284. How the Generational Shift Is Affecting Food, Investing in Vertical Farming and in New Biologics, and Platform Solutions to Food Dilemmas (Spencer Maughan)

Spencer Maughan of Finistere Ventures joins Nick to discuss How the Generational Shift Is Affecting Food, Investing in Vertical Farming and in New Biologics, and Platform Solutions to Food Dilemmas. In this episode, we cover:

Walk us through your background and path to VC
What’s the thesis at Finistere Ventures? Focus? Check Size?
Talk a bit about your global footprint, and why that is of value to the firm or the founders?
What makes Finistere unique?
What do you see as some of the biggest drivers of change in the food value chain?
Are consumers going to embrace alternative produced meats when they are ready for market? With classically long timelines, they’re expensive (producing a cost-effective product) and production is difficult. How do you think about that when you’re underwriting the risk on an investment?
What do you think of insect-based protein as a primary protein source and nourishment source in developed countries?
What are the food-related effects from the pandemic that are ephemeral versus, you know, what do you think are here to stay?
Previously, you mentioned a few areas of vertical farming, new pesticides in FinTech within ag-tech that were of interest. So which of those remain sort of strong categories as you see it today? Any other aspects within the ag-tech sort of lens and frame that you guys are investing forward in?
You’ve also spoken about sort of a shift from point solutions in ag-tech to more platform, can you describe what you’re observing here, and where you see the shifts occurring?
Lobbies wield incredible power in the Food and Ag space. Is that a challenge that must be managed? For you guys, as a firm focused on investing in very disruptive tech in this space?
What do you need to get better at?

Guest Links:

Transcribed with AI:

0:00
Spencer Maughan joins us today from Palo Alto. He is Cofounder and Partner at Finistere Ventures an early and growth stage venture fund investing in food and agriculture. Prior to Finistere. He was an EIR at Kleiner Perkins, an investor at Venrock and earned his PhD in Genetics at the University of Melbourne. Spencer, welcome to the show.

0:19
Thanks, Nick. Great to be here.

0:20
Yeah, amazing that you’re from Melbourne. I spent a bit of time there, living there when I was in my late 20s, catching some footy games at the Telstra dome.

0:29
Say, when I left it was a it was a great place to be from I think now, you know, it’s actually got a lot of really positive things itself. So I can’t say anything negative about Melbourne. I’m sure you had a good time.

0:42
I gotta tell you, I was so pleased about the weather. When I arrived. And all the Aussie friends I met, they would complain about the weather, but relative to Chicago, it was like it was a dream.

0:53
That’s true. Is true. It’s funny, I actually grew up on the North Shore of Chicago too. So we share a lot of geographies.

1:00
Is that right? Well, very good.

1:01
Yeah.

1:01
Well, we’ll have to enjoy some wine together at some point from the Yarra Valley. Right.

1:07
Indeed, indeed.

1:08
So Spencer, tell us a bit about your background, your path to VC sounds like you know, you’ve you’ve been in a couple of the big name brand firms and and now Cofounder Finistere.

1:17
Yeah, so look, I had a meandering route to venture capital, which I think is a bit of a thing. There’s a lot of idiosyncrasy in getting into venture, there’s not one one solid path really, and mine started out, you know, from a technical side. So I know that I do a PhD in Genetics, Classical Genetics back in Australia. And then I left and I ended up in the United Kingdom. I was working there at Cambridge University. So teaching genetics on the undergrad course, and had a small sort of nested laboratory that was focused on, you know, a pretty diverse set of problems. But one of the areas was on plants and root growth in plants. And as I was going through that, I realized, look, I’m doing this because of a need to have some sort of impact. And I found it impactful in a really small focused way. But I think the timescales to realize in sort of scaled impact was was stressing me out and causing me some anxiety. So I was at a point where I had been offered another position at another university, which was fairly significant. And so it was either double down or change up. And so I actually went wound up the efforts in Cambridge in my lab and, and then moved to the US. I did my MBA at Stanford thinking that, you know, that was sort of at the epicenter of where technology meets commerce. And were, you know, sort of all of those frames were about scaling to have impact. So I sort of placed myself in the middle, not really knowing what I was going to do, or which side of the table I was going to sit on at the end of it, so to speak. And about two months into my MBA, I was approached by Venrock, which is one of those founding for firms in the valley of modern venture capital Center, a group that banded around funding Intel, and at the time, they were looking for someone with a life science background, that could help out on the healthcare side, and, and the sustainability side. And so I was working with them. And that was my first sort of, you know, connection with VC. And through that experience, I think I realized, wow, this, this, you know, looking at the companies in their history, storyboard, and then the things that we were funding, then I thought, this is an amazing opportunity to really enable people that are super passionate and really smart to make a big global impact. So, you know, it was it was a tiny little piece of that. And I moved, as you said, from Venrock to Kleiner, and then and then decided that, you know, I was really passionate about industrialized value chains, and how you could bring sort of technologies from adjacent areas that could scale quickly to impact those, you know, in some ways, bringing them from analog to digital but but also on the life life science side. And so, you know, cofounded Finistere with with Arama Kukutai, my partner to focus on Ag and food.

