- Kellogg announced Monday it is launching a new venture capital arm, eighteen94 capital (1894), to pursue minority investment opportunities in startups. The fund wants to invest approximately $100 million.
- The fund will focus on early stage companies that have driven initial revenue with a quality product and strategic market fit.
- Simon Burton, a 10-year Kellogg executive with startup experience, will manage 1894 in conjunction with partner firm Touchdown Ventures, which specializes in corporate venture capital.
Launching VC arms that focus on startup investments is one of the latest trends to sweep the industry. Out of Food Processing's list of top 10 food and beverage companies for 2015, nearly half have dedicated VC units or accelerators, including Nestle, Coca-Cola, Anheuser-Busch InBev, and General Mills. Further down the list, Campbell and Hain Celestial have also launched VC funds so far this year.
While VC arms aren't yet ubiquitous, it's likely many of the remaining major manufacturers will launch their own investment funds or accelerators within the next few years. These investment arms allow large manufacturers to keep up with fast-paced change in the industry and invest in the future. At the same time, companies strategically manage risk through minority investments rather than acquiring a startup outright.
If the startup fails, which many do, the larger manufacturer is out of a smaller investment rather than losing a larger investment and revenue stream on its balance sheet. But the smaller investment offers manufacturers an "in" by providing capital, relationships, and business skills that can help the startup achieve success. When the startup hits the right inflection point of growth and demonstrates a solid, profitable future, the manufacturer is then in a better position to compete to acquire the startup.
This is a smart way to develop relationships with startups, which generally prefer to retain their autonomy and independence. These relationships can also be mutually beneficial, as startups offer benefits besides an additional revenue stream. These include innovation, agility, and bootstrapped budgets that can help larger companies improve both the top and bottom line.
In Kellogg's case, the company announced being open to "new ingredients, foods, packaging, and enabling technology," per its news release.