possible ways to collect all that information, but the best one, I think, is probably by hosting payments through your platform. We actually built payments into the platform in 2011 or 2012. We had significant transaction volume going through it, but we then decided to rip it out 18 months later, 24 months later, because, I think we had kind of abandoned the hope of making commissions work at that time.”

While Thumbtack was struggling to make its bones, Twitter, Facebook, and Pinterest were raking in cash. The founders thought that they could also access markets in the same way, but investors weren’t interested in a consumer facing business that required transactions — not advertising — to work. User generated content and social media were the rage, but aside from Uber and Lyft the jury was still out on the marketplace model.

“For our company that was not a Facebook or a Twitter or Pinterest, at that time, at least, that we needed revenue to show that we’re going to be able to monetize this,” Daniels said. “We had figured out a way to sign up pros at enormous scale and consumers were coming online, too. That was showing real promise. We said, ‘Man, we’re a hot ticket, we’re going to be able to raise real money.’ Then, for many reasons, our inexperience, our lack of revenue model, probably a bunch of stuff, people were reluctant to give us money.”

The company didn’t focus on revenue models until the fall of 2011, according to Daniels. Then after receiving rejection after rejection the company’s founders began to worry. “We’re like, ‘Oh, shit.’ November of 2009 we start running these tests, to start making money, because we might not be able to raise money here. We need to figure out how to raise cash to pay the bills, soon,” Daniels recalled. 

The experience of almost running into the wall put the fear of god into the company. They managed to scrape out an investment from Javelin, but the founders were convinced that they needed to find the right revenue number to make the business work with or without a capital infusion. After a bunch of deliberations, they finally settled on $350,000 as the magic number to remain a going concern.

“That was the metric that we were shooting towards,” said Daniels. “It was during that period that we iterated aggressively through these revenue models, and, ultimately, landed on a paper quote. At the end of that period then Sequoia invested, and suddenly, pros supply and consumer demand and revenue model all came together and like, ‘Oh shit.’”

Finding the right business model was one thing that saved the company from withering on the vine, but another choice was the one that seemed the least logical — the idea that the company should focus on more than just home repairs and services.

The company’s home category had lots of competition with companies who had mastered the art of listing for services on Google and getting results. According to Daniels, the company couldn’t compete at all in the home categories initially.

“It turned out, randomly … we had no idea about this … there was not a similarly well developed or mature events industry,” Daniels said. “We outperformed in events. It was this strategic decision, too, that, on all these 1,000 categories, but it was random, that over the last five years we are the, if not the, certainly one of the leading events service providers in the country. It just happened to be that we … I don’t want to say stumbled into it … but we found these pockets that were less competitive and we could compete in and build a business on.”

The focus on geographical and services breadth — rather than looking at building a business in a single category or in a single geography meant that Zappacosta and company took longer to get their legs under them, but that they had a much wider stance and a much bigger base to tap as they began to grow.

“Because of naivete and this dreamy ambition that we’re going to do it all. It was really nothing more strategic or complicated than that,” said Daniels. “When we chose to go broad, we were wandering the wilderness. We had never done anything like this before.”

From the company’s perspective, there were two things that the outside world (and potential investors) didn’t grasp about its approach. The first was that a perfect product may have been more competitive in a single category, but a good enough product was better than the terrible user experiences that were then on the market. “You can build a big company on this good enough product, which you can then refine over the course of time to be greater and greater,” said Daniels.

The second misunderstanding is that the breadth of the company let it scale the product that being in one category would have never allowed Thumbtack to do. Cross selling and upselling from carpet cleaners to moving services to house cleaners to bounce house rentals for parties — allowed for more repeat use.

More repeat use meant more jobs for services employees at a time when unemployment was still running historically high. Even in 2011, unemployment remained stubbornly high. It wasn’t until 2013 that the jobless numbers began their steady decline.

There’s a question about whether these gig economy jobs can keep up with the changing times. Now, as unemployment has returned to its pre-recession levels, will people want to continue working in roles that don’t offer health insurance or retirement benefits? The answer seems to be “yes” as the Thumbtack platform continues to grow and Uber and Lyft show no signs of slowing down.

“At the time, and it still remains one of my biggest passions, I was interested in how software could create new meaningful ways of working,” said Banister of the Thumbtack deal. “That’s the criteria I was looking for, which is, does this shift how people find work? Because I do believe that we can create jobs and we can create new types of jobs that never existed before with the platforms that we have today.”

Toast launches a new handheld device and kitchen display system for restaurants

Toast, the Boston-based technology developer for the restaurant industry, has launched a new handheld point-of-sale device and a kitchen display system to integrate the front and back of any restaurant.

Using the devices any waiter can become an expert on menu offerings at the touch of a button. The new device lets waitstaff know when items are in or out of stock, what ingredients are in which dishes, and can find potential drink pairings for meals, the company said.

The integration with the back-of-the-house kitchen management system means that waiters also get a notification when food is ready without having to constantly check in with the kitchen. The company’s new software has other perks for waitstaff and kitchen alike — by prioritizing orders automatically based on prep time. If one menu item takes longer to prepare than another, the ordering system will place the dish with the higher cooking time ahead of other menu items in the queue for each order.

Allergy information can also be communicated via the app so waiters don’t have to go back and forth with the kitchen.

As for the devices, they’re wifi enabled and have a battery that lasts over 14 hours on a single charge.

One restaurant that beta-tested the new technology said that turnover increased dramatically with the new device. At Austin’s Odd Duck, turnover increased by 45 minutes and a Friday night crowd went from 250 guests to 400 guests served thanks to the software.

“That equates to an extra half million dollars in annual sales,” said the restaurant’s general manager, Corey Neel in a statement. “And with more tables come more tips: servers each take home about $7,000 in additional gratuities per year.”

Backed with well over $100 million in venture financing from Generation Investment Management and Bessemer Venture Partners, the new hardware offering from Toast is the latest foray in its quest to dominate a market that also includes vendors like TouchBistro, Revel and Upserve — all of whom are vying for a slice of the restaurant industry pie.