Meet Lisa Feria, Managing Partner and CEO at Stray Dog Capital

Stray Dog Capital is an early stage venture capital funds in the plant-based food market

Venture capital used to be a cottage industry, with very few investing in tomorrow’s products and services. Oh, how times have changed! While there are more startups than ever, there’s also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.

But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?

We’re highlighting key members of the community to find out.

Lisa Feria is Managing Partner and CEO at Stray Dog Capital.

Feria grew up in Puerto Rico and moved to the US for college. She went on to establish a successful career in the food industry working for General Mills and eventually found herself in the VC world as one of the earliest investors in Beyond Meat. Since then, she has invested in nearly 50 other plant-based startups and continues to look for the next big thing to make the planet a better place to live.

VatorNews: Give me the big picture, the philosophy and methodology and really what Stray Dog Capital is all about. What is your mission, and why did you start this firm? 

Lisa Feria: Stray Dog Capital is an early stage venture capital fund and our focus is investing at the intersection of food technology. So, we really look at the biotechnology sector, we look at all kinds of different food enabling technologies, such as cellular agriculture, precision fermentation, molecular farming, with the objective of building a more sustainable, nutritious, cheaper, food system that it’s also able to feed all 10 billion of us (we’re going to be 10 billion people by 2050) in a way that doesn’t destroy the planet.

VN: When you were starting this firm, what were the problems that you saw, the gaps that you saw, where you thought, “I need a venture firm to help fill those”?

LF: My personal background, I’m a chemical engineer, and I spent a lot of my career in the food world. I worked with General Mills and my job was to bring to life the ideas and the concept that the R&D team would come up with. So, they would come up with the newest cereal product and we would figure out how to make it. How do you scale this? How do you hit your numbers on cogs? How do you make sure that you have a supply chain established? I got an opportunity to really understand how you make and scale food, and that was a very formative, very important part of the reason that I’m sitting here today. 

Later in my career I moved over to Procter & Gamble and during my time there I had one of those like matrix moment realizations that climate change is accelerating and we’re going to see a lot of the most negative effects during our lifetime, yours and mine and our kids and grandkids and friends, and I didn’t want to basically die at the end of whatever years I have on this Earth and have only moved forward and produced Cheerios and only contributed to the consumption of more paper towels and toilet paper. I really wanted to make sure that, whatever talents I have, that they were dedicated towards solving probably the most significant problem of our time. The more that I researched it, the more I realized that the food system is not only one of the most polluting and destructive markets in our world, but it is only going to get worse as we have more and more people on the planet. And so, we’re scaling up a system that’s already incredibly destructive, and has so many negative externalities from being the leading cause of Amazon deforestation to being the leading user of antibiotics in the world, as well as all the methane and all kinds of different emissions as well as water consumption; most of the freshwater is used for animal protein production, specifically. So, you have a really big, polluting system that is only going to get worse the more people that we have on the planet, and we expect a lot more people on the planet; we just hit 8 billion people on the planet just a few weeks ago and we expect to continue that pace in the next few decades. So, it really was about, how do you then solve this problem? How do you then change our food system to be more sustainable? In my research, I saw that there were only really two leading ways to do so: either start the next innovative company in the space, or support those that start a company, and the latter was a lot more of my expertise. How do I find and support these innovative, incredible entrepreneurs who are coming up with game changing technologies to feed us and all those around us? 

There was this fateful trip to Kansas where I met the co-founders of Stray Dog Capital, and we got in the same room together and since then we’ve added another partner, so there’s four of us now, and we really complete each other’s sentences. We realized, “hey, we have this united vision of what we can do in this space, let’s go ahead and do it.” Stray Dog Capital started investing in about 2015 and we’ve invested in over 46 companies to date, we have three funds that invest out of, and we’re one of the experts in the alternative protein space, as well as just in the general food system space. We’ve been very active investors because we feel very deeply that you need a very good application of technology to a system that has been almost the same for decades, and you need a really good application and technology to be able to feed a world in a way that can continue to grow with our population change.

VN: You mentioned a couple of these, but talk about the verticals within food that you’re investing in, why those are important, and how those help achieve your goals.

LF: We are looking for markets and categories that are the most damaging. So, when we go and invest in the food system, that is an incredibly wide space: you can be investing in kombucha, that’s in the food system, but we’re really looking only at companies and markets that have the most environmental destruction, and that usually comes down to meat, eggs, chicken, milk, etc. So, we really hyper-focus on those categories, because we know that any significant change in those categories into alternative and different products are going to have an outsized effect in terms of emission reduction, water consumption, reduction, etc. And so, we have really hyper-focused on those spaces. 

