Sep 15, 2023

Fresh Start's CEO Noga Sela Shalev (left) and CTO Dr. Tammy Meiron (right). Image credit: Rami Zarnegar Meet the founders: Israel’s Fresh Start incubator on what makes a great pitch, red flags, and ‘coachable’ entrepreneurs September 15, 2023 In many respects, foodtech is not an obvious target for venture capital, which is not the most patient kind of cash. The ‘tech’ part notwithstanding, you’ve still got to secure regulatory approvals and get physical products into the marketplace, and that takes money, experience, and above all time, say the founders of Israeli incubator Fresh Start . And two or three years ago, says CEO Noga Sela Shalev, things got a little out of whack . “Like any other investment bubble, there was a lot of excitement, fear of missing out, generalist investors coming in, huge hype and huge valuations. “But this is such a grounded industry. At the end of the day, it’s food. It has to be accessible, it has to work, it has to scale, it has to integrate into a relatively consolidated industry. And regulation is a killer. “So when I speak about this in lectures, I have this nice image of an elephant staring at the crowd, because there’s an elephant in the room when it comes to foodtech. It’s actually not a very pro-VC field of investment. What saves it is of course, is that it’s an incredibly huge market.” Launched in early 2020, the Fresh Start incubator provides early stage foodtech startups with funding, mentoring, and ongoing support as they move from concept to launch. Run by Noga Sela Shalev (CEO) and Dr. Tammy Meiron (CTO), Fresh Start is part of the Israel Innovation Authority incubators program, and is owned by Tnuva , Israel’s leading food company; Tempo , Israel’s leading beverage company; OurCrowd , Israel’s most active venture firm; and US-based fund Finistere Ventures . Fresh Start provides initial funding of $1-$1.5 million per company, with access to next-cycle funding, but most importantly, say Meiron and Shalev, its portfolio companies get access to the expertise and resources of its team and four backers. AgFunderNews (AFN) caught up with Shalev (NS) and Meiron (TM) to discuss the genesis of Fresh Start, the foodtech investment landscape, and why entrepreneurs can be “like manic depressives without the pills…” Noga Sela Shalev (CEO) and Dr. Tammy Meiron (CTO) on stage. Image credit: Fresh Start AFN: Can you share your respective origins stories? NSS: I come from a background of marketing and business development and have been in the food industry for many years, many of them at Tnuva, so I saw the full cycle from R&D all the way to the market. Part of my work there was establishing and managing an innovation unit. After a couple of years there was a tender by the Israel Innovation Authority to establish a new foodtech incubator and that seemed like a very good opportunity for Tnuva but it also just so happened that they needed someone to run the business development processes of the incubator, and I took that position. TM: So I have a PhD in chemistry, biochemistry and food science from the Hebrew University and my PhD thesis was sponsored by Nestle R&D Center. My first industrial position was at Sigma Aldrich, which had already been acquired by Merck. I was the manager of a production department that produced hundreds of proteins and enzymes, and I worked on tissue culture, precision fermentation, animal and plant tissues. But I’ve also been involved with hundreds of startups over the years, mainly in the foodtech arena, and involved with a lot of tech transfer, scaling up, and how to generate ideas on the lab scale with a professor or researcher and then bring them to industry as a process or a product. I also teach new product development at the Hebrew University . AFN: How good are big CPG companies at driving innovation? NSS: Tnuva had strong R&D in-house, but before the [open] innovation unit, it had no protocol for working with startups in a proper way. So the establishment of the innovation unit was all about that, how to work with startups and that obviously came in very handy for my current position, which is also about understanding how we need to bridge the gaps between these huge corporates and the needs of startups. At Tnuva, lot of the work focused on having innovation ambassadors in the right positions in different areas of the company, and having strong support from the top-level management, starting with the CEO. So I was able to get everybody on board and create a competitive environment… who’s going to be the most innovative unit within the corporate? But the internal processes were crucial to making it possible. At the start you can only work with mature companies but as time goes by, you’re able to establish relationships much earlier. But that integration between the internal and the external operation was one of the most significant challenges. AFN: How is Fresh Start structured? NSS: The structure is