Investors across our consumer, enterprise tech, and healthcare teams shared their industry outlooks for 2024. What shifts might we see unfold in the new year? Here’s what they anticipate.

Celebrity endorsements will lose influence on increasingly skeptical consumers

Sonya Brown, General Partner, Growth Equity

“Celebrity endorsements alone will no longer win consumers’ beauty and skincare dollars in 2024 – products will need to be backed up by proof. In a sea of content, consumers will seek out facts, experts, and verifiable claims to make buying decisions. Brands and services that focus their GTM strategies on licensed experts and their products’ clinical proof will come out on top.”

Read more from Sonya on the trends behind the growth of clinical beauty and skincare.

Versatile clothing will further blur the lines between office and home wear

Jon Kossow, Managing General Partner, Growth Equity

“As employees straddle hybrid work environments, so too will their wardrobes. In 2024, we’ll say goodbye to “work clothes” and see a shift to more casual, comfortable, and versatile attire which will remove one barrier for people returning to the office.”

Read more about our partnership with Vuori, as told by Founder and CEO Joe Kudla and Jon Kossow, Norwest Managing Partner and Vuori Board Member.

Science-backed products will help revive the consumer vertical

Lisa Wu, Partner, Consumer

“Science-backed health and wellness products will help revive the consumer vertical. Health-conscious consumers are seeking voices of authority and efficacious products supported by scientific evidence. This will create new opportunities for doctors-turned-founders whose deep expertise and knowledge-sharing have earned them devoted audiences in the creator economy. The trust they have built with their communities will translate into cost-effective customer acquisition, strong customer lifetime value and strategic product development opportunities that culminate in robust, efficient businesses.”

Watch a fireside chat between Lisa Wu and Ritual founder and CEO Katerina Markov Schneider where they discuss how the traceability-focused multivitamin brand became a category leader.

AI-generated music artists will go on tour

Scott Beechuk, Partner, Enterprise

“In 2024, we will see AI-generated music artists and performers go on tour, interact with their fans, and hold press conferences. Concerts will begin in small formats and grow to stadium-level venues. Fans will follow the AI artists and promote their music via social media and entire brands will be created based on AI solo artists and bands.”

Read Scott’s article in Fast Company on how generative AI can unlock musical innovation.

Enterprise vendors with an AI-oriented framework will win out

Dave Zilberman, General Partner, Enterprise

“Enterprise infrastructure vendors that employ an AI-oriented framework, particularly accounting for security, privacy, and operational cost will be best positioned to maintain and expand their customer base. Enterprise customers will prioritize vendors that adhere to enterprise operational best practices.”

Read more from Dave on everything it takes to build a successful open-source software company.

Companies innovating on legacy software will be more competitive

Sean Jacobsohn, Partner, Enterprise

“The generative AI boom has forced every department to scrutinize their technology investments, particularly in areas like finance and supply chain. At a time when every dollar counts, budgets for inefficient, outdated technology are on the line. Companies innovating to replace or consolidate clunky legacy software will be more competitive in the 2024 market than those creating a new category.”

Read more about Sean and his partnership with Spiff, and watch him talk about the opportunities for next-gen SaaS companies.

Biologics will become more accessible and start to push out small molecules

Tiba Aynechi, General Partner, Healthcare

“Biologics have shown tremendous promise in improving patient outcomes by offering more targeted treatments with fewer side effects and drug interactions—but delivery, high production costs, and storage requirements continue to pose barriers to entry. With new platform technologies, better supply chain optimization, and more favorable pricing environment compared to small molecules due to the IRA, drug innovation could shift further towards biologics versus small molecules.”

Learn more about Tiba and the investors who’ve brought more expertise in life sciences to our healthcare team.

Neuromodulation will be the answer to scaling pain-management therapies

Zack Scott, General Partner, Healthcare

“As the market looks to scale alternative pain-management therapies, investment in neuromodulation will continue its upward trajectory. Chronic pain conditions are only going to increase with aging populations, and the opioid crisis has reinforced the need to scale more sustainable ways to manage this endemic problem. This area will expand and evolve with the growing total addressable market.”

Read more about Zack’s perspective on addressing poor healthcare workflows and his recent investments in SetPoint Medical, Vertos Medical and Cytovale.

Gen AI will hit Main Street in a big way

Edward Yip, Partner, Consumer

“Generative AI will hit Main Street in a big way. More small and midsize businesses will use it to create websites and content, automate marketing and operations, and streamline customer support – which will drastically drive down their cost curves and increase profit margins.”

Read more on how startups can navigate the promises and perils of generative AI.

Read our reflections on 2023, a year defined by community.

The post What’s In Store For 2024: 9 Norwest Investors Share Their Industry Outlooks appeared first on Norwest Venture Partners.