Now, what companies we support within those spaces are the ones that are really driven by IP and technology. So, for example, we have a company called MyForest Foods and they’re making fungi-based bacon, and they’re using fermentation to do so in a very efficient, low footprint, low capital way. This product is mind blowing, and it has three ingredients. And so, it’s how do we think and hold our food system accountable for all the health implications that we have seen from it? The leading cause of death in most developed nations is not famine, like it’s been for most of humanity’s time, it’s not war; it is actually what we eat. It’s a chronic disease that is caused mostly by what we eat. As we look at this new generation of companies that are using this technology to enable their food products, we’re also raising the bar on what those products look like; we want products that are actually better for us too. We want to eat them, we crave them, but also that they’re not trying to kill us.

VN: When you say that I obviously the ones that come to mind first are Impossible Foods and Beyond Meat, which I have tried and it doesn’t taste exactly like meat but it’s like 90% there. How do you get people to try those kinds of things? I can tell you that my girlfriend is a very picky eater and she won’t eat an Impossible Burger, she thinks it’s weird or creepy. So, how do you get people to eat these things and try them?

LF: The reason why food technology is such a cool and interesting place to invest, particularly lately, is because there are some really significant tailwinds that are helping the category. Generationally, we’re seeing some really large shifts happening. For example, up until a decade ago, Baby Boomers were the largest generation that Earth had ever seen; now, with Millennials and Gen Z’s, you have two generations that are significantly larger than Baby Boomers that are shifting the food system in a different direction. Because they have come of age and spent their childhood in so much chaos, because of climate change and shootings and all that, they think about and consume products differently and with different parameters than any of the previous generations have done. What we see is that this generation is really the tailwind that is helping these categories shift. 

Now, what do they want? They want products that obviously are better in terms of emissions, sustainable footprints, all that. They want products that are good. Do they need to be an exact same mimic to meat and those products that they’re replacing? No, but they need to be close enough but good in terms of their sustainable footprint. So with Impossible, with Beyond, where we were early investors, we are building a system where it’s multi-steps: step one is, “I want a product that tastes incredibly similar. I don’t want to go from my normal burger to a black bean burger, I want something in between that is still delicious so I don’t feel like I’m being punished or it’s not something that would be my friends.” That starts moving us towards a more balanced plant based diet. Beyond and Impossible have been that step one, where it’s like, “okay, now you’ve got products that mimic the tastes and the experience and senatorial cooking process pretty closely.” Now, as a category, we’re looking at v2 and v3 and those products are meaning to be a lot more nutritious, they’re meaning to be delicious, but the focus is not necessarily on how closely they you get to meat. It’s like, “I like bacon. Why? Because it’s salty, because it has the umami taste, because it has this crunchy, chewy texture.” How do you have a product that delivers on those characteristics, but also that you can eat 15 times a day, if you wanted to, if you’re a big bacon fan, without concerns that you’re gonna keel over and die because now your cholesterol is exploding? And so, there’s a new world where companies are delivering on the taste aspect but also delivering on the nutritional and ingredient panel. And up until maybe a year and a half ago, that wasn’t even a possibility; there weren’t enough entrepreneurs who have achieved a level of sensorial, delectable, deliciousness, but had also done so with three or four ingredients that are all pronounceable.  

It’s a really exciting space to be in because when I try these products I’m like, “this is the future.” I am tired of us having to make trade-offs with every food product: it’s either healthy for you and you hate it and you’re forcing yourself through that, or it is not healthy for you and you feel terribly guilty because of what you’re doing to your health. Why do we have to continue compromising? There’s got to be a middle ground that is less polluting, that doesn’t drive us towards antibiotic resistance, nobody wants that, but it’s also delicious, so you don’t feel like you’re making a sacrifice. That’s why this category and the technology within it is so exciting to us, because we’re seeing these entrepreneurs come to the table with things the way it should be. 

VN: I’d love to hear the origin of your name, Stray Dog Capital. Where did that come from? What are you trying to convey with that?

LF: I get asked this question quite often. It’s a combination of things: when we started investing in this space, we had high conviction and we saw these massive trends coming to the table. Where do you find the magic in venture capital? It’s when you have a gigantic problem, a really big problem and, for us, that’s the environmental degradation we’re seeing and climate change. That is the food system driving a big part of that, that is population change making everything worse. It’s a perfect storm of problems. So, you have this really big problem. You have some really fantastic tailwinds, and that comes from the generational shift, the Millennials and Gen Zs driving these categories, but that also comes from you and I are trying to eat healthier and trying to have a good quality of life until we die without having all these chronic diseases. Everybody’s trying to be healthier. So, we were seeing this tailwind, but food was not a sexy place to invest in 2015; almost nobody was investing in food. And so, for us, having such a differentiated and, what seemed to us, an obvious place to invest, we definitely were straying away from the pack, everybody thought this was a cool place to invest and we were like, “No, this is going to be the cool place to invest.” And so, that was part of saying, “we’re the stray dogs over here, we’re not afraid to invest away from the pack.” 

