Paul Garte, investment analyst at the investment company BonVenture, on start-ups in the organic sector, their prospects and differences to other sectors.
The Munich-based investment company BonVenture invests exclusively in social and ecological start-ups in order to support their growth financially, but also with know-how and networking. The aim is to achieve a social return for society in the long term in addition to the financial return. Three funds have been launched so far, the fourth with a planned volume of 40 million Euro is scheduled to follow in 2020.
If start-ups from the organic sector introduce themselves at BonVenture, they are often characterized by people who have a strong mission, whose motivation is often based on a high degree of ideals. When looking for investors, the question is often “Who am I working with?”, says investment analyst Paul Garte. In addition, he says, value is usually placed on a more long-term perspective.
Are there differences in financing, and if so, what are they?
The models are similar to those used for start-ups in other sectors: For example, it is about pre-financing in production, or financing of sales and brand development. Here and there, there are differences in the organisational forms; for example, cooperative models are more common in the organic sector. These business models are less oriented towards scaling and growth, in which case the focus is on the community.
What can work well is crowdfunding. Here, start-ups always face the same challenge: generating attention, gaining supporters. That’s where a “Media for Equity” swap can be interesting, i.e. the opportunity to get a budget for advertising; this is especially true for companies with end-user products. Like other start-ups, most of the companies in the organic sector have the ambition to grow. However, they are often not only interested in business growth, but also in spreading idealistic values. However, they also want to reach as many people as possible.
What can investors expect from start-ups in this industry?
The organic sector is also interesting for conventional investors who primarily focus on financial aspects. The organic segment is not a grey mouse, it will continue to grow strongly.
In which areas of the organic sector do you see the biggest opportunities?
I see a lot of room and potential in the area of transparency across the entire value creation chain: Where do the products come from, how are they produced, how are they transported, processed, packaged and stored? If you add aspects of sustainability, climate protection and social factors, a high degree of complexity arises, in which conflicts of objectives also arise. Organic start-ups can shed light on this and try to reduce this complexity. A pioneer and successful example is certainly our portfolio company Followfish, which has significantly advanced the introduction of tracking codes.
What tips do you have for start-ups in this industry?
Start-ups in general face the challenges of marketing and communication, those in the organic sector perhaps a little more. Because when it comes to reaching a larger target group in the mainstream, the added value must be communicated: Why should the consumer pay 20 or 30 percent more for organic than for conventional food? This must be resolved in terms of content. This is not only a question of budget but also of communication.
In this respect, start-ups from the organic sector should look very closely at what they do and why they do it, in order to gain a holistic understanding of the impact of their business and processes. And then they should know and understand the needs of their target group. This is the basis on which the added value can be communicated.