During the first half of 2023, prestige beauty sales grew to $14 billion, representing a 15 percent increase over the prior year. Within the prestige skincare market, face serums, body sprays, and facial cleansers were the top gainers. Clinical skincare brands accounted for the majority of sales gains through the year.

Three impactful trends are behind the growth in clinical beauty and skincare:

1. Products that offer an effective solution to a specific problem. Often, the goal is not to cover up one’s appearance but to improve or solve whatever concern they may have. Younger consumers are entering the category searching for preventative treatments, while legacy consumers are continuing or ramping up their treatments as they age.
2. Consumers who want faster, science-backed results. They crave results they can see and are faster to trust the credentials of clinically proven brands. At the same time, they’re moving across the spectrum from topical care, to non-invasive procedures to plastic surgery over time.
3. Customers who value ingredient transparency, honesty, and customization. According to McKinsey, nearly half of Gen Z conduct extensive research on product ingredients and their benefits before purchasing, similar to millennials. As consumers gain more knowledge, they’re looking for guidance from licensed experts and seeking out products and ingredients that are backed by science.

Norwest Has Deep Experience in Clinical Beauty and Skincare

At Norwest, we focus on problem-solution brands. Imagine a customer with “in your face issues” like acne or dark spots. Instead of clicking on a pop-up ad on Instagram, they are more likely to search for a solution that’s backed by science and has verifiable claims. And once they find a solution that works, they’ll spread the word to their friends. Word-of-mouth buzz is an important contributor to growth and profitability for companies in this space.

PCA Skin was one of our earliest investments in this field, more than 10 years ago. It was at the forefront of the trend toward clinical beauty and skincare. Known for its lunchtime peels, they were driving real results with little downtime. From initially serving individual aestheticians, it expanded its distribution channels to doctors and medspas, adding new products and clinical research along the way. PCA Skin became one of the fastest-growing skin-health brands in the physician and aesthetician markets when we sold it to Colgate-Palmolive in 2018.

More recently, we partnered with Face Reality, which developed a skincare line that targets acne and partners with aestheticians to train and teach results driven protocols. With frequent visits to your local Face Reality aesthetician and use of at home Face Reality products, most customers see visible results in just 90 days. In addition, it recently launched two supplements, which is another product category we think will expand over the next five years.

Consumers also seek these clinical-level products in traditional sales outlets. Maëlys, a body-sculpting cosmetic brand, anticipated the evolution of anti-aging treatments for the face to other parts of the body. As facial skincare has become part of daily routines, many consumers have naturally taken the next step to applying the same care to their bodies. The brand leverages powerful, authentic before-and-after images to drive sales on Maelyscosmetics.com, Amazon, Ulta and Shoppers Drugmart in Canada. Another Norwest portfolio company, Forum Brands, owns Trilastin and Nuvadermis, which serve customers with scars and other conditions involving skin texture. Amazon is another place consumers increasingly go to start their search for solution products.

Lastly, people are rapidly increasing spend on beauty services, particularly neurotoxins, fillers and other injectables. These services are typically performed in medspas by licensed professionals. While there are an estimated 8,000 medspas across the U.S., over 80 percent are single-location, owner-operated. This surge in demand requires these medspa owners to scale their business, update regulatory oversight and streamline their operations. Aesthetic Partners, a Norwest portfolio company, helps leading clinics navigate these challenges. The company assists with opening new locations, hiring and training new injectors and improving margins. Aesthetic Partners operates 17 locations across 5 different brands, including a recent partnership with Columbus Aesthetics and Plastic Surgery (CAPS).

All the companies in our portfolio either emphasize the science, education and training, or testing behind their products. For example, PCA runs a Skin Academy to train providers, while Face Reality requires providers to complete their proprietary certification course that educates them on how to incorporate products into treatments customized to individual client’s needs as their skin heals and changes.

Demand for Clinical Beauty Driven by Dynamic Market

The market for beauty products is broadening and we see even more opportunities for independent players in the space. Younger consumers looking for preventative products are more willing to spend a larger share of wallet on health, wellness, and personal care in general. They’re also not shy about discussing their use of products and services, especially over social media. In addition, men are becoming a significant part of the market. Not to mention, the widespread use of Zoom (and the constant viewing of oneself on camera) has prompted many people to think more about their appearance and buy products to enhance it.

Because providers employ multiple sales channels, they are able to optimize the customer experience. PCA Skin and Face Reality both built their brands through professionals, with whom they build strong relationships through training, support, and customer referrals. Maëlys has a direct-to-consumer model that offers a high degree of specialization to match products with individual customer’s goals.

Large segments of consumers have become accustomed to buying products online and applying them at home. In many cases this leads to greater interest in the potential benefits of on-site services such as those provided by medspas and aestheticians. Significant opportunities exist for “markets of one”: products that are customized for knowledgeable customers who have well-defined criteria for ingredients and expected outcomes. Finally, there is potential for new delivery models: at-home sales (perhaps supplemented by video demonstrations or 1:1 guidance) and hybrid business models blending home and salon experiences.