Then, from a cultural standpoint, we just have a soft side in our hearts for stray animals. Our entire team has about 45 different adopted stray animals, across the team; they’re not all dogs, we have all kinds of animals that we’ve adopted. Really our focus as a fund is not only delivering great returns to our LPs, which we absolutely have done, and will continue to do, but it’s also really having a significant impact on things that matter. All the time, especially pension funds, we’ve been talking to a lot of them, they’re super interested in the space and they’re like, “I don’t know, I know tech better.” And we’re like, “you know what? It doesn’t matter what you invest in if climate change continues to destroy the market. Every time we have a catastrophe, everybody’s financial outcomes suffer if we don’t do something to soften this rate of climate change. And so, we have many investors who invested in us because they want to hedge their bets. They’re like, “Okay, I have these things. This is coming. This is going to make all these holdings zero. So, how do I try to make sure that these people have a chance to execute on our mission? I’ve got to invest in climate change alternatives and companies,” and we’re within those.

VN: You said that in 2015 nobody was investing in food. I assume that that’s changed a lot in the last seven years or so. So, you were at the forefront of this. What do you see happening now in this space? How has it evolved in that time?

LF: It was us and a few trusts and foundations, it was incredible. I remember investing $5 million, which was unheard of. Usually in this category, in the food world, your exits are mostly M&A, which is great because M&A are a lot more consistent and reliable than IPOs. And so, we have been able to have fantastic exits to really large strategics consistently, this category continues to increase in terms of exits, but as soon as the Beyond Meat IPO happened, and it was the best IPO in two decades, obviously that’s changed and Beyond Meat is now going through some tough times, but at that point it was the best IPO in two decades. I mean, better than Lyft and Uber and all these other really cool tech companies. Then what happened was that investors, as a whole, are very much in the FOMO world and don’t want to miss out on anything and so they were like, “alright, we got a generalist pocket here, we got another pocket, let’s just throw it at foodtech.” And so, what we as experts in the space saw is that, all of the sudden, all these other funds were parachuting down with non-specialized investors who are investing in all kinds of different food companies that should not have been invested in. We saw a destabilization of the market because we would look at a company with our level of expertise and be like, “this is not going to scale.” Part of what I bring to the table is I’ve seen how you scale companies; it’s an oddly infrequent skill set in this space. If you have never seen a food sale, you don’t understand how companies scale, and you don’t leverage experts, it’s really hard to evaluate what person A is telling you, because you have no personal expertise and knowledge or experts to lean on. And so, they would just rely on what the entrepreneur would say: “oh, yeah, this is easy to scale,” or, “oh, yeah this is going to sell so well.” And so, all kinds of money were being spent, the valuations went up, all this stuff.

What we’re seeing now is that as soon as the S&P started going down and the public markets were suffering, everybody pulled up their parachutes. They’re like, “oh, wait, we got to really concentrate on what we do best and we need to pull in all these other investments.” For us, this is great because, as an expert VCs, this is where we play, this is what we do the best: we can evaluate companies, we can help them, and the ones that shouldn’t get funded, don’t get funded. And so, we have a space that is high quality because as these companies get funded they exit and then you have a nicer thread, as opposed to this massive mix of threads that we had in the past few years. That’s going to result, just like in similar categories  in a lot of companies exiting in the next six to nine months, and I’m not saying exiting into M&A, I’m saying going out of business, because now they don’t have all this extra cash and investors who aren’t looking at their KPIs. Now you have investors like us that are saying, “if you don’t meet your KPIs, it’s not funding you. You have to do what you say, versus before, where it was like, ‘I’ll just make up a number, if I don’t hit it, nobody cares and I’ll still get funded.’” And so, we’ll continue to see a market adjustment in the next six to nine months.

For us, as an investor, we’re seeing these other investors come up, non-generalist investors, and now that is resulting in the stabilization of the market, which is what we want. This is, again, what we play the best. And so, we expect the category to continue to grow at the pre-pandemic level. What happened in the pandemic is that everybody was home, really concerned about health, they’re like, “if you’re obese, or have chronic diseases, you have worse outcomes if you contract COVID, so this is my moment to get healthy. Let me try all these products.” And so, the category grew 40% year on year, which for food is crazy, that’s a lot of growth for food. Now we’re seeing a, “wait a minute, let’s go back to good growth, really great, sustainable growth, and not this crazy, breakneck speed growth.” So, now we’re seeing these categories continue to stabilize, frankly. Are we super concerned? Market adjustments are never not painful, they’re always painful for everybody, but I do think that sometimes you need those things to happen in order to have sustainable companies that will withstand the test of time. We’re trying to help build the next General Mills; we don’t want a flash in the pan, we want a company that is built from scratch, delivering their numbers, solving a real consumer problem, delivering on price. We want a company that has those fundamentals, not companies that don’t really have all those fundamentals and are still getting funded.

