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Kellogg's Earnings Beats Expectations
Boxes of Kellogg's Frosted Flakes cereal are seen displayed inside a Wal-Mart store July 28, 2003 in Rolling Meadows, Illinois. Photograph by Tim Boyle — Getty Images

Kellogg Launches VC Fund to Invest in Food Startups

Jun 20, 2016

Kellogg is the latest Big Food maker to get into the business of trying to find "winners" among the hundreds of startups that are crowding grocery store aisles across the country.

The Special K and Frosted Flakes cereal maker on Monday debuted a venture-capital fund it is calling "eighteen94 capital," which will invest about $100 million into startups that are pioneering new ingredients, foods and packaging. The idea is to take minority stakes in those newer, smaller firms to help support their growth – mainly through the expertise Big Food makers like Kellogg can bring to packaging, marketing and distribution.

"As consumer preferences move toward more diverse tastes and trends, the pace of innovation in the packaged food industry continues to intensify," said Gary Pilnick , vice chairman of Kellogg (k). ""By investing directly in the most promising entrepreneurs and ventures, we can increase greatly our access to game-changing ideas and trends that could become significant sources of growth for us."

In recent years, hundreds of startups have raised over $6 billion in funding from traditional venture capital investors and Big Food makers, challenging legacy brands in the process at a time when consumers are shifting their purchasing patterns to favor foods they believe are "fresh" and offer a feel-good message. Big Food makers have responded by making acquisitions in the space, while also moving to make modest changes to ingredients for some of the biggest food brands to help boost sales.

But the move into the VC world has been an interesting subplot as the landscape changes drastically for the food industry. Kellogg rival General Mills (gis) has been particularly aggressive and employs a model that is similar to what Kellogg announced. General Mills' 301 Inc. has made a handful of startup investments in recent months, including backing cottage cheese maker Good Culture, plant-based food maker Beyond Meat, and kale chips brand Rhythm Superfoods.

Campbell Soup (cpb) also has played in the space, earlier this year launching a $125 million venture capital fund to invest in food startups. At Campbell, the financial commitment is to a fund that is being managed by outside partners, which are independent of Campbell. The VC unit at General Mills is managed internally.

Kellogg's 1894, meanwhile, will be managed by Simon Burton – a veteran at the cereal maker who has had experience making investments in the consumer products sector. Kellogg is also partnering with Touchdown Ventures, which specializes in corporate venture capital, to help manage the fund.

Kellogg says the fund will especially target early stage firms that are already generating revenue with a product the food giant deems ideal for today's market.

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