How Clinical Beauty Brands Can Maximize Their Valuations

Clinical beauty is a fast-growing sector in the personal-care industry, creating numerous opportunities to introduce new products and different approaches to an expanding market. How can leaders and entrepreneurs in clinical beauty and skincare seize these opportunities? Here is our advice.

• Focus on a specific customer pain point. Orient your product or service around a known problem for which a large number of consumers are seeking a solution, and for which current approaches have disadvantages such as price, ingredient quality, or efficacy.
• Address discerning customers’ primary concerns and motivations. Customers are smarter than ever and demand to know exactly what’s in the products applied to their bodies. Provide clear explanations of all ingredients as well as evidence in support of purported benefits. For on-site services, give customers confidence in the capabilities and expertise of providers. Understand reasons for customer churn. How many are unhappy with the results? How many are unhappy with their provider experience? The answers to these questions are key to charting the right course.
• Pay close attention to the labor market and employee retention. We continue to see labor shortages in selected occupations within the beauty sectors. Some providers are building relationships with training schools to hire qualified personnel. Many are investing in additional training and ongoing education to boost employee retention.
• Stay ahead of the evolving regulatory environment and clinical beauty trends. Many states are changing their regulatory approach, strengthening requirements for licensing both businesses and individuals. Companies pursuing a multi-state strategy could be impacted by different regulations among states. To capitalize on trends, beauty brands should consider partnering with credible organizations and influencers for their go-to-market strategy. For a recent example, look no further than Maëlys, which recently partnered with a dermatologist influencer to promote their newly launched serums.

At the core of clinical beauty is the conviction that products should lead to visible improvements in appearance. Clinical beauty is blurring the line that previously separated the health and beauty markets. Today, a growing segment of consumers are scrutinizing the quality and efficacy of beauty products that go on or under their skin.

The post Clinical Beauty and Skincare: A Booming Business Backed by Science appeared first on Norwest Venture Partners.

Insider’s VC and Startups reporter, Stephanie Palazzolo, moderated the event. The panelists were:

• Richard Socher is the founder and CEO of you.com, an AI-powered search engine. Richard has also been an adjunct professor at Stanford University and a Ph.D. student at the university. Their research interests include deep learning, machine learning, natural language processing, and computer vision.
• William Ballance is the co-founder and CEO of Lavender, a real-time email assistant that combines data science, psychology, and artificial intelligence to help users write emails that get more replies in less time.
• Weiping Peng has more than two decades of experience building platforms and applications, with a focus on bringing bespoke and highly scaled AI solutions to production. Currently, at Airbnb as a distinguished engineer, she is focused on enhancing the Airbnb platform with the latest advances in AI technology.

Below are excerpts from the webinar:

The Rise and Democratization of Gen AI Holds Significant Promise for Startups

SP: As Generative AI has become more mainstream, how have you seen the demand and interest change?

RS: I’ve been involved in natural language processing and AI research for many years, and to now see this crazy moment where everyone knows about it — this inflection point feels incredibly exciting. It’s been a massive change for us. You.com has been around since late 2021 and has grown reasonably well. But since we launched YouChat and made chat the default way to interact with information on the web, we’ve had rocketship growth. It’s been incredibly fortunate timing.

For the first time, users are accepting the fact that there could be a better and different way to search the internet. Even mid last year, for a lot of users it was still too different of an experience from Google. They’d often say ‘I want it to be a little more similar’ and that has changed. And that may mean there’s a lot of opportunity now to disrupt the search engine space.

SP: There’s no doubt that ChatGPT has been a bit of a rising tide for all AI startups out there. On the other hand, what challenges are you facing selling gen AI products to enterprises?

WB: Especially since ChatGPT went mainstream, there’s been a lot of noise in the market and a lot of promises being made. Many times the buyer doesn’t understand the real capabilities of what’s currently available on the market. They think it’s this silver bullet that can do so much — and there are great things coming from these models — but there are also limitations; a lot of hallucinations; a lot of things the models can get wrong, especially if left untrained.

On the one hand, it’s really exciting to see entrepreneurs launch new products. But I also find that a lot of these are just front ends to ChatGPT. They’re putting a wrapper around this off-the-shelf technology, which introduces noise for us. A lot of really great things are coming from these models but there also are limitations; a lot of hallucinations, a lot of things the models can get wrong. As buyers understand the technology — and we’re starting to see that now — they’re able to see the nuanced differences between tools. What’s interesting is the ability to point the technology at specific use cases and build the application layer around it.

Companies of All Sizes Have Many Options for Incorporating Gen AI

SP: How should later-stage startups and established companies think about incorporating generative AI into their offerings?

