5 Tips For Investing In Natural Products

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Today’s consumers are demanding green and natural solutions in everything from nutrition and food production to water treatment, energy and manufacturing. Major multinationals and investors are jumping at every opportunity to incorporate natural product companies into their portfolios.

Two recent Canadian examples come to mind: Inocucor, the developer of natural products to improve crop yields while replenishing soil, raised $50M by a syndicate led by Desjardins; and Daiya Foods, a producer of dairy alternatives, was acquired by Otsuka for $405M.

With exploding global populations and depleting natural resources, this trend is not likely to go away any time soon. So how can investors participate in the natural product opportunity?

Natural Products Canada talked with some investors and entrepreneurs* in this growing space. Here’s five of the key takeaways from that discussion.

  1. Expect different timelines

Hands down, the biggest difference between investing in natural products and sectors like software is the time it takes to see a return. Innovative natural products can present big opportunities because they offer new solutions to problems. Case in point: Chinova’s natural preservative or BioTEPP’s biopesticide. But commercializing that innovation takes time because they face somewhat lengthy processes like getting regulatory approval and obtaining a first customer to try the product. So how do you tackle that? See tip #2.

  1. Look for involvement of strategic investors

Because the business life cycle is different, it’s helpful to see strategic investors involved in the play. Chinova, for example, looked at the food and beverage industry and modelled their company after other successful businesses in the sector. This paved the way to their relationship with DSM Venturing, who recognized the need for this innovation among the big multinationals, saw the potential in the company’s technology, had the patience to wait for the return, and ultimately became the lead in Chinova’s $2M seed round. Chinova also had the nod from NPC, which gave other investors confidence that they were receiving strategic advice on manufacturing, HR and overall business planning.

  1. Invest in the team, not the product

Although true for any sector, investing in the team is especially important in the natural product space. Many investors don’t come with a full background in the science or technology behind these innovative companies so they’re really investing in the team that does.

Ideally, investors look for entrepreneurs who have built other successful businesses. But that’s not always possible so investors need to watch for evidence that the entrepreneur has a sound business plan, seeks (and accepts) advice from industry experts, and is smart about how they focus their team and their time.

  1. Beware of ‘technology tweakers’

One trap that many innovation-driven companies face is the constant desire to tweak the technology. This can waste time and resources on changes to the solution without any real input from a customer. A smart entrepreneur finds a customer early, and brings them along for the development journey, ensuring that real customer needs are being addressed in the resulting product.

This shouldn’t be confused with adopting efficiencies. BioTEPP, for example, has successful products on the market yet is exploring advanced technologies to help increase productivity and profitability, as any competitive company should.

  1. Understand the space

Investors need to be aware of the unique timelines, requirements, business models, and deal structures involved in these innovative industries. They should talk to other investors (like the ones mentioned in this article) who have been involved in similar deals. And they should seek out the support structures and organizations (like NPC) that can provide experienced input and partner on the deal to help de-risk the investment.

*Condensed from the panel discussion: Technology as a Catalyst for Naturally Derived Products and Materials, held at the NACO World Angel Summit, Sept 26, 2018 in Toronto. Special thanks to all the participants.

Moderator: Shelley King, CEO, Natural Products Canada

Panelists:

Andy Wilkes, Partner Tech North Inc.

Pieter Dorsman, President & CEO, Redpeaks Management Inc.

David Gauthier, VP Investment, Natural Products Canada

Natasha Dhayagude, CEO, Chinova Bioworks

Pierre Laborde, VP Finance, BioTEPP

 

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