VN: Let’s talk a bit about your fund. You said you have three funds total, so what’s the size of the one that you’re investing out of now? How many investments do you make in a typical year? 

LF: Overall our AUM is $90 million. And we look at between five and 700 companies a year and, of those, during the fund timing, we invest in about 15. So, we are incredibly picky as to what companies we look into and we invest in.

VN: So what does that come out to in check size and where do you invest in terms of series? I know the changes quite a bit, like what’s a Series A, what’s a Series B, but where are you on that spectrum? 

LF: Our sweet spot is the early stage and that can manifest as pre-seed, seed, or Series A; anywhere in that spectrum. We typically invest around $1 million with follow-on capital reserves, and that is usually about half of the round when the companies are raising capital. 

VN: If you’re investing from pre-seed to Series A, obviously there’s quite a bit of difference between those companies at those different stages of their life. For a pre-seed company versus a Series A company, what traction are you looking at? 

LF: Pre-seed for us is, are you solving a real consumer problem? I’ll give you an example: we got into a space where all kinds of different categories were coming up with new innovation and they weren’t necessarily solving a problem. They were just like, “hey, I made this plant-based product. Now, instead of this, I made it without animals included in it.” But are you solving a problem? When you think about beef, across the board people are like, “beef is unhealthy.” If you are older and going to the doctor, you have high blood pressures, what do they tell you? To stop eating red meat. So, in general, meat has just negative halo and people understand that if it’s plant based it’s going to be healthier, or at least they assume that. So, there’s a problem that you’re trying to solve; they’re trying to eat less red meat, they don’t want to stop eating it because it’s delicious, but they want to stop eating it because it’s hurting them from a health standpoint. And so, for you to come up with a product, you’re solving a problem. But now let’s talk about seafood: if you’re eating seafood typically it’s because you think it’s healthier for you. Seafood has a health halo already, so you can come up with a plant based product and say, “Hey, I may be seafood with plants!” So? (laughs) What problem are you solving? There might be five people that are like, “mercury and microplastics and overfishing,” but that’s not the majority of people. You have to be solving a real consumer problem and if you’re not solving a real consumer problem, your product is not going to sell. It doesn’t matter how delicious it is, because people are not looking to switch. Now. If you tell me, “hey, now instead of salmon only lasting three days in your fridge, and now it’s bad after you spent $20 bucks on that, now we’re giving you a plant-based salmon that looks the same, tastes the same, but you can keep it two or three weeks.” Okay, that’s a problem that you’re solving for me, because that is an issue in my household. You have to be really tied to the consumer’s needs. And so, in pre-seed that’s our number one go for. 

Number two is what technology are you using or leveraging to solve that problem? Is it because you figured out how to make it using cellular agriculture? So, you’re making the same exact product but you’re making it with no animal involved? Okay. Or is it that they used precision fermentation, and now you can launch this product 20% cheaper than the other product? Okay, that’s fantastic. There has to be something that gives you a competitive advantage, not only because there’s a problem, but because your solution is significantly better and it’s driven by a way to make that product quicker, faster, better repeatedly in smaller batches so you can have it in your home, whatever that looks like. So, that’s a big pillar that we look for. And then, finally, but equally important, who’s your team? Do they have experience? Have they done something like this before? Are they able to raise capital? Before it was like, “are you able to get people interested and to come to work for you, the highly talented people?” and now it’s like, “how do you even convince that investor to give you money, because it’s such a difficult world right now in terms of capital.” And so, if those elements are there I can take a look at their process and say, “based on my experience, this could scale,” or, “based on my experience, there’s no way in hell this is gonna scale.” They’re making it out of this teeny, tiny lab or commercial kitchen and once you try to put that in commercial equipment it’s going to take you a lot of money in capex, so we add that layer of our experience. And then that becomes a really interesting winning proposition for us.  

In Series A, now you have to have some real traction. Now you need to have volume, you need to have turn data, you need to have repeat data, we need to understand that you can survive in the marketplace competing against not only the product you’re replacing but other replacements out there, and you need to show us that this product is preferred. You have found the perfect solution for that consumer and you’re able to deliver on that in all the ways. So, for us, those are the main triggers that we look at. Obviously we do very in depth due diligence but those are the first things that I think about when I look at a company. 