WP: (I am here to present my personal views; I don’t represent Airbnb.) We all know AI can be used to solve many challenges, but many cannot be solved by AI alone. So, rushing into production with this technology could make you fall into the age-old pattern of a solution looking for a problem. And it will likely take more time than you think. How do you control the hallucinations? How do you make sure you are recording feedback?

One thing I’d recommend for companies to do is what we call a tech stack readiness check. Ensure your technology stack is ready to adopt the technology and that it aligns with your company’s vision and your own knowledge base to make sure it behaves the way you want. Benchmarking is a very important step. You should know what’s good and what’s bad for your specific use case, then do some benchmarking to validate which model is usable for you. Then you can proceed to production sites where you learn how the model is performing for your expected outcome. Without such a measure, it’s almost like you let a puppy run around the house and don’t know where it is.

One thing I’d recommend for companies to do is what we call a tech stack readiness check. Ensure your technology stack is ready to adopt the technology and that it aligns with your company’s vision and your own knowledge base. – Weiping Peng

SP: A big question for up-and-coming generative AI startups is around what model they should build. Some are building on top of a third-party model provider like OpenAI, others are using open-source models or even building their own. I’m curious to hear from William and Richard, why did you choose either approach and how should startups think about that decision?

WB: The ability to build AI with off-the-shelf models is great for entrepreneurs. The democratization of AI allows anyone to start building apps easily. With Lavender in particular, we’re able to progress so rapidly because we were early in incorporating ChatGPT. And then our space of sales emails was quite novel — there was no one really doing that. We were never replacing the salesperson, but we were able to help them write their emails over 50 percent faster while increasing reply rates. At the time, we were bootstrapped. We didn’t have the backing of Norwest. It would have been impossible for us to build an entire platform and implement gen AI within our resources. We’re fortunate that OpenAI released the API for us to use for GPT3.

The key for founders is that it helps them build faster and cheaper, which allows innovation to spread a lot quicker. Instead of spending our limited resources, time and manpower on building text-generation models, we focused our attention on text classification models for sales emails on top of our customer’s unique data. For startup founders, these new generative AI models allow them to get started immediately with very limited resources.

The ability to build AI with off-the-shelf models is great for entrepreneurs. For startup founders, these new generative AI models allow them to get started immediately with very limited resources. – William Ballance

RS: William brings up a great point. The free training of neural nets both in computer vision and natural language processing enables startups to quickly get to an 80 percent solution, and then collect training data. That gets a flywheel going of using that training data to fine-tune and improve the models. Over time we will see large language models (LLMs) and pre-trained neural nets become more like what databases have evolved into: it doesn’t really matter what database you use, it’s what you do on top of it. We’ll have to get back to the basics: how you go to market, what your distribution strategy is. Which AI you’re using might be less relevant. It’s about how you create a good user experience.

SP: That theme has popped up in a lot of conversations I’ve had around a future where your model isn’t the main differentiator, but it’s everything else that’s traditionally been differentiators for startups whether it’s distribution, go-to-market strategy or product. Weiping, any thoughts here from a technical perspective?

WB: Which AI you’re using will become less relevant. People will probably combine AIs and move their data from one platform to another. Data, not the AI platform, will provide a strong competitive moat for a lot of companies.

How Have You Approached the Ethical Quandaries Around Gen AI?

SP: How do companies use Gen AI in an ethical and safe way?

RS: There potentially are a lot of pitfalls, but in some cases, people are a little overly worried. For example, millions of people like “Game of Thrones” and Stephen King novels – where you have all kinds of horrible things – but we don’t say they are unethical to write them. I think sometimes we measure AI with a different yardstick than in many other areas.

Misinformation is an interesting issue. LLMs can write a lot of stuff, so it’s a matter of how you distribute information and how you teach people to trust it. It feels like we need to have another campaign like when we told our grandparents and parents not to trust everything they read on the internet; check their sources, etc. I think another re-education effort will be needed.

WP: We all put personal information in places we trust, like banks. So, the first thing we should think about is building trust. Trust is hard to gain but really easy to break, so I’d prioritize that over any new features.

RS: The U.S. is learning that as speech becomes easier to create and distribute, it’s pushing the very definition of speech. Different countries and cultures will have different answers.

WB: Free speech will be a hotly contested topic. Does AI itself have free speech? If I use AI to generate tweets or whatever, is that an extension of my free speech?

RS: We need regulation, not for AI in the abstract, not for models that are being researched, but for applications of those models.

WB: Over time, players will come in to detect AI and then reduce the amount of misinformation.

When we started, we intentionally had a very diverse group, engineers on our team and people around the world helping train our models. We enlisted very early on a DEI consultant to make sure we were building models that were ethical, fair, and weren’t going to discriminate.

SP: What about the impact of Gen AI on jobs?