set by the [government-funded] Israeli Innovation Authority, and having government funding reduces risk significantly. The program allows a $1 million investment [for startups coming into the incubator], 85% [of which is] reimbursed by the government, while the rest of the 15% is financed by the incubator partners [Tnuva, Tempo, OurCrowd, and Finistere Ventures]. You can refer to it as a comfortable loan structure because the government finances 85% of the 1 million and then if the company succeeds and reaches the market and is able to sell, it is required to give royalties up until the sum it received from the government. It has a structured repayment period. But if the company fails, then no harm done. The incubator and its partners receive equity for the full invested sum of $1 million, which includes the Israel Innovation Authority part [the bulk of the initial investment]. AFN: What is distinct about Fresh Start’s structure or approach? NSS: There’s strong hands on involvement from all the parties, and they are all investing in the follow-on investments of the [portfolio] companies, so it’s a very, very tight relationship. In short, the process is intended to have the companies coming into the incubator reach the end of the program with a very significant fundable milestone. What it also does very well is what we refer to as venture creation. So Tammy has very strong relationships with Israeli academia and research centers, and most of the technologists in food, biology and biotech in Israel. The skill is to see a good idea or technological concept, realize pretty fast that it could be relevant to the food industry, and then construct a whole company around it. AFN: What is the typical process for picking a portfolio company? TM: In some cases, we incept the companies. For instance, one of our most promising portfolio companies Eggmented Reality was incepted by the incubator in collaboration with the Migal Galilee Research Institute. So first we joined with Migal and [Eggmented cofounders] Dr. Itamar Yadid and Itay Bloch, and we defined together with them and our four investors, sponsored research to test the feasibility of the technology. After that, we brought in Jon [CEO Jon Rathauser]. NSS: Sometimes you get an entrepreneur that’s already put together a project or even a proof of concept, and then it’s a direct investment. But we are always very involved in the process, so even if a company is coming to us ready for an investment, there may be some reshuffling before they come in. But in a lot of cases, it’s what Tammy said. We find the technology [and seek to commercialize it]. So in the case of ProFuse [cultivated meat media supplement co ProFuse Technology ], which came out of the Weizmann Institute , a researcher reached out to Tammy and then we established a holding company. Then we brought in [CEO] Guy [Michrowski]. So that’s what we call a venture creation type of model. I’d say we’re probably 50:50 venture creation versus direct investments. TM: Noga and I are also practicing as a commando unit, as a new startup, because when we initiated the incubator, we had our KPIs, and we knew what we had to achieve, but it didn’t come with a manual on how to do it! AFN: What makes a great pitch, and what do you look for in a founding team? TM: The first thing I look at is the team, the people standing in front of us. It all begins and ends with the team and their capability. I’ve worked with hundreds of companies, sometimes an ‘A’ team can accomplish much more with a ‘B’ technology than a ‘B’ team could accomplish with ‘A’ technology. So we begin with the team and especially as we’re working with very early stage companies, we look at are they ‘coachable.’ NSS: If you’re looking for the ideal entrepreneur, you’re not going to get it… if you want someone with exactly the right background in the food industry, that’s also entrepreneurial, with all the capabilities to work at a very early stage startup. So during the due diligence process, we have a good opportunity to really understand what it will be like to work with them. It’s a very intensive, condensed period of time because we go through our own investment committee and then to the Israel Innovation Authority. But in a general sense, we’re no different than any other kind of investment vehicle in the early stages. We are looking for a solid business model, understanding that things can change, and we are very oriented towards unit economics and scalability. And that’s where Tammy’s capabilities really come in as she’s seen a lot of scale up, so it’s part of her forte to look at a technology and say, I know that this can be scaled up. We also have a very high focus on additional financing, even from the first day they enter the incubator. We’re not settling for the 1 million, we’re always looking for additional investors to come in. So funding cycles and what type of startup we’re going to see at the end of the road in