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Sergey Cheryomush. Eat, drink, invest — investments in FoodTech within the Bestseller.Fund

Wednesday, July 21, 2021

FoodTech is one of the fastest growing areas in the venture. In the new episode of the Angel Talks video podcast, Sergey Cheryomush, an entrepreneur, founder and manager of the Bestseller Group, will talk about trends, as well as the FoodTech market in Russia and the world. He has many years of experience in the FMCG (consumer goods) sector in distribution, retail, trade marketing and logistics in 7 countries. For the past few years, he has been focusing on investing in and scaling startups in the FoodTech sector and related markets.

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What got you into FoodTech?

It all happened naturally. I have been building my career and business for 20 years. I started with the distribution of consumer goods, mainly food. 5 years later, the Bestseller Group was launched in Kyiv. We built a food distribution business that was part of the largest retailer in Ukraine. In 2011, it was bought out, and we began building an international business. We started turning exports into imports. Instead of waiting for someone to take our products, we ourselves came to this country and opened a company there. Now we are present in 7 countries with either our legal entities or with partners.

In 2013, we started investing in innovative projects, mainly in IT. We made a freelance merchandiser exchange — a platform through which you can hire a merchandiser in any city. An employee could report via a smartphone after laying out the goods on the shelves, which optimized the control of his work.

Then we launched the Vito House trading platform for the sale of food ingredients — raw materials for various manufacturing companies (bakery, confectionery, beverages). Today, it is the largest catalogue of food ingredients in the CIS.

Then we financed a nightclub project. At a time when the number of visitors decreased, we came up with an idea of ​​a bar that offers drinks for free: a guest receives a welcome drink in exchange for a post on social networks. The project helped attract visitors to the bar, and later made a splash in the States and was valued at $3M. If a project without much revenue is valued so high, then why not accelerate current projects, such as the food ingredients business, in the same way.

...

I started researching the issue of venture capital investments and came to three conclusions:

  1. Money must be sought long before it is needed.

  2. In order to create a product, to make a profit, it is necessary to make the business attractive for investment and interest the investor.

  3. You need a completely different network: both with people in business, and investors.

I decided not to create new businesses anymore, but to join existing ones or new ones that are just being created as junior partners. And take on the role of being in charge of investor relations and helping to scale the business. I chose the area that I understood better — food and innovation — and this is how we came to FoodTech.

We focused on projects with Russian-speaking founders who have the potential to scale internationally, since we already had experience working in international markets. We were looking for companies that had disruptive innovations (innovations that create a new market and value network, challenging existing market leaders). Furthermore, we began to create portfolio projects, form an investment network and create an ecosystem that allows projects to appear, be validated, and scale.

...

When our company Bestseller Fund became a venture capital company, we decided to study the market. We compiled FoodTech Market Map (market map), which included 3 databases:

1. Development institutions. Everything that accompanies the development of a startup: business angels, venture capital funds, food tech accelerators, food tech exhibitions.

2. We studied the market in the world, selected 140 projects out of 3 000, which were of interest from the point of view of original models, rapid growth.

3. The base of Russian projects, which was the most difficult to compile, since Russian transactions are practically not conducted anywhere. Nevertheless, we managed to find about 120 projects and initiate the publication of a map of Russian projects on Rusbase.

...

The pandemic has changed consumer behaviourr and accelerated market development

In the last 8 years, the size of investments in the FoodTech market has grown 13 times. Last year’s pandemic helped many see the benefits of FoodTech projects and their relevance. This market is indeed growing and will grow to $7T over the next 15 years. This suggests that everything in the food sector will become innovative — everything will be FoodTech.

...

What will the Groceries 24 store look like in 10 years?

Yandex.Lavka and Samokat are examples of projects that will be the role models driving how stores will develop. Multichannel sales will start growing: different formats of stores with an ever-increasing share of e-commerce will appear, the number of local warehouses and stores with fast delivery will increase.

There are 3 areas in FoodTech:

1. The food itself, which is created through innovation.

2. Components and infrastructure (packaging, software, equipment).

3.Model-Driven Business (dark store, dark kitchen, E-grocery).

...

Which FoodTech startups can’t enter the international market?

First of all, those where entrepreneurs do not set such a goal for themselves. For example, in Israel, Belarus, the Baltic countries, where there is no internal market, most of the innovative projects are oriented towards the international market. Israel is the leader in the FoodTech industry.