RS: There are many repetitive jobs that feel very boring to most people, and these will be increasingly automated. I don’t think 100 percent of the job category will go to AI, but probably 100 people will be replaced with 10 people that use AI. Some service workers will say ‘I’ve already answered this question 20 times and I shouldn’t have to respond anymore to that kind of query. It should have been automated.’ Many boring jobs going away is exciting in the long term but stressful short-term.

Two centuries ago, over 90 percent of people worked in agriculture, and they would have been shocked if you told them that most will not work in agriculture anymore. You could understand how people would get scared of that future initially. But if you look back now and say ‘who wants to work with their hands every day in sun and the cold?’ no one would say yes.

So long-term I’m very optimistic; the short term, however, will put pressure on people to continuously pursue education, learn new skills, learn how to use AI and be one of those 10 percent that are 10x more productive.

Long-term I’m very optimistic about AI; the short term, however, will put pressure on people to continuously pursue education, learn new skills, learn how to use AI and be one of those 10 percent that are 10x more productive. – Richard Socher

WB: We think about how we build AI in a symbiotic way that keeps the human in the loop, because in our space (sales), it’s all about relationships. There are going to be a lot of jobs and parts of jobs that are quite redundant and monotonous that will be replaced by AI.

Our goal has never been to replace salespeople with AI, but to help them write their emails over 50 percent faster, while also increasing reply rates.

WP: AI won’t replace a human, but a human who doesn’t know about AI at all will be replaced.

Gen AI Holds Both Promise and Pitfalls

SP: When we look down the road five years, what are you most scared or nervous about, and what are the things you’re most excited about?

WB: There are going to be some growing pains in this transition, but in the end, we’ll be harnessing the power of AI to add value in brand new ways. Entrepreneurs are going to apply AI in ways that we can only dream of, and the pace of entrepreneurial innovation is what really excites me. It’s going to create a lot of innovation, fueled by the relative ease of creating new technologies.

RS: Gen AI is going to make things very exciting in the creation of art. If you want to see more art in the world, you’ll be very excited about generative AI for videos, images, music. As artistic creation becomes cheaper and faster, human judgment and fast iteration become more important. Things that will make our lives more interesting.

WP: We’re smart beings. Given a good tool like Gen AI, we will adapt and leverage it and move higher. I look forward to a lot more creativity.

The post Navigating the Future of Generative AI: Challenges and Strategies for Entrepreneurs appeared first on Norwest Venture Partners.

Dave Zilberman here with a Norwest Nowcast. I’ve spoken in the past about the transformative era of software development that is upon us and would like to elaborate.

There’s a confluence of events occurring:

1. Every organization needs robust applications if they are to thrive and differentiate. This applies to internal and external applications.
2. There’s a huge shortage of software engineers.
3. And there are rapid advancements in tools for developing software.

There’s no silver bullet for the talent shortage. Training and retraining people takes time and perhaps generations. But just as the typewriter gave way to word processing and eventually GPT-3 to make everyone a good writer, no-code development tools will make non-engineers and their companies more productive.

The democratization of software development means millions of non-technical people will soon be creating software. And if that sounds far-fetched, think how ancient it seems to hand-code HTML versus using WYSIWYG solutions such as SquareSpace and Wix to create websites.

The democratization of software development means millions of non-technical people will soon be creating software.

More to the point, GitHub’s Copilot is a strong initial step towards automating basic code through an AI assistant. These solutions will liberate software developers to focus on product concept, design, and more complex project requirements.

For start-ups, we foresee huge opportunity in building infrastructure and developer applications that leverage large language models. We’d love to hear what you think these solutions might be. Use the comment section below to share your thoughts.

The post The Transformative Era of Software Development Is Here appeared first on Norwest Venture Partners.

Our guest, Jo Zhu, a student at Stanford’s Graduate School of Business, shares our passion for this future. Jo spent 10 weeks with us focused on the many changes occurring in the space. In this three-part series, she shares how COVID has accelerated a number of key trends, insights on emerging business models, and a breakdown of the core technologies unlocking sustainability levers for the next generation.
This is part 3 of our Future of Food Blog series. You can also explore part 1 and part 2 for additional background. Part 3 focuses on the adoption of AI within the food ecosystem.

Introduction

Grocery stores that have traditionally lacked e-commerce capabilities are now finding it necessary to invest in digital distribution channels. Consumers that are shopping for groceries online are driving investment into new technologies and distribution models, such as dark grocery stores, ghost kitchens, warehouse and inventory technology, digital checkout, and curbside pickup.

For grocers who are already selling online, new partnerships and enabling infrastructure are helping to increase capacity and efficiency and provide a seamless customer experience. This is creating opportunities for startups and incumbent delivery service providers focused on the evolving grocery ecosystem.

What are the drivers of AI adoption in the food industry?

