The bulk of startups in any new industry will fail, but foodtech really stands out as a segment where investors have placed some pretty bad bets in recent years. So what have we learned and where’s the smart money going now?

AgFunderNews (AFN) caught up with FTW Ventures founder Brian Frank (BF) at the Future Food-Tech summit in San Francisco, just before President Trump triggered a global stock market meltdown.

AFN: What’s next in foodtech?

BF: There’s so much innovation that is being unlocked by new technologies like genetic understanding, AI tool sets for every single aspect of the food industry from agriculture to biomanufacturing all the way through to human health, supply chain efficiencies, cold chain optimization, and sustainable packaging.

There’s also a big push towards how does nutrition and food unlock better human health outcomes that we see as being a real trend in the foodtech investment community right now.

I see a huge opportunity with GLP-1 drugs, and not just in primary care around weight loss, diabetes prevention and ischemic heart disease. We need to figure out how we can involve the food industry alongside the drugs and therapeutic community to make impactful change, for example by finding new and natural ingredients that can stimulate similar responses so they can be added to foods or supplements, rather than just relying on the drug industry.

On top of that, there is the need for wraparound care. As you stop eating so many calories, you stop getting the macro micronutrients that you need. How do we deal with bone density, muscle density, muscle strength, and mental health?

We see a lot more research now into the gut-brain axis. So if we can get the right concentration of nutrition, nutrient dense foods, we can allow people to live a healthy life while also staving off the critical diseases that are affecting a wide population.

AFN: How would you characterize the climate right now for foodtech investing?

BF: We’re seeing tighter partnerships built that will show that there’s a path both to first generation products to first revenue to scaling, but it will be through a smaller number of players and a smaller amount of capital.

We don’t operate as an investor community on a year-by-year basis. It’s not helpful. You have to look at longer time scales. You look at five- and 10-year cycles, because that’s what we need to provide returns within.

And if you look back, actually we’re going back to where we were [before the heady days of 2020-22], even though in the short term, investment is down significantly.

AFN: How do you see artificial intelligence impacting the foodtech space?

BF: There are a lot of companies today putting AI at the end of a domain name and saying we’re an AI company because there is a gold rush towards AI tools and solutions.

However, it’s critical to understand who actually has the capabilities and talent to deliver the total package and solution that will ultimately influence your business and the market.

AI is a tool at the end of the day. And so the way that it’s sold and the solutions that it provides need to come in line with the technical capabilities that we need for this industry. And there’s more work that needs to be done to get data, to provide resources and capabilities that will ultimately move the food and agricultural sector in a positive manner.

AFN: Foodtech investors got their fingers burned backing some pioneering firms in cultivated meat, indoor ag, insect farming, plant-based meat, and animal-free dairy. Do you see a second wave of leaner, smarter startups in these fields succeeding?

BF: We see a return to a new normal. We saw too much capital being thrown into the industry, too high expectations, both on entry value and on exit value, and we’re going back to a more rational kind of community of startup founders and financing options.

Looking at the industries you mentioned, I think it’s a mixed bag. Some of them have longevity, so things like dairy alternatives, there are consumers that need that.

But the expectations in terms of how big and over what timeline were ill-stated, and now we’re coming back to a more rational situation where it can take 15-20 years for these companies to develop the technology and get it into market, and for there to be a market developed. But also the expectations of how much capital they need to do that are coming in line with what is traditionally done in this industry.

AFN: What are your pet peeves as a foodtech investor?

BF: My pet peeves are around people that are somewhat naive to the fact that they need support and help scaling and building their businesses in this industry.

We create an environment where founders are put on a pedestal and told, ‘Be completely innovative and creative and buck the trends.’ But in the food and agricultural industry, you get further by working with others. You can get there faster working alone, but you get further working with partners.

And so figuring out how to work together with the major players that control the majority of the economic value within the food and agricultural world will help founders become more capable and prolific within this industry, versus trying to be a complete disruptor and running into issues that expertise and capabilities have shown you can get around with the right knowledge and connections.

The final thing I will say is that founders have expected capital to be free and available at all times, and now operating in a capital constrained environment, founders that had received so much funding in the past don’t understand how to operate a business that doesn’t run on venture capital.

In fact, most businesses in the world don’t run on venture capital. So we’re looking for entrepreneurs that understand venture capital is a tool to use at the right time and place in the right amount. And then you lever on capabilities, resources and other services to help you get to where you need to go, whether that’s grants and loans, equipment and project-based financing, or revenue. At the end of the day, every business that we evaluate, we want them generating significant revenue by the time that we’re ready to exit the business.

AFN: How has the investment strategy at FTW Ventures evolved in recent years?

BF: We actually have not evolved our investment strategy because we’ve been a very conservative deployer of capital with an understanding of entry and exit values within this industry.

We did not follow the hype cycle of ‘These companies will be decacorns and centacorns.’ We said, no, that’s not traditionally the way that the market has moved, and we understand the multiples at which these companies will trade at and so we’re much more rational in our investing strategy.

What I would say is that it’s actually gotten easier for us to execute our strategy because the expectations in terms of round, size and valuation have come back down to where we would have expected them to be.