VN: If you want to see traction by Series A do, you actually have like a minimum threshold for ARR or whatever metrics there are? Do you actually have a minimum that you want to see? 

LF: We do, but it really varies by category. So, for example, we have a company called Numilk and they have figured out our proprietary way to make non-dairy milk products with high fiber, high protein, and with almost no processing. The way that they did this is that they created this machine, so it was more equipment innovation, and so they had to be able to get into a store to have people come and use this machine; just like the orange machine inside grocery stores where they make orange juice, the same concept. And so, when we started looking at that, we knew that the category only sold three SKU per week per store, that was average for the category, while this equipment was selling 10 times that per SKU per store. So, now you’re looking at a category where if you think about it, “well, our product is only selling three a week,” that sounds like a very small turn, but for the category that was average. And so, we do need to see some level of category benchmark data, and then consistent execution and deployment above that category data to prove that you are going to be growing the category, which is a very strong retailer story. And, number two, that you’re better than anybody else within that category. So, Numilk was able to prove that they could 10x the category average; they were pulling people from other categories because of this concept and this product was so interesting. But it varies by category.

VN: You mentioned the team earlier, so what do you want to see from those entrepreneurs? What are the intangibles about that person, that CEO, or that founding team, that make you want to invest in them?

LF: It’s really important, definitely, that they bring the right skill sets to bear because a lot of early stage are about knowing where the shortcuts are. Do you know the game Chutes and Ladders? If you think about that as your entrepreneurial survival map, if you don’t have experience in the area that you are in, you’re going to take the long way around; maybe eventually you’ll make it but you’re burning cash every day. But if you have somebody with experience and the right people to pull on and talk to you, then they know all the shortcuts in there, they can get to the top of the board really quickly and you need that at an early stage because every second counts. It really does, especially now. Every dollar counts. And so, I look for entrepreneurs that definitely have related experience and have done this before, something really similar, that have a really strong network that they can rely on. I love people that know how to leverage and engage other people. 

I’ll give you an example: I have an entrepreneur, we didn’t end up investing in his company, but we were having coffee and he was telling me what he was doing. And he said, “Here are the three challenges that I’m facing. I’m facing this, this and this. Do you have anybody that you think would be a great person to talk to?” And I did, I connected him to those three people; that’s what I want, somebody who knows how to leverage the network. I mean, their product didn’t end up being what we were looking for but he definitely had that type of mentality of, “we will leverage the heck out of my network and your network, we’ll leverage everybody.” 

An ability to really motivate and inspire others is really important. I mean, we’ve seen a few companies that had a great entrepreneur but could not get anybody to join him and leave the really big jobs. He was a great worker, but he wasn’t able to communicate and excite others with his vision of what this could be, and that’s so important to be able to do. And then, nowadays, I would say, continuing to be even more important, is your ability to convince investors that this is the bet that they want to take. Everybody has their purse clutched to their chest right now, everybody, so you’ve got to gingerly be able to take it out so they can invest in you. So, being able to convince investors that the risks are manageable, that they have enough proof points, that they’re going to use every dollar to their maximum possible level, is so important. Let me give you a random example: we have a company that we talked to, and the entrepreneur, within the due diligence, shared that he wanted to take a two month vacation because fundraising has been stressful, and being an entrepreneur is a stressful job. And so he wanted to do some deep thinking, and he wanted to take two months off. Obviously we were like, “what?” but he got funded, not by us by other people. So, that’s just like an example of how crazy this market has been. Now, if they’re taking more than a weekend off investors are bristling already, like, “where are the dollars going to?” And so, being able to attract investors is very important. Being able to accept and understand feedback is really important as well. 

VN: Since you’re in the early stages, I imagine part of your job is to get them prepared for that next round. So how do you do that? How do you make sure that they’re in the right position to get that follow on round?

