For two years, former senior Pitango Venture Capital senior life sciences partner Ruti Alon was willing to reveal only the name of her new venture, Medstrada What will the fund do? She did not say. The "Med" in Medstrada indicated that she was continuing her interest in the medical field, but it now appears that she is also going beyond that. "'Med' refers to a continuation of the connection with the medical field, but also to the Mediterranean Sea region," she told "Globes." "It is known that the Middle Eastern diet is the healthiest one. 'Strada' refers to a highway; our goal is to make rapid progress."
Medstrada is a venture capital fund in the field of food tech - new food technologies. It will operate as a conventional venture capital fund and is seeking to raise "an amount that will enable us to invest with any fund in this field." Medstrada will be Israel's first venture capital fund aimed especially at food tech, after several investment and mentoring activities sprang up here. The leading ones are an incubator named The Kitchen, sponsored by Strauss Alpha, Strauss's innovation arm; Copia Agro and Food, which raised $50 million for investment in agriculture and food; and the Trendlines group, which invests in health, agriculture, and food. Israel has quite a few companies active in food tech.
"Globes": Why did you switch from health to food? Were you influenced by the hard times in the medical devices sector, in which Pitango specialized?
Alon: "No, it's mainly a wish to do something new, but utilizing my existing capabilities and what I learned, because I nevertheless accumulated many years of experience, and it would be a waste to throw this away. We know today that treatment of sickness is only a small part of the story of a healthy life, and with correct investment in the preventative stage, including correct diet, the beginning of a disease can be delayed and health maintained for a longer time. After years of dealing with sickness, I wanted to also deal with this side."
If that is the case, will you focus mainly on food with health qualities or on other areas?
"We're focusing on four areas, not all of which directly affect health. One is new food including food that is free of harmful elements, food with a specific positive effect (functional food) that does not require a medical prescription, and food with new flavors - plant and animal protein grown in a laboratory without harming animals. When you want to market a new food and state that it has health value, you have to conduct clinical trials, but they are not on the same scale or at the same cost as trials required for drugs, medical devices, or medical food."
Incidentally, new food does not necessarily contain new elements at the chemical level. "Sprouted legumes, for example, are a new shelf product, even though people have always sprouted legumes," Alon explains. "Bringing a component that is common in one country to another country where is it not common is regarded as the same as introducing a new food, assuming that it is processed using the production methods and flavors suitable for the country."
The second area in which the fund will be active is personalized nutrition. "In this area, we use medical information about what happens individually in each body genetically, in environment, and microbiome, in order to recommend to each patient what he or she should eat in order to improve his or her health and feeling," Alon says.
Israel has advantages in this area because of the medical knowledge accumulated in the health funds, their openness to cooperating with startups, and its diverse population. Notable among the companies operating in this area are DayTwo and Nutrino.
The third area in which the fund will invest is information and analytics for the food industry throughout the food chain, from optimization of the actions of machines in factories to collecting information about consumers. Today, food companies know almost nothing about them, because 50% of the food is consumed outside the home. "One example of a company in this area that had an exit is WeissBeerger, which puts chips for collecting data, such as rate of consumption and strongest hours for consumption, on beer spigots in restaurants and pubs. "This can be connected to information about the consumer," says Alon, adding that the industry is a conventional one that has not yet fully experienced the information revolution, and companies of this type can make a dramatic change.
Eight years after it was founded, WeissBeerger was acquired for $80 million by brewers Anheuser Busch.
The fourth area of interest to the fund is sustainable food. "Food is critical in the question of sustainability," Alon says, "whether it involves biodegradable packages or management of byproducts, environmentally factories, and so forth."
"Most innovation - in small companies"
Alon's partner in the venture is Ilanit Kabessa-Cohen, who brings with her experience in the conventional food industry and in food innovation. "I come to the fund after 20 years in consumer food products sector," Kabessa-Cohen says. "In the past seven years, I was a manager in the field of innovation, startups, and digital business in Osem-Nestle and a member of the digital innovation team at the global Nestle company. I was the first innovation manager at Osem. We led processes of identifying new business territories, consumer and business research, technological development, operations, and bringing to market.
"Today, Nestle has 18 pilots of Israeli startups. I realized that new technologies were actually the future of the food industry - the next exciting challenge. I wanted to deal with them full time. Most innovation in the food sector happens in the small companies. The large companies have only 2% annual growth."
Alon: "Large companies aren't always the natural place for innovation to emerge. The process in which people leave them in order to manage slightly riskier ventures is natural. The combination of my expertise in health and venture capital and Ilanit's expertise in food and food innovation has create a winning combination."