4:09
Yeah. And tell us more about the thesis. So ag food, do you have a stage focus? Check? size?

4:15
Yeah, so we, we do we, we look at the entire food value chain. And I’d say there’s a lot of opportunity across it. So there’s not one particular thing that we do in terms of business model or technology. We’re pretty agnostic, but we prefer to go early. So we do sort of, you know, early A, and some B deals. Having said that, there’s been a number of opportunities these days where we’ve done some follow on funding instead of leading rounds, which is usually what we do on the later stage.

4:45
Got it and of course, we share co investment one of one of the early investments for New Stack I think it might have been our third or fourth ever back in 2016. Maybe but a company called Tovala. Now it’s it’s becoming a household name. All my friends are seeing it on TV, and they’re finally pulling the trigger on this consumer, you know, food company that I’ve been trying to sell to them for years.

5:06
So it’s, it’s, it’s nice even though there is the death of traditional TV, it still gives great validation, you know, same things happening, the same things happening to me out on the west coast where people, you know, seeing the ads out here and and say, hey, that’s your company. So yeah, we’re super happy to be in Tovala. It’s a it’s a really hot area, I think last mile delivery at the end of the day for food, so great to be with you.

5:31
And I checked in with David Rabie, founder of Tovala, and told him I was, you know, having a chat with you today. And he wanted me to ask you sort of about, you know, the global nature and the global footprint of Finistere. Can you talk a bit about that your different locations in the reach, and why that is of value to the firm or the founders?

5:51
For sure. So we from really the beginning of Finistere’s Ag and food effort, realized that, you know, across the value chain, you were dealing with commodities that were pretty fungible, which meant that these were large movements of calories, you know, across international and national state lines and things like that. And that regulatory changes, as well as consumer appetite sort of preferences are different. And so we believe early on that to tap into that we we did that partly from from the investors that came into the fund that brought expertise around markets and global markets. But then more specifically, we set up, you know, sort of toehold in different jurisdictions where we had an overlap between the national significance of food and agriculture, with, obviously entrepreneurial talent, and a I would say, latent stockpile of technology, which you often find when there’s a national interest in an area. So we have a pretty active practice in Israel, both in Tel Aviv and then in the north of the country, we actually have a incubator called Fresh Start in the north of Israel, that is doing earlier stage deals that we do in our in the Finistere fund. But let’s just sort of bear hug some of those things and get to know what’s happening on the ground and see movement. We have a similar effort in Australasia, actually, that is centered in New Zealand. And then a final one in in Ireland, where we have an office that, you know, serves us a little throughout the EU, but is pretty focused on early stage Irish technology to where there’s a convergence of, you know, a lot of digital talent, obviously, with it being one of the main hubs in Europe for a lot of the US sort of traditional tech companies. And then a especially a life science background. So so we focus a lot on those sorts of things. They’re more on the food side.

7:43
And what is it about Finistere, or your investing philosophy that makes you unique?