As grocers and food retailers adapt to the burgeoning “convenience economy” and an omnichannel future, demand forecasting solutions are providing opportunities to reduce stockouts, optimize the flow of inventory, drive margin expansion, and minimize food waste. Below are a few of the drivers in AI adoption:

• Improved data-gathering infrastructure:
  • Digital shopping surged during COVID19, which provided e-commerce players with unprecedented information on consumer shopping behaviors. YTD 2021 sales through food delivery apps grew 119% YoY, which demonstrates the ways the COVID-19 pandemic and shelter-in-place orders drove significant business online.
  • Online marketplaces and other digital providers are collecting massive volumes of data on consumer spending habits, which can serve as inputs to AI tools.
• Ongoing digital transformation:
  • In addition to data availability, macro trends driving AI adoption include the widespread digitization of food business practices.
  • The pandemic accelerated large-scale digital transformation as operating digitally became the only option for many businesses and consumer spending shifted online. The increased focus on fully digital operations heightens the potential to find AI use cases related to analytics, automation, and customer engagement.
• Growing focus on food waste reduction:
  • Awareness of the costs of food waste is a looming concern for businesses and consumers alike. Food waste represents roughly $18.2 billion annually in lost value for retailers and can total 30% of restaurant sales – a significant damper on margins.
  • Food waste has become a critical consumer topic, thereby creating an opportunity for food businesses to valorize their supply chains.
• Personalization strategies:
  • Food personalization has become a significant driver of innovation over the past decade.
  • Driven by media and technology, consumers have gained a more nuanced understanding of food’s effects on health, well-being, and the environment, and are more food literate than ever before.
  • Digital services created a demand for increased speed and convenience and a more personalized food experience.
• Large SKUs & each fresh “product” is not a carbon copy of the other:
  • Unlike one pack of Oreos being the exact same as another pack, fresh foods are individually unique, each with a different ripeness, weight, and price. One of the largest challenges facing this segment of the food supply chain is the growing number of products (or SKUs) that need to be stored and distributed.
  • Growing SKUs are a result of expanding consumer demand for new types of foods and flavors as well as producers’ willingness to bring new products to market. In addition to simply finding adequate storage space, the rise in SKUs also makes it harder to ensure freshness as food moves through distribution hubs.
  • Distribution and storage providers focus on these essential tasks: storage, transport, and handling. Maintaining the integrity of the food involves temperature monitoring and maintenance, reducing unnecessary handling, and optimizing the supply chain to reduce spoilage.

• Venture capital fueling AI innovation:
  • YTD, investors poured a record $52.1 billion of venture funding into AI & ML companies across all sectors—up 31.5% YoY and indicative of growing AI spending that extends to the food industry.

How can AI be applied to grocery stores?

As grocery delivery and pickup become increasingly mainstream, digital distribution channels are likely to become more strategically important to grocery stores, especially those that currently lack e-commerce capabilities. New business models, such as “dark stores,” could become more critical.

• Grocery store efficiency:
  • Grocers often struggle to choose the optimal product mix, determine the right inventory level, and set the best prices for the approximately 28,000 items on their shelves.
  • Grocers often still use paper sheets, notes, and other non-digital forecasting methods to manage perishable inventory, or they may use tools designed primarily for nonperishable goods.

• Reducing food waste:
  • In the US, food waste is estimated to amount to $285 billion annually. A substantial portion of global food waste, which amounts to 1.4B tons every year, is the result of supply chain inefficiencies. Demand forecasting and inventory optimization solutions can help grocers more effectively manage fresh food departments and, ultimately, reduce food waste.

Source: Our world in data

• Especially for fresh foods (such as produce, meat, baked goods, and prepared foods), grocers must also factor in other variables such as seasonality, price, promotions, competitor behavior, and perishability challenges. Incorrect decisions can lead to stockouts, food waste, and missed profits.
• While most food waste derives from unused food, recalls due to foodborne illnesses and contamination also contribute to the problem. Food waste also contributes to climate change. Rotting food in landfills and farms is a significant source of greenhouse gas emissions.

Source: Our world in data

• Grocers need AI predictive models to help them make better decisions
  • Food manufacturer and distributor facilities are often described as DRIP—data-rich and information-poor—meaning that while their equipment is often equipped with sensors to be able to collect massive quantities of data, it often goes underutilized.
  • Many startups in this space are looking to help grocers in the synthesis of data while providing actionable recommendations. Emerging tools address several of the operational pain points of managing a commercial facility, including licensing, manual processes, food waste, point-of-sale (POS) systems, and customer service tools such as chatbots and recommendation engines.

• Grocery operations & streamlining day-to-day
  • Grocery operators must create and manage inventory safety documentation and obtain licensing.
  • These complex processes involve conducting risk assessments on food storage, providing hazard analysis, identifying critical control points and limits, establishing monitoring procedures, and maintaining accurate records.
  • AI reviews operations and then automates the process of creating compliance documentation. Subsequent menu or process changes can be automatically tracked and updated for compliance.

