Editor's note: This "A Balancing Act" story is the ninth in a series for Food Dive, where experts examine trends uncovered in earnings reports and discuss strategies that impact the balance sheet. You can read the first piece here, the second here, the third here, the fourth here, the fifth here, the sixth here , the seventh here, and the eighth here.
For large firms and financial agencies, there are many ways to invest in up-and-coming food companies that incorporate today’s values of natural ingredients, clean labels and organic production.
Consumers and those who have no control over the purse strings of venture capital funds or accelerators have fewer options. Shares of publicly traded companies can be purchased. Nonprofits can be supported. Products can be purchased.
And now there are two other options for high-impact investment: A traded fund that is made up of publicly traded companies dealing in organic products and backing ventures and ideas online through a platform like Kickstarter.
Making an investment
Investment firm Janus Capital launched an exchange-traded fund that’s solely for companies that make most of their money from organic products or natural foods. Nick Cherney, senior vice president and head of exchange traded products at Janus Capital, was a driving force behind its establishment.
Cherney said that he had a personal interest in starting the ETF, which allows people to invest in several companies in the organics business. This is one of four thematic investment funds launched by Janus this year. Cherney said that these four funds – which also include health and fitness-related companies, long-term care related companies, and companies that are dedicated to fighting obesity – meet some of today’s lifestyles.
These funds are derived from “long-term demographic or consumer trends,” Cherney told Food Dive. They’re business sectors that are growing – both financially and in popularity. And they help anyone who invests put their money where their beliefs are.
“The U.S. investor is the largest pool of investment capital in the world,” Cherney said. “Most of those people are … going to support organics through their consumption, but they're not going to go and invest in private companies.”
“The U.S. investor is the largest pool of investment capital in the world. Most of those people are … going to support organics through their consumption, but they're not going to go and invest in private companies.”
Senior vice president and head of exchange trading, Janus Capital
Purchasing shares of the ETF can help support companies that are making strides in the organic space, both for food and cosmetics. Cherney said that if enough people are investing in companies that share their beliefs, it really does help.
“The route for U.S. financial capital to find its way into the industry and support it can be accelerated pretty dramatically through capital markets,” Cherney said. “That's really, I think, the purpose of this product.”
For investors looking for growth, organic food and products are wise places to invest. Organic food has been growing by the double digits each year. According to statistics from the Organic Trade Association, sales have increased from $3.6 billion in 1997 to $43.3 billion in 2015. Nearly 5% of all food sold in the United States last year was organic. According to Consumer Reports, 84% of adults in the U.S. are buying organic food. TechSci Research expects organic food to grow at a CAGR of more than 14% from 2016 to 2021.
How it began
Cherney said that in talking to potential consumer-level investors, there was a demand for this sort of a fund. As trends are making the crossover into lifestyle choices – in this case, dictating what consumers eat, drink, wear and use – it only makes sense to bring them into investments.
“People haven't really thought about it because it hasn't been available,” he said. “There's been no instrument out there that I'm aware of … that would allow you invest in a diverse portfolio of organic food companies.”
Though organics have been growing in popularity for the last several years, Cherney said that it’s been pretty recent that the ETF could be established. In order to put the fund in place, he said, there had to be a number of publicly traded companies with a large enough net worth. All of the companies in the fund are worth at least $100 million, and they need to have at least half of their sales from organic products. Cherney said this isn’t as easy to identify as it may sound; some companies aren’t very forthcoming about the amount of their sales from organic products.
Cherney said that the ETF includes any company that meets these criteria – and will include more when they meet the requirements. Currently, the ETF includes retail stores such as Whole Foods and Sprouts, brands including WhiteWave and Hain Celestial, supplements providers like Blackmores, and sourcing and processing companies including SunOpta.
For those who are less likely to invest in stocks, there are other ways to support food companies. One of the more popular is using Kickstarter, which allows ordinary people to give financial backing to projects and ideas that they would like to see come to fruition.
Since Kickstarter was founded in 2009, there has been a section of the site dedicated to food-related projects. Justin Kazmark, the website’s vice president of communications, said more than $100 million to date has been pledged to help get ventures that vary from new food products to community gardens and apiaries to restaurants to kitchen tools get off the ground. To date, he said, 21,325 food-related projects have successfully launched through the site.
“It can feel a little like patronage or philanthropy in some ways. The idea of altruism is very strong. "
Vice president of communications, Kickstarter
Backing a Kickstarter project isn’t like a traditional investment, Kazmark said.
“It can feel a little like patronage or philanthropy in some ways,” he told Food Dive. “The idea of altruism is very strong. You don’t have to be someone with a huge disposable income to support creativity on Kickstarter. You can back somebody for $10 or $1 or $25 and have a meaningful impact because collectively, this community is spreading this idea of bringing it to life, and that’s a powerful motivator.”
Quinn, a snack brand that focuses on non-GMO, preservative free and clean label food, is one of many that got its start on Kickstarter, Kazmark said.
A University of Pennsylvania study looked at Kickstarter’s impact on the creative economy. According to the analysis, the website’s crowdfunding across all areas has created $5.3 billion in economic impact. Backing projects created 8,800 new companies and nonprofits, and more than 300,000 jobs.
“In terms of job creation and company formation, it is starting to have an economic impact, and I hope that’s part of the broader conversation,” Kazmark said.
The "A Balancing Act" series is brought to you by BMO Harris Bank, a leader in commercial banking. To learn more about their Food & Beverage expertise, visit their website here. BMO Harris Bank has no influence over Food Dive's coverage.