7:49
Yeah, so I would say that we have a very strong mix of operators and founders, I cofounded a couple of companies, my partner Arama, built the largest independent dairy group in New Zealand, before relocating to the US after exiting that, so there’s a lot of operational talent across, I would say, you know, both high tech businesses, as well as you know, agriculture and agronomy. And then beyond that, we have a lot of expertise like myself that has a higher degree in a technical area, we have a number of those across chemistry and data science, engineering. So you get I think, entrepreneurs certainly get access to not just a great network, specifically in that value chain. But then, you know, with the actual partners in the firm, and the investment group in the firm, get access to a lot of really good technical and operational skill, which forms I think, a much better and realistic commercial framework, right, as they’re trying to build the company.

8:51
Very good. Food and Agriculture at large is a topic I’m passionate about. And many folks at the firm, our venture partner raised beef cattle growing up, of course, we have multiple investments in both ag ag tech and food tech, as we discussed, but maybe we could start out with some of the drivers right now. You know, what, what do you see as some of the biggest drivers of change in the food value chain?

9:14
Yeah, so the big, you know, the biggest one is definitely a pull through change, you know, the dynamism in the market, which is always something you sort of look at in venture rather than sort of static state, you know, value chains, is really at the consumer end. So I like to sort of point out that the last election here that we just had in the States, for instance, was the last time that the baby boomers were the largest voting bloc, and you know, that coincides with obviously the millennials taking up that mantle, but also then having the largest sort of disposable income of employed people. So you’ve got this convergence between the dollars and then, you know, regulatory or legislative powers that all align now with millennials and i think that you know, the the idea of what quality food is and what safe food is, is very different to that group. So, friend of mine, Charlie McNairy, who heads up International Farming Corporation, one of the largest farm managers, funds in the US, he is a really nice slide deck that he showed a while back that sort of went through all the rationale around post World War II with, you know, not a lot of refrigeration still. And the idea of getting, you know, at scale now, with the baby boom, you know, food out and the rise of CPG companies where you had, you know, shelf stable food, that was really consistent. And so it was those brands that sold that consistency and, and shelf stable, safe food was what sort of quality was and that’s a real change. Now, you know, the idea of quality Now, with this leading group, at the bleeding edge of what we’re seeing in demand change is all about, you know, a safe food being a clean label, and having a shorter distance to the table, and one with the provenance story, and possibly now with ESG components, right, that has a lot of touch on the environment, or has better diversity and its management of the company. So, you know, I think that that is a paradigm shift right from where we were, but that means that that whole post form game, and possibly, as we move through it, then onto the farm, you have a massive change, that all really accumulates in the consumer brand. And so that’s why I think the first you know, really big hits out there, whether that’s in terms of how food is getting to them, you know, with things like doordash going out, and so on, or, you know, alternative protein, like beyond meat or something are leading that charge, because they’re very consumer facing. And that’s really where the biggest engine, I would put a smaller sort of flag to people listening that, you know, backing that up is a decrease in the cost of a lot of technologies, whether that’s compute power, whether it’s chipsets, or, you know, DNA sequencing, a lot of you know, these technologies are at a point where you can direct them all the way across that value chain. So that would be a slight push, I would say, you know, not nearly as dominant as that demand cycle on the pull through, but definitely allowing for a much faster evolution of technology directed at the food value chain.

12:17
So you mentioned Beyond Meat, of course, Impossible Foods, your firm has an investment in Memphis Meats, sell cultured meat company, you know, couple issues that folks flag with these. Number one, are consumers, are they going to embrace alternative produced meats, you know, when they are ready for market? And then number two, these are classically long timelines, they’re expensive, producing a cost effective product, you know, at scale, and production is difficult, you know, how do you think about that when you’re underwriting the risk on an on an investment?