LF: I think about the process between rounds as building a bridge from both sides. They’re building a bridge from their side and hopefully you will get to the other side before you need to cross it. That’s the whole idea. So, what do you think about when you’re building a bridge? Well, you need to understand what the distance is and what you need? What supplies do you need? How long does it take? What’s it going to cost? What are the key elements of dates you cannot miss? So, for us, when we’re preparing entrepreneurs, we ask exactly the same questions. “What revenue do you need to hit so you can continue to get a higher level of valuation? And what is the marketplace telling us right now about that valuation? Well, the marketplace is saying valuations are here, and based on your revenue the math is not going to work. You need to be able to deliver this then, or you need to be able to deliver this, but these three proof points that investors can draw a quick line to.” They have really clear KPIs that are going to get them to those key proof points that then de-risk the investment for the next group of people. They need to be establishing those relationships with the other side, somebody who’s working on preparing the other side and then you keep them involved and engaged. And, most importantly, they need to make sure that they’re hitting those numbers. As a matter of fact, before this conversation, I was talking to an entrepreneur we’re looking at and she had mentioned that she thinks she’s going to go from $30,000 a month to between $500,000 and $600,000 a month by next year. So, we’re like, “okay, you know if you don’t hit this, the company’s going to suffer? There’s some real consequences to not hitting your numbers. So, I want you to do a really thoughtful exercise to say, ‘here’s what I know. I know I can get here, so here is what I’m going to do to get to here and if that doesn’t work, here’s what I’m going to do.’” You have to think about all those things beforehand, because you’re balancing cash against that progress. So, it’s really a constant conversation of making sure that you understand where you’re going, what you need to deliver to get there, that you’re talking to the people on the other side so when you get there they’re ready, and that you’re also very conscious of what you’re promising. So, you’re not promising a bridge that you can’t deliver because then what happens is you’re going to fall in the water. 

VN: Seems like the best thing to do would be to manage expectations. To say, “I’m going to hit this number,” and then you go over, and that’s a good thing,  But you don’t want to hit the mark too low either, so you want to have the middle ground that is reasonable, but that you could probably overshoot correctly.

LF: Correct, but you’re coming from years where over-promising didn’t have any consequences. Sometimes I would have entrepreneurs come to me and say, “I’m going to go from zero to $10 million in sales in a year.” And this is food; there may be some categories that could do that, but not in food. I have never seen it happen in my entire career in food. Doesn’t matter what product you have because food is an actual product. You need distributors, you need manufacturers, you need brokers and retailers. It’s got all these steps and it takes a while to set it up. And so, I’m like, “You’re not going to get to $10 million,” and they inevitably did not get to $10 million, but there were zero consequences. So, now we’re seeing this entrepreneurs’ mindset of where they were serving what they saw VCs wanted, which were crazy, high numbers, exciting, amazing pie in the sky numbers, into what you’re saying, which is, you’ve be inspiring me that you’re having aggressive growth, but don’t over promise because if you can’t deliver, again, there are really big consequences.

VN: Talk a bit about your differentiation. You talked earlier about LPs and what your pitch is to them. Is there anything else you want to add to that?

LF: The two most important pieces that we emphasize is, number one, everybody eats. This is the largest market in the world, in terms of the size of it, because we have so many people constantly eating multiple times a day and that’s only going to go up. So, from a TAM, it’s gigantic and it only is increasing. So, that’s something that LPs are really excited by because it’s not only a fact that, yes, the food system is  a great place to invest, but it’s, how do you invest in the food system when you have a constellation of things that are exploding into a star? You have generational shifts, you have governments and public figures really trying to find a better solution. So, you already have all these tailwinds that are helping the category, and you have a category that’s only going to get larger, and then it’s gonna get only more critical for us to have a better system. And then, at the same time, you want to make sure that you have the right team to evaluate opportunities, because it is a difficult system, it’s a difficult space. And so, it can’t be like Peter from the street who has investment banking experience, he’s not going to be able to evaluate companies, so you really need to make sure that you have, even from a fund standpoint, the right people sitting in the right seats to evaluate these companies and pick the wheat from the chaff, if I may make food pun. 

Also, because the food system is such a big driver of environmental change, it doesn’t matter how many Teslas you put on the road, it really doesn’t. If you cannot fix the food system, all the other things that we’re putting into place will not be enough; to deliver on our climate goals, we have to update the food systems. So, you have a system that already is such a big driver that compensating by improving other spaces is not going to be enough because it’s only going to get bigger and worse. That creates an investment opportunity where the largest problems are where the largest venture opportunities are. That’s our thesis and our conviction for the space. 

VN: What about for entrepreneurs, what’s your pitch to them? Obviously, the best companies have a lot of options, they can go to a lot of different firms. So when they come to you, what do you say, “This is what I can offer you, this is why you should take my money”? 

LF: We have such a robust team internally, so if you have any manufacturing or operations questions, you come to me. That’s a very weird, I guess, and unique skill set that 99.99% of VCs in the food system don’t have; they tend to rely more on consultants and experts. I literally have conversations with my entrepreneurs on a weekly basis and on a daily basis, depending on what’s going on, as they’re evaluating co-manufacturers and manufacturing opportunities, how do they scale, cogs. All that stuff, that’s my jam, that’s what I did in my previous life. Being able to understand how you scale food is one of the biggest risk factors in this space. So, if you have a VC group who can help you de-risk that and make sure that you find those shortcuts on the Chutes and Ladders board, it’s worth its weight in gold, because everything else you can figure out. You can figure out how to market it, you can figure out this and that, but manufacturing and operations are really difficult to figure out. 