An entrepreneur needs to think about the global market, build a global company. You don’t even have to start a business in Russia — it will be enough to develop technologies, and then it is better to immediately bring them to the world market. And after conquering the global market, you can return to the local one, perhaps even as part of a large corporation that will have absorbed you.

...

What are the prospects for services like Amazon Go?

The main difference between our market and the Western one is that they have a higher level of trust in the counterparty. For example, companies that supply cafes in the United States with food and drinks deliver at the most optimal time — at night or early in the morning. The courier has the keys to the restaurants and bars that he serves, and the employee does not need to wait and accept the goods according to the invoice. They check everything in the morning, and if some items are missing, the employee informs the supplier. It’s cheaper to trust your suppliers because transaction costs are lower. If you are deceived or let down, then the cost of compensation, in this case, is less than the costs along the entire chain, if each operation were processed according to a classic business process.

As for self-service, including payment, trust in customers is higher in America, but it is also actively developing in our country. Russia today is the international leader in contactless payments. Also, there are micro markets — self-service refrigerators, where you can get the necessary products from the refrigerator and pay by phone or card.

...

Food products often go through a long supply chain from producer to consumer. You can build production and logistics based on blockchain, so you can track, say, how the cheese was transported. Is this technology likely to develop?

There was a time of hype, when we tried to build all processes on the blockchain, and the companies whose names included blockchain or crypt consoles sharply increased their sales. There are many companies that would like to digitize their logistics, many projects are still being developed. With the help of blockchain, it will be possible to manage and control the entire production chain, which is important not only for the manufacturer but also for the client. After all, transparency and product safety are the key factors of trust in consumer choice.

...

The main problems of FoodTech in Russia

— the main problem is the small market. Local entrepreneurs only aim at the domestic market, and most of them lack ambition to enter the international one. According to statistics, 70% of entrepreneurs do not even go outside their regions, not to mention export;

— a small number of projects;

— there are few companies that can buy you in the future at a higher estimate.

...

FoodTech is divided into upstream and downstream.

Downstream projects include projects that have gained momentum but are losing growth dynamics (food delivery, dark kitchen).

Upstream refers to trends that are gaining momentum and that are closer to the production of innovative food products using bioengineering, genetic engineering (use of microorganisms, bioreactors):

  • Deep Technologies that will significantly change markets. For example, replacing animal meat, milk, eggs with vegetable raw materials. Artificial cultivation of meat in bioreactors, where the cow is an extra “intermediary” in the production of a product that can be obtained faster and cheaper in a bioreactor.
  • Superfoods are new ingredients that have great characteristics while being healthier.
  • B2b platforms that allow you to optimize the process throughout the supply chain.

Gigafactories continue to be built, where many brands will be produced. Thus, the Red Bull company does not have a single plant where they produce their drinks.

Another trend is nanofactories, basically factories in one container. For example, where a whole dairy without a single employee allows the farmer to produce pasteurized bottled milk.

Digital twins and robotization of production are technologies that allow you to create production without people or with very few of them, and control it remotely.

...

FoodTech projects in the Bestseller.Fund ecosystem

In addition to helping startups financially in Bestseller.Fund, we are building an ecosystem that allows early-stage projects to validate their ideas and quickly reach sales and larger investments. When we saw that there were not so many projects, we began to work to create an infrastructure.

...

We collect a portfolio of projects. These are the projects that mainly have the synergistic effect (cross-selling, cross-marketing, cross-PR). Each portfolio in the project (there are 14 now, and we are planning to have 50) should make all the others stronger.

Making a market map is a good opportunity to monitor the market and promote portfolio projects.

We have investment panels, the so-called FoodTech show. We collaborate with traffic-generating partners, hold pitch sessions, thus giving startups an opportunity to present themselves.

The main goal of our projects is to enter the world market. To this end, we have created an “affiliate program” where partners in other countries help such portfolio projects reach the international level as soon as possible. We have partners in the USA, China, Saudi Arabia, India and Portugal. To make the “affiliate program” grow faster, we launched FoodTech-travel where we gather with a few entrepreneurs, plan a trip to some innovative enterprises, gain experience, develop partners and travel.

There is another interesting direction that we are planning to launch — FoodTech-space or contact production exchange. When sites have excess production capacity, we agree on startups to launch their projects at these sites.

We are also organizing collaboration with networks where startups have easier access to the network involved in the project.

21 Jul 2021

 

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