12:53
Yeah, so, you know, for us, the market is truly massive, if we will get protein, right. Okay, if you’re just going to be sort of very high level about it. So then it’s thinking, Well, you know, where do you get the consumer pick up? And and what will they really pay for? And I think it comes back to those comments about, you know, what safe food is, and the ESG components that I think you can embed in it, because, you know, ultimately, it is going to follow just like industrial chemistry or something like this, a point where you break into the market at a higher price point. And then as you come down the cost curve with your technology, either through breakthroughs or scaling, you can start to address, you know, more and more components of that market. So I think what we focus most on are the technology components that allow you to do something differently. That is something that I probably should have said early on there that when we look at investments, there has to be some sort of defensible IP, some sort of your whether it’s know how or patent, we’re sort of deep tech investors in that sense. So so you know, for us, that’s a really important part. And that should be enabling part of that value prop to the to the consumer. So it shouldn’t just be, we can now do a Me too, and we can lower costs, you know, incrementally or something through technology, we firmly believe it should be developing a unique position, either from brand and the content of what you’re making, which usually comes down to functional pieces. So, you know, in terms of Memphis, for instance, there you have some breakthrough technology that addresses some of the cost issues with scaling. But ultimately, you’re getting then the ability to make a wide range of different animal cells, which provide a completely different taste profile and mouthfeel profile from plant based meat substitutes, and so there is a functional component to it also, and you can you can, you can tweak that, you know, through some of the sort of tool sets that they have. So you can play with both the scale issue and cost issue as well as the sort of functional outcome. And that’s, you know, that’s the sort of thing that we’re interested in

15:00
Your thoughts Spencer on other alternative protein sources, insects have been a big topic for a long time. And insect based proteins are our primary food source and you know, some other countries, developing countries and whatnot, what do you think of that, you know, insect based protein as a primary protein source and nourishment source in developed countries?

15:25
Yeah, it’s interesting. So I would say that all these are sort of, and, and, and, you know, I don’t think there’s going to be, you know, a winner takes all on the plant side or something like that, I think that there’s, you know, just just as when you go, and you buy meat or protein, historically, there’s, you know, lots of different species. And then there’s lots of different brands, and I think it’s, you know, big enough that there’ll be a number of winners, and I think insect will be a winner. You know, I think there’ll be a number of platforms to do that, whether that is, you know, traditional sort of insect production, because, you know, just to be frank insects have been produced for decades, not necessarily for, you know, a Western human consumption, right, but certainly in the west for animal consumption, whether that’s fish or otherwise. So, you know, and yes, that’s might be a different scale. But nonetheless, you know, that’s, that’s not new. So I don’t think that there’s fundamentally any reason why insects can’t win for us. I mean, when we looked at things we’ve not seen as compelling a technology reason, or as strong a value proposition as we have say with something like Memphis, which is why we are we haven’t played there yet. But in terms of overall on the market, will they be there? Yeah, I totally believe they will be there.

16:43
I feel like I have to ask this, you know, but we were, we’ve been in this pandemic situation for quite some time. Now. What are the food related effects from the pandemic that are ephemeral versus, you know, what do you think are here to stay?

16:58
Yeah. So, you know, from a, from a food point of view, I think that there, there’s little that I’ve seen that will truly be ephemeral, you know, the, I believe, and I’d say we all believe here that there will be a persistent say, in, you know, the uptake of delivered food if we just take that because that, that, certainly, and since we were both in development, we may as well think about this together, you know, that already had a value prop that was targeting a particular component of the market, pre pre COVID, COVID hit, and it like many other businesses in that sector, experienced a massive demand free demand, pull right on it service. And so you’ve got definitely a big bump. So, you know, there’s a question about what that, you know, erosion will look like, from a revenue point of view or from a, you know, customer acquisition point of view when everyone’s vaccinated. And it’s business’s normal to say, right 2022 or something, but it’s a pretty strong belief that, yes, there’ll be a potential erosion, but we’re still going to be way above where we would have been, you know, pre COVID, if we were just doing, you know, the grind on what is there because I think it’s motivated people and a larger and more diverse set of people being on say, you know, early adopter millennials, that some of these were targeting to an older demographic and so on that now are, you know, while they weren’t digital natives, they are now used to getting food this way, and it will be part of their mix. So I think it’s ultimately growing the market for these things. And I don’t think there is some sort of backward slide to, okay, pre COVID, zero, all those customers that came on are no longer interested in the platform because they can go to Albertsons or whatever it might be.

18:53
Right, right. Especially, you know, you had written this article, it’s actually it’s been a couple years now. But you wrote this article on ag tech. I’d like to talk a bit about that. And you, you mentioned a few areas of vertical farming, new pesticides in FinTech within ag tech that were of interest. So which of those remain sort of strong categories as you see it today? And any, any other aspects within the ag tech sort of lens and frame that you guys are investing forward in?