The second piece is two of four partners are previous entrepreneurs that excited companies themselves. Sometimes a company will come to me and say, “here’s a real issue that I have with the operation of the company itself, talent, training, etc.” and we have two members of our team that have already held the bag and done the same. They’re spoken to the investors, they’ve actually done this themselves, and they can have actual practical advice versus philosophical advice, which would be what I would give them. They are able to say, “here’s what we did and we failed here and we succeeded here, don’t do this, that’s a black hole, do this.” And then the final piece is, because we have such expertise in the space, we know where all the wells, ditches, and bridges are. We know not to partner with this broker and this group, but absolutely talk to that distributor because they’re absolutely wonderful. We know who you should call to talk to Whole Foods and their investment team, etc. We just have this Rolodex that’s incredibly relevant for the areas that they’re in and it’s very specialized. Many times an investor’s Rolodex is more generic because we’re investing in different categories and different things, versus us, and we have exactly what you need, because we’re hyper experts in this space. 

VN: You mentioned a couple of companies that you’ve invested in. It’s always great to hear about the companies that you put money into, and what was it about those companies that made you want to invest in them.

LF: Some of the companies that I’ve been most excited about have been able to find the intersection between leveraging incredibly exciting technologies, and applying them to food. So, cellular agriculture is an area that’s super interesting and exciting and I don’t know if you already saw that Upside Foods just got the approval from the FDA to continue moving through the steps, which is a huge step to getting this on our plate. And so, we see companies that are leveraging technologies; for example, a lot of the technologies in cell agriculture come from the medical field, because the medical field has been working on technologies to use one of your cells to replicate skin for you. So, if you go through a terrible burn, you can grow your own skin versus your own body trying to regrow it, or you getting grafted with somebody else’s skin. Or if you need a kidney, and there’s so many instances where the transplant gets denied because it’s not really compatible, but what if you can literally grow your own kidney from your own cells? The medical field has been working on this for a long time and continues to make great improvements. Well, at some point, somebody realized, “hey, if we’re using cells to grow muscle and tissue and other body parts, why couldn’t we figure out a way to make food? What is food If it’s not a combination of fats and muscles on minerals?” All that you can grow in a lab, just like they’re growing it. Then, how do you think about the applications of different food types, so then we can eat the foods that we love, but just don’t love the other elements within it? So, we’re really excited about that as a potential game changing category that really can feed us the products that we have grown up knowing without all these negative externalities and baggage. That we can continue eating them without really causing so much damage to the Earth. So, we’re super excited about that and I really love the application of grabbing technology from other fields, leveraging their learnings and their grants and all that, to then find that shortcut on the board, as they have done. 

The second piece is, I’m really excited about companies that are looking at completely new applications and new technologies to make food better, faster, cheaper, more nutritious. Proficient fermentation, wet fermentation are two technologies where you literally can grow food with fungi or other measures that are very healthy, taste amazing, grow very cheaply, because you can use all kinds of different inputs that are not expensive, and can be done from anywhere. So, just how do you use human ingenuity? I mean, part of our human ingenuity has gotten us to this place; we’ve figured out how to make things very cheaply, but didn’t really consider the other implications at that point. How do you human ingenuity to really figure out technology and leverage technology to figure out how to feed ourselves? That’s what comes from, like with Numilk, a physical piece of machinery that can make this better, all the way to using AI to map out really cool plant protein so then if you want to make a delicious gouda that uses no animal products, well, AI has been able to map all kinds of different plant proteins so you just need to mix this plant protein with this plant protein. So, just the advent of technology is like nothing we’ve ever seen in the past. It’s v2. 

VN: You obviously made a career transition going from being an executive in the food space to being a venture capitalist. I imagine that there were quite a bit of learnings that had to happen.  So, what are some of the lessons that you’ve learned in that transition?

LF: Having the right people in the right seats is important, even within our own funds. Our last partner that we hired, Johnny, who’s now our equal partner, comes from a more traditional venture capital background. He has a lot more experience with due diligence and financial modeling, and just some of the nuts and bolts that the other three partners were missing. I would do this fantastic job, if I may say so, at evaluating the operations and manufacturing technology, our other two partners would do a great job of evaluating the team and the operational beats. But when it comes to financial modeling, and what financial points they need to hit and really looking at those assumptions, and making sure the cogs make sense, all that stuff, we were finding a way through it. So, having the right person in the right seat with the right level of experience, we found the shortcut. Now, all of a sudden, it’s like, boom, seamless, we have that pillar holding up our process. 