Kabessa-Cohen: "The food industry is one of the world's largest industries, with an $8 billion turnover, compared with $2 billion for the pharma industry and $1 billion for medical devices. These are also giant industries, but in order to make substantial profits in this industry, you need something special, and this something is usually supported by technology.
"There are several trends in the industry, including the expectation of transparency - that every person should aware of exactly what is in his or her food and how it was produced. People expect food adapted to their needs and preferences wherever and whenever it is convenient for them to receive it. They expect food that contributes and is non-harmful to their health. The industry is anxious about the "Amazonization" of distribution channels, meaning direct online ordering. Sustainability is also a significant trend, as is digitization of the industry."
If people also want "clean" and unprocessed food, why is the industry growing and not going backwards to home gardening or buying fruits and vegetables from the farmer and eating them as is?
Alon: We are in the 21st century. Consumers have no patience; they want unprocessed food, but everything available and ready to eat. Even if what I really want is a plate of vegetables, innovation can mean that I get it at the right time and place, while preserving the freshness in production, transportation that does not harm the environment, and so forth."
Some of the innovation takes place already at the agriculture stage. Will you also be involved in this?
Kabessa-Cohen: "Agriculture and food are obviously tangential fields. We'll invest in innovation relating the final product, not how agriculture is conducted - collecting information for the farmer, upgrading crops, etc. When the innovation in agriculture is reflected in the end product, we might be interested, but in principle, it's not our area."
"Israel is open to innovation in flavors"
Alon says that Israel is innovative in all areas, including food tech. "It's no surprise, given that food occupies such an important place in our culture, that our food culture is very open to innovation in flavors and ingredients," she says.
Kabessa-Cohen: "For example, food is also culturally important in Italy, but the emphasis there is on tradition and precise recipes handed on from generation to generation. In Israel, on the other hand, if I ask for a recipe, I get it in terms of 'as much as you feel is right' and 'add until it tastes good,' and then I change it to add my personal touch. Israeli chefs are famous worldwide for their originality, and that's no surprise. The food industry here is very well developed in comparison with the size of the market. Nestle and Pepsico aren't here because of eight million people, but because of innovation."
Alon: "Israelis specialized in foods free of specific ingredients because food has to be kosher. We have always had food without meat, food without dairy, and food without meat and dairy. Some people call it 'parve' and some people call it 'vegan.' On Passover, we eat food that is kosher for Passover, or 'gluten-free.'"
Kabessa-Cohen: "Israeli company Tivall was the first to create meat-like food from plants. This was food tech before the term existed. This brand was one of the reasons why Nestle acquired Osem, which owned Tivall."
Alon: "In laboratory-cloned protein, Israel is the leader because of the local specialization in stems cells and for reason of kashrut. It has been said that pork grown in a laboratory might be kosher, but this is still controversial."
What about Israel's disadvantages? Alon says that main disadvantage is in marketing. "I don't expect an Israeli startup's product to be marketed all over the world from here. Marketing food is expensive. But people like Ilanit do know how to plan marketing strategically so that it's also suitable for a large company," she says.
Cooperation with Cornell University
Medstrada's financial model is that of a conventional fund - limited in time, management fees, and a success component. "We conducted a study of 600-700 food tech companies founded in the past decade, some of which were sold, not necessarily for huge sums, and we saw that this was a logical business model," Alon says. "The large food companies, like life sciences companies in the past, do not necessarily want to see revenue and stability in a company before they acquire it; they want a promising technology or even an interesting technological platform."
What investors are you contacting?
Alon: "The private and family investor, large food companies, and private equity funds with a mandate to invest in a venture capital fund. My feeling is that large institutions will be less suitable for us, because the trend is relatively new and interests a younger and less institutionalized group of people. This is true for both foreign and Israeli institutions, although if someone is interested, we'll obviously be delighted."
Do you have a connection with incubators and investment concerns that are already active in Israel?
Kabessa-Cohen: "Certainly - good connections. These are pioneering groups that founded a new industry here."
Alon: "You can't succeed on your own. You need an ecosystem, so that Israel can function as a center."
The fund has not yet finished raising capital and has not yet made an investment, but it is now taking the first practical step by announcing a cooperation agreement with Cornell University.
We have to create a unique capability in order to show that we know what we're doing and have something to offer in this world," Alon says. "Cornell is one of the world's best universities in food and agriculture. The agreement states that we'll be exposed to the university's new developments and applications, and we'll give them mentoring and business development. The goal is to eventually invest in some of these ventures. We'll be a bridge between their scientists and scientists from Israel, and they'll give us consultation in both development of our technologies and in penetrating the US market."
Published by Globes [online], Israel business news - www.globes-online.com - on September 4, 2018
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