19:26
For sure. So we still are strong believers in vertical farming. You know, we invested in Plenty, which is a San Francisco based vertical farming company, has raised a lot of capital in the space, they sell their product in the Bay Area, and are, you know, aggressively looking to expand that footprint? And we’ve seen recently Of course, aerofarms come out into the market. So, you know, I think I think that there is still great interest globally around vertical farming and from at least our position where we said that economics makes sense. And this will be a big component, you know, of produce production, at least in urban areas. So, so that’s an area that I think we talked about, we put our money where our mouth is, and I think that we’re still pretty booster ish around that segment. It’s still a tiny base, so the growth could be truly massive. And I think the markets responded pretty well, that way, the area that I think, probably still we believe in, and there are more opportunities coming on from an ag tech side is around New new chemistry. So there was a flurry of activity posts sort of Ag requests back in the day around biologics and natural products coming more heavily into use across agriculture, with the presumption that, you know, they were a lot more environmentally friendly, it’s been hard to find things without an efficacy level, across that subset where a lot of dollars have flowed from a VC point of view, that really make them viable for large scale production agriculture. I mean, that’s really where you’re going to get the big satisfying impact if you can change that footprint. So, you know, agriculture is, you know, largely relied upon blockbuster drugs, so to speak, right, that they can scale across hundreds of millions of acres, somewhat indiscriminately, that has, you know, varying levels of target efficacy, but often controlled just by amping up spray rate, or dosage, what we’d become interested in saying, How can we use sophisticated platforms, maybe borrowing from things like pharmaceutical companies and and deploying them to find, you know, chemicals more cheaply, number one, so that you can search chemical space faster and more easily, but then also, more stringently, in terms of the parameters that you want them to overcome. So that could be all of these sort of sustainability issues, which are hand in hand linked to specificity. So can you make much more potent things that are a lot better targeted, so you use a lot less, and you have less residue, both in the soil and on the plant or on the food items? So So that’s sort of we’ve sort of thought more about the traditional chemistry and how you can move that more rapidly forward? Again, I’d say, we’ve made you know, in our recent fund, we’ve invested in a company called Enko. That is a Massachusetts based company, and they’re doing sort of just that. So we continue to be bullish about, you know, traditional chemistry that can really, you know, meet the demands of where the consumer is dragging, I think the entire change.

22:52
It’s great. And, you know, you’ve also spoken about sort of a shift from point solutions in ag tech to more platform, can you describe what you’re observing here, and, you know, where you should see the shifts occurring?

23:06
Yes, and that’s, you know, this is one that we talk and debate a lot internally is, you know, on the AG, you know, if we split the chain between, you know, the farm gate, you know, and what’s on both sides, there’s clearly I think platforms being created on the food side, you know, whether it’s from a brand point of view, like Beyond Meat that we mentioned before, or from a digital side, like a DoorDash, right, that’s changing logistics, and how consumers get get food. I think that those are becoming platforms, those are interesting to us, just from a venture capital point of view, in that platforms do two sort of nice things. One, they create, you know, an alumni base that understand where the problems, the next problems really lie, and can go and create companies to solve those problems. And to, they become usually quite acquisitive, you know, of those companies, since they want to solve their problems. And so, so platforms I think, are really important in terms of, you know, really energizing a space once you know, you want to get beyond momentum to really have in something that’s viable in the future. When we look on the ag tech side, you know, most of the platform companies that were being attempted to be built, were all around data. And we had split the data layers up into sort of aerial canopy and soil in place sort of bets around those, starting, as you pointed out with point solutions, you know, what’s, what’s a single problem that you can use either hardware software, or both, in many cases to to knock out of the park in terms of solving and then is you build that installed based what other things are complimentary that you can then start to actually be a platform from a data point of view, and I think that still work in progress. I can’t point to you know, one thing, even Climate Corp say that was acquired by Monsanto, still active, I would not say that it is, you know, pervasive as a platform where it’s imbibing in both companies as well as you know, other data streams. And it’s really the standard, right? In a way platforms are another sort of way of saying, Is there something that is standardized in that market? And I don’t think we’re there yet. But there are, I would say, now a maturing set of precision agriculture companies that are making moves towards that, and one of the ways they’re doing that is through acquisition. So we are seeing more and more sort of roll ups in the space, you know, even companies of ours, you know, are starting to acquire other smaller companies that have either a nice bit of tech or an interesting customer set that is a creative and responsive to their products. And so we’ve done a few of those across the portfolio.

