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Foodbytes hosts bimonthly, exclusive virtual roundtables featuring a panel of experts across the food and ag industry and within Rabobank, with upwards of 100 global corporates, investors and startup founders attending, and the latest roundtable discussed strategic capital allocation. Want to get invited to our next roundtable? Take 5 minutes to create your Foodbytes profile.
On December 2, our roundtable brought together industry experts to discuss strategic capital allocation and how emerging technology companies can navigate the current market. Startups must focus on demonstrating value, exploring alternative financing options, and maintaining transparency with investors. By balancing growth with survival and leveraging strategic partnerships, emerging technology companies can navigate the challenges of today’s market and position themselves for future success. Read on for more takeaways from the discussion, featuring CSC Leasing Senior Director Pem Hutchinson, Cleveland Avenue Investor Fabian Gosselin, and Rebound Technologies CEO Eric Kish, Foodbytes AVP Data Intelligence Sonia Shekar and Foodbytes Startup Relationship Manager Trevor Sieck.
The Current Investment Climate
The past year has shown signs of recovery in the investment world, with deal values improving for the second consecutive quarter. However, startups must remain focused on demonstrating a differentiated value proposition and optimizing for stability and cash flow. As higher interest rates and reduced liquidity lead to lower valuations, companies must prioritize growth and revenue to attract investors.
Fabian Gosselin, Investor at Cleveland Avenue highlighted the resilience of companies that have weathered the storm over the past 18-24 months. Many of those companies are now seeking external investment after exhausting internal rounds and bridge financing in the past couple years. “We are now seeing a sustained upward trend in the industry. In general, we’re seeing funding activity pick up with better deal flow in the market,” Gosselin noted.
Strategic investors remain keen on innovation, though their methods of involvement have shifted. Direct funding has become less common, with many corporate venture capital (CVC) arms reshuffling their strategies. As an alternate pathway, startups are exploring joint development agreements and pilots to gain early momentum without immediate capital infusion. Gosselin shared an example from his portfolio: “We have a novel ingredient company that, early on, focused on joint development agreements with corporates to generate initial revenues, extend their runway and gain momentum, with the aim of transitioning these agreements into longer-term contracts.”
Valuation sensitivity remains high, and startups must carefully navigate conversations about potential down rounds. Gosselin advised startups to assess their learnings from previous rounds and justify their value based on commercial, technological, and manufacturing advancements. “The market continues to be sensitive around valuation. The tech multiples that we saw in 2021-2022 have become harder to justify,” he explained. He advised thinking critically about balancing valuation and growth, suggesting that a down round may be necessary in the short term to capture a share of funding in the market that may otherwise go to competitors.
Alternative Financing Options
Alternative financing has become crucial for startups looking to extend their runway without diluting equity. Service providers are developing flexible models to support growth while managing risks. Equipment financing in particular has emerged as a popular non-dilutive option.
Pem Hutchinson, Senior Director at CSC Leasing discussed the shift in capital spend strategies: “What CSC has seen across the board is a focus on unit economics, profitability and solid business fundamentals over just sheer growth.” In today’s market, transparency about a company’s risk profile is essential. Hutchinson emphasized the importance of being open about business challenges and working collaboratively with capital providers.
Hutchinson emphasized the importance of using equity for appreciating projects like IP protection, R&D, and sales and marketing, while finding alternative financing mechanisms, like equipment financing, for depreciating assets such as CapEx. “We’re in the business of showing startup companies that there’s a better way to spend the equity dollars they are bringing in – especially as they’re more difficult to get these days,” he noted.
Hutchinson elaborated on CSC Leasing’s collaboration with Clean Crop Technologies, which was transitioning from pilot phase to commercial scale up. Clean Crop reached out to CSC to facilitate lease financing, which would enable Clean Crop to extend their treatment service to significantly more customers, scaling revenue without draining Clean Crop’s equity financing from other mission critical uses, like product development and sales. To address this, CSC Leasing provided a lease for their equipment. Hutchinson explained, “CSC was able to lease that piece of equipment to the startup company, allowing them to wrap and bundle their maintenance, installation, and everything else into a monthly subscription to the end user – offering a low cost of entry to try a new technology.” This innovative financing model not only helped Clean Crop extend its runway, but also facilitated market adoption of their technology.
This innovative financing model not only helped Clean Crop extend its runway, but also facilitated market adoption of their technology. CSC has seen an uptick in similar opportunities to work in tandem with venture capital firms to build more comprehensive solutions that help startups balance growth with survival. Gosselin added from the venture perspective, “In the past, we’ve been comfortable with equity as the vehicle for growth, but as the markets have shifted, startups should look into alternative options earlier so that they can budget it into their cash flows for the next year rather than only when they’re down to one or two months of runway.”
CEO’s Perspective on Positioning for Growth
Eric Kish, CEO of Rebound Technologies shared his company’s funding journey, highlighting the importance of diversification and strategic risk management. Rebound initially operated as a grant-funded scientific lab. They raised a seed round in 2019 and a Series A in 2022, landing a significant client who also became a strategic investor in the cold chain business. However, for 18 months, they struggled to raise additional funds due to a high concentration of risk—one customer, one vertical, and one sales model. This was a major deterrent for potential investors.
To address this, Kish integrated sales and commercial personnel with the engineering team to identify new market opportunities. They expanded from focusing solely on the cold chain market to targeting three, and soon five, unrelated markets, including recreation centers with indoor swimming pools and crypto mining. Kish also highlighted the importance of focusing on solving real, painful problems for operations, specifically cost reductions, with sustainability and decarbonization as ancillary benefits. This value proposition resonated well with the market, contributing to Rebound’s extraordinary growth.
In terms of communicating with investors, Kish underscored the importance of maintaining transparent and regular communication. “Investors want to see de-risking. They want concrete road maps or achievement (or both) where it shows that you’re de-risking the company on its way to becoming a Unicorn.” He shares regular updates with the board and all shareholders to build trust and ensures that investors are ready to support the company when needed.
To keep a close eye on a company’s progress and challenges, Kish developed a proprietary tool to provide real-time cash flow projections, allowing the company to adjust operations dynamically to meet runway targets. The tool requires that all cash commitments – even internal processes – be tied to purchase orders, each one requiring approval before being put in action. Maintaining high levels of detail helps Kish know exactly how much cash the company will burn in the following two weeks, ensuring that the company can pivot quickly in response to financial pressures.