• Automated Check-Out
  • Aside from ramping up fulfillment capabilities, grocery stores are implementing technologies that enable contactless interactions that are faster than traditional methods while helping ensure social distancing.
  • Amazon pioneered cashier-less technologies and automated checkout processes in the grocery space with its Go stores, launched in 2018. Amazon relies on a combination of near field communication (NFC) sensors, AI, and computer vision technologies to track items as customers pick them up and then charge the payment automatically when they leave the store.
• Dark Stores & Ultrafast Delivery
  • One way incumbent grocers are responding to increased delivery demand is by creating local distribution centers, or “dark stores,” to fulfill online orders. Dark stores offer several operational benefits that can help optimize and streamline grocery store management:
    • Shelf placement issues disappear as grocers stock items to maximize barcode scanning and order fulfillment
    • Dark store grocers can also implement warehouse robotics and automation
    • And do not need checkout or other customer service staff
  • Ultrafast delivery services operate out of 3,000 square foot dark stores in urban core areas. That enables 10-15 minute delivery within their 1-mile service radius, as well as reducing supply chain costs and minimizing spoilage.
  • Dark store profitability is measured with contribution margin, which excludes fixed costs. With a $25 average order value in a mature ultrafast dark store with 500 orders per day, usually there is a 13% contribution margin on orders.

Source: Emergence Research

In the near term, AI will have an incrementally transformative impact on the food industry as adoption among incumbents continues. While the technology will unlikely prove disruptive in the near term, the competitive advantages arising from quicker production times, reduced costs and waste, and improved customer experience will likely lead to continued strategic and financial investment opportunities.

For founders creating companies in the food tech space, we would love to chat! Feel free to drop us an email at jozhu@stanford.edu or at (kfw@nvp.com).

The post Future of Food Part III: AI for Grocery & Sustainability in Food Ecosystem appeared first on Norwest Venture Partners.

Our guest, Jo Zhu, a student at Stanford’s Graduate School of Business, shares our passion for this future. Jo spent 10 weeks with us focused on the many changes occurring in the space. In this three-part series, she shares how COVID has accelerated a number of key trends, insights on emerging business models, and a breakdown of the core technologies unlocking sustainability levers for the next generation.

This is part 2 of our Future of Food Blog series. You can also explore part 1 here and part 3 here. Part 2 focuses on the evolution of food delivery, ghost kitchens, virtual kitchens, and commissaries.

Introduction

With indoor dining largely shut down, the restaurants that survived—and in some cases thrived—during the pandemic were those able to pivot to digital and off-premise sales methods including takeout and delivery. Prior to digital food ordering apps, relatively few restaurants offered delivery, and customers relied on mailers, door hangers, phonebooks, and other ads to discover new places to eat.

Early food delivery apps, such as Seamless and Grubhub, targeted these inefficiencies by aggregating restaurant menus and contact info into one place. In the early 2010s, food delivery platforms took off as VC-backed startups (most notably DoorDash and UberEats) aggressively attacked the market by providing both demand generation and delivery on behalf of restaurants.

In 2021, both food delivery app providers and VCs are investing in solutions to tackle the issues of labor shortage: the two most invested in areas are reducing transportation costs through autonomous vehicles and reducing the cost of restaurant operations through the use of ghost kitchens.

Ghost kitchens allow food providers to aggregate delivery-focused food production at centralized locations, potentially reducing preparation and delivery costs while generating additional revenue streams from restaurant tenants.

Source: PR NewsWire

At first glance, ghost kitchens appear to be a simple application of WeWork’s office leasing model applied to restaurants. However, the industry reflects trends that are reshaping the business model of “restaurants” as delivery becomes more mainstream. Versions of ghost kitchens have existed for years, including in the form of commercial kitchen spaces which are subdivided and leased to multiple restaurants.

But while these early models were intended more for commercial use, what’s even more interesting are the virtual restaurants that occupy the middle of this supply chain. These startups neither buy property nor operate a fleet of couriers – rather, they lease from the ghost kitchens and pay for white label delivery. This is where the data lives and allows for venture growth multiples that are not sullied by the CapEx intensive nature of ghost kitchens (which in essence are real estate holding companies of commercial warehouses).

Source: RestaurantOwner

Who are some of the players in the ghost kitchen & virtual restaurant space?

Ghost kitchen facilities are a real estate play – they convert unused warehouses or storefronts that vary in layout and convert them to be optimized kitchens for food delivery only. Some ghost kitchens provide a communal stock room, while others give clients the space to manage their own inventory. The kitchen layout is optimized for delivery, and some facilities provide a variety of business services that allow the client to focus solely on food preparation. The estimate is that there are over 1,280 ghost kitchen facilities globally, primarily located in large, densely packed cities such as New York, Los Angeles, and Chicago.