26:01
Spencer, maybe you don’t want to answer this, but lobbies wield incredible power in the Food and Ag space. I mean, is that a challenge that must be managed? For you guys, as a, you know, firm focused on investing in very disruptive tech in this space?

26:18
So there’s extremely strong lobbies? You know, and that’s, that’s, you know, without a doubt true, I think for the most part, they’re, they’re somewhat two dimensional in that they, you know, those lobby groups have have a very clear mission, which has been defined for decades. So so in some regards, you already know, you know, what the bounds are there? I think, I think one of the more interesting things is, you know, we had a few conversations with the USDA. And, and then now with this new administration, you know, what, from a venture capital point of view, and from even the incumbents on the commercial side, that might want to acquire, you know, companies that are being built? What, what sort of trends? Are we seeing change across more, you know, legislation, and how can we influence those. So, you know, we’ve worked with other VCs around trying to describe the needs, I think, at the industry to support both, you know, non dilutive financing into it, especially across some of the sustainability goals, which are being articulated by the Biden government, as well as you know, adding to, I’d say, sort of quasi commercial type, non dilutive grants, you know, so I point to things like ARPA E, you know, which was an evolution to some extent of DARPA, and they’re, you know, has been a proposition put before, Congress from, I think it was jointly done by by Colorado and Iowa to try to replicate that sort of thing for agriculture. And we think, you know, those sorts of engines are, are helpful, you know, lobbying from our side, or interaction with lobby groups, rather than trying to attack some of these ones that I think are pretty well understood and stayed and generally are defined. And when they’re defined, they’re sort of predictable. And we know what the bounds are there.

28:13
Spencer, what do you need, you need to get better at?

28:16
So many things, right? I’m a big fan of the whole sort of Japanese context of, you know, artisan crafts people, and I don’t think venture is really any any different to that. So I think a lot of it comes from experience, you know, you’re always in a sort of lifelong apprenticeship. I mean, there’s certain quantitative things which you can grasp fairly quickly. But beyond that, I think it’s pulling on not just a network, but then real experience. And so, you know, one area where you can never get too much practice, I guess, is around board management. And really, I think, you know, helping the CEO manage boards to I find that, you know, a lot of boards have a lot of, you know, dead weight, often, you know, and and, or just don’t take in their job sort of seriously enough, in my opinion. So I think you’re getting better at that is a really critical thing that venture firms need to have from an institutional point of view, as well as from the individual point of view. And then look, I think, I think getting getting better at really pushing some important agendas across the whole market of VC, especially around diversity is really important. You know, it is a very catalyzed group of individuals that are doing the investing. And they’ve had great returns, but that doesn’t mean that it can’t be improved by I think, opening up more. So that’s something we’re fortunate to have been a number of women. You know, my partner is an indigenous New Zealander, it’s, you know, I think it’s something that we hold across the firm that is really important so that we can always be better. You know, you We are not saying we’ve solved that at all. But that’s another thing. And I could go on, there’s just so many different skill components that I just think you need to practice and have more experience with.

30:11
Very good. And then Spencer, what’s the best way for listeners to connect with you and follow Finistere?

30:16
Yeah, so we have a number of outlets. I mean, we’re obviously active on LinkedIn, on Twitter. You can find us always email. It’s my first initial and last name at finistere.com, happy to take emails. We also have a website, obviously finistere.com. There’s a lot of information on that on the community page. And then there’s links to connect with us there and contacts on that site, too. So yeah, we have lots of ways hopefully reasonably easy, and we look forward to hearing from everyone.

30:47
Awesome. Well, Spencer, this is a real pleasure. enjoyed the chat. Looking forward to learning more about food and ag from you guys and taking this ride with you on the Tovala investment.

30:59
Indeed, it’s going to be a heck of a ride. We love it. And I appreciate the time today, Nick, it was great to interact with you and your listeners.

31:05
Thank you, sir. Take care.

31:07
Okay, you too.

Transcribed by https://otter.ai