As an investor, a few of the things that I have learned with our failures, because you can’t be VCs without failures, has been, and this goes back to our discussion on the team, I have tried some products that are mind blowing and I’m like, “I can’t wait for humanity to try this. This is an incredible product, this is delicious,” but they had the wrong team. They managed to kill it every single time, it doesn’t matter how good the product is. That’s a really hard experience for us to learn as VCs, because we’re very product first, that’s what the market is going to see, that’s what the world is going to see, and if you don’t really have outside conviction on the team, no, don’t do it. (laughs) It does not work. It does not map, it just doesn’t. So, that was a really painful experience for me as a new venture capitalist. 

Also, getting into really tough categories without having that clear competitive advantage that I mentioned before; I mean, we’ve invested in companies that sounded really good to us, all the right elements were in place, but the market was saying something different. It wasn’t quite hitting what the consumer sweet spot was and so they never quite took off. So, really making sure that we’re understanding that market that they’re trying to disrupt very clearly, and we understand what the problems are and we can see proof points of them having found that solution also is very important. So, we have, over time, gotten so much tougher; they have to prove to us that they are solving a consumer problem and pinch point and that their solution is optimized to solve that. At small early stages, you do that on a small scale, but having companies and entrepreneurs who are laser focused on who they’re trying to reach is so important. If they tell us, their target and who they’re designing for is “everybody,” then you’re like, “Okay, that’s not going to work.” That literally never works. You have to have a very clear target consumer; it doesn’t mean nobody else buys you but you have to design for somebody’s needs.

VN: I have heard that from other VCs that I’ve spoken to where they will say that an A team with a B product is better than a B team with an A product, because they won’t know how to sell it, basically. 

LF: They’ll bumble it every time, unfortunately. You’ll have to have outsized conviction for the problem they’re solving, the solution they have, even if it’s not a perfect solution, we know you’re gonna iterate but a meh team, it does not work, especially in this environment. Their numbers are off, they cannot leverage their own network to pull themselves out of the water, and they don’t even know that they’re thrashing in the water. That’s part of the problem, too. 

VN: What’s the part of the job about being a VC? When you go to work every day, what motivates you to do this? 

LF: I know, it sounds really cliche, but it’s really doing a job where the products and entrepreneurs that we’re supporting mean something to the world. They will have an impact on the world, like true impact. I sometimes chat with other VCs, and they are all kinds of really cool categories, but they just make life a little bit better, it just doesn’t cause a massive shift in emissions and water, while this category does. I know that any product that goes out there, that really does solve customer problems, or is really extraordinary, will significantly affect what climate change results are going to be. If we can continue layering that cake and continuing to put these categories on every market, not only are they going to have an outsized impact, which is what helps me sleep at night, but also it’s going to have an outsized impact on people’s lives, like their health, how they’re going to be able to age gracefully without having 25 pills. I read this quote the other day that the average American, by the age of 63, is taking between nine and 13 pills a day. I’m not talking about supplements and stuff like just, like for blood pressure and for the side effects of the blood pressure medicine. A lot of that really is all these chronic diseases that we are plagued with because of what we eat. So, being able to have an impact on people’s health and lives and how much they can enjoy their lives, especially towards the latter end, that really does help me get up in the morning and really inspires me. When I find these products, and these entrepreneurs, the impact that this thing is going to make is huge, we just got to get you through this shortcut to get to the castle there on the top. It just means something and I am very lucky and fortunate to be able to do this job.

VN: Is there anything else that people should know about you or about the firm but the space? Anything that we talked about you want to get across or anything else that we didn’t touch on that you think is important?

LF: The last thing I will say is that, to us, diversity is also very important. When I started investing in the space there were only five Latina women in the whole United States with funds over $50 million, now I’m just one of eight. That you can even count with your fingers like that, it’s just not good. And people are like, “Oh, aren’t you super happy?” I’m like, “No.” First of all, that’s super sad. And second of all, what diversity of opinions, experiences, and networks are we missing? It is such a big opportunity for all of us to not only invest in diverse founders, but also to have diverse teams and to have that perspective. The perspective that I bring to the table with my partners with my background and my life story and my steps in my path are completely different, and it enriches us as a team to have all those different levels of experience.  

Our internship program, we have a partnership with the University of Puerto Rico, and we grabbed our interns from their undergrad programs, because we want to give people a foot in the door. I know how this market works and a lot of times when I asked fellow VCs how did you get into the space, it’s a lot like, “my dad’s partner, friend, colleague, had an internship job, and I got it and then from there it opened the door.” So, giving people an opportunity to get their foot in the door, getting that on their resume, is very important to us. Whether they pursue venture capital eventually, who knows, but at least somebody gave you the key and now what you do with it is up to you. Hopefully, it’ll mean that at some point, we’ll have a one out of hundreds of Latina VCs in the space.