terms of the time it takes and the exits that investors will see, are also things that guide us very strictly. AFN: What are some of the red flags in pitches? TM: Sometimes it’s the personality more than the words that you pay attention to. Israel is also a relatively small ecosystem, so if somebody is name-dropping we usually know the people they are talking about! Also, if somebody arrives with a very nice idea that could be very economical and scaled up, but there’s no technology [underpinning it] to build an industry around, we won’t bring them in. NSS: Even if we see some sort of a gap that might make a VC think this company is not fundable, we ask can this be amended? So is that a red flag? Yes, maybe in that it indicates the level of understanding that the team may have. For me, red flags often [become apparent] at a slightly later stage when we dive into the numbers and figure out that something does not work, or that it’s based on overly optimistic assumptions. Often you see assumptions that rely on a very optimistic or easy to go market or a customer relationship, which is usually not the case when it comes to food. And that will give us a good indication that something is wrong and we have to really dive deep into the business model to make sure that it could actually work down the road. On the tech front, it’s more the case that someone will come along and be very enthusiastic about what they do, and then Tammy will come in with her vast experience and say that’s really nice, but it’s not new! AFN: Tammy, you said you’d rather have an A team with good tech than a B team with great tech. Can you elaborate? TM: So you could start a company with three to four team members, so they have to be able to work as a team. There should act as a commando team, because they have a lot to achieve in a relatively short time. So a person that doesn’t fit into that, doesn’t fit.’ In some cases, the entrepreneur or the inventor is highly inventive, but doesn’t have the relevant capabilities to be a leader. So we will put a disclaimer that we will invest in this company, but we have to bring on somebody that can bring a business or technological perspective, because in a short time, in a highly competitive landscape, we have to hit certain milestones. NSS: In many ways, we’re like a headhunting company because we always look for complementary type of people that will actually make things happen. So you have entrepreneurs that come with something so raw and it’s their baby, but they need the right partners to drive their innovations forward. AFN: What key skills do entrepreneurs need? TM: Entrepreneurs in many cases have to be visionaries, with a lot of ambition, although they sometimes don’t do a reality check. But being an entrepreneur is high adrenaline, a kind of manic depression without the pills, because you go up and you go down. You have to have a certain ability to move on through a lot of challenges and frustrations. AFN: What are you looking for in foodtech? NSS: Having a technology or a company that is limited to a certain product and that’s it, is something that in our eyes is very, very risky. So we would normally look for something that can either serve as a platform for additional solutions or serve as a product that could be relevant to additional industries and will allow for some sort of a pivot as needed down the road. AFN: How is the foodtech investment landscape evolving? NSS: Like any other investment bubble, there was a lot of excitement, fear of missing out, generalist investors coming in, huge hype and huge valuations. But this is such a grounded industry. At the end of the day, it’s food. It has to be accessible, it has to work, it has to scale, it has to integrate into a relatively consolidated industry. And regulation is a killer, for good reason. So when I speak about this in lectures, I have this nice image of an elephant staring at the crowd, because there’s an elephant in the room when it comes to foodtech. It’s actually not a very pro-VC field of investment. What saves it is of course, is that it’s an incredibly huge market. AFN: It’s a tough time to get funding. What advice do you give startups? TM:  This is the time for companies and their investors to practice flexibility and creativity and to find some pivots to reach the market faster, to enter joint ventures with others, so I think a lot of collaborations can rise out of this period. AFN: Has good money been thrown after bad in foodtech? NSS: People criticize the level of due diligence that went into cultivated meat , for example, but it has never been done before, and it’s hard to criticize. But I think today we have a much better understanding. We have so many more people that have come into the space and have some more knowledge and understanding of what’s going on. TM: I also think that we should compare it with other fields, where enabling technologies are bringing speed and functionality.