While ghost kitchens tend to be located outside core commercial areas where real estate is most expensive, some providers are changing that trend. For Local Kitchens and ClusterTruck, both centralize back-of-house tasks such as sanitization and inventory management, as well as front-of-house tasks such as delivery management and catering. Rather than using more industrial locations to minimize real estate costs, these two startups (similar to All Day Kitchens) facilities are located in commercial cores to encourage customer pickup and minimize delivery time.

Virtual restaurants are a branding play – they are creating consumer food brands (think MonsterMac) that eaters can order on food marketplaces (like DoorDash) or their own first-party website like Foodology, which exists only in delivery mode. Most of these startups are taking the point-of-view that solving food automation requires leaning into special-purpose hardware, rather than just trying to program a robotic arm to do everything a human cook does. We chatted with a few AI researchers, and the insight is that there are tremendous difficulties in programming arms to do even simple tasks like pick-and-place, let alone cook full meals. And if you’re going to constrain the kitchen environment to help the arm’s actions be more repeatable, you might as well use special-purpose hardware that can do the same tasks more quickly and reliably.

What’s the trend driving the growth in ghost kitchens and virtual restaurant brands?

• Eating out is outpacing eating in
  • More and more, Americans would rather eat food that’s prepared for them than buy groceries to cook at home. That, paired with the fact that in the last decade, the average size of new apartments in the US—kitchens included—has decreased by 9.7%. This trend of shrinking kitchens reflects US consumers’ ebbing interest in gourmet cooking and concurrent heightened dependence on restaurant dining, food delivery, and prepackaged meals as their primary food sources.

Source: Northwestern Business Review

• Labor shortage
  • Restaurants are struggling to hire enough labor to meet demand and that labor is growing more expensive. The Covid-19 pandemic has had lasting effects on the food industry, from production to supply chain to delivery. Labor shortages are one of the biggest issues the industry faces, as restaurants struggle to replace workers laid off during the pandemic. Restaurants like McDonald’s and Chipotle are raising wages and offering bonuses to attract more workers.

Source: Labor Dept

Mobile Commissaries will be on the rise as well

Imagine a piping hot coffee or pizza delivered to your office or home at the proverbial “click of a button.” For consumers, it’s perfect. For the startups attempting to provide these services, it’s a bit more complicated. But what are the post-COVID macro trends that are driving the rise of mobile commissaries?

• Reduce labor and real estate
  • A mobile commissary’s main advantage over traditional brick and mortar shops is the significantly lower upfront investments needed to open a new location, reflected by lower costs of real estate and personnel (ie. no servers, hosts, or bartenders), lower (and almost organic) customer acquisition costs, and larger economies of scale + scope.

• Better personalization (being direct to consumer)
  • These startups can leverage data analytics to define respective target segments and create seasonal and limited-edition menu items for specific neighborhoods by looking at real-time consumption behavior.
• Better geolocation prediction
  • Dynamic geo-positioning optimizes truck positions by day or day-part to capitalize on high order volume and control delivery times.
  • As a result, this also optimizes labor utilization — trucks can move in and out of service based on profitability.

What will the future of food on-the-go look like?

As operators navigate cost pressures like labor, saving on occupancy rates — which can take up to 60% of a restaurant’s gross sales — can ease a significant burden on a low-margin business. While traditional restaurants can risk around $800,000 to test new menu items, if a menu fails at a virtual restaurant, it costs about $25,000. This is where a new wave of D2C virtual kitchens comes in.

Kitchen automation is driven by an ongoing effort to reduce labor costs at restaurants while managing employee churn reduction. These challenges can drag significantly on margins. For the founders of Mezli, Mechanical Engineering grad students at Stanford, they didn’t have enough time to cook every meal, but also couldn’t afford to spend $15 or more at Sweetgreen and Mendocino Farms. It turns out that a lot of that high price point comes down to costs that are passed down to customers. Mezli’s differentiation is realizing that reducing the cost of building and operating a restaurant could unlock much cheaper great-quality meals and bump ROI by quite a bit!

In a world where the restaurateur constrained themselves to bowl-style meals (grain bowls, salads, soups, curries, etc.), much of the existing automation equipment that is off-the-shelf can be put in a shipping container and integrated with custom hardware to make an autonomous restaurant-in-a-box. The hardest parts of this will be self-cleaning as well as nimble dispensing technology – putting ingredients in a bowl reliably is not trivial – but Mezli has solved this in their most recent “auto-kitchen” patent.

Like most restaurant chains, they do the bulk of their prep in a central kitchen (cutting up vegetables, seasoning their meats) and then the auto-kitchen itself uses a variety of heating and finishing steps (e.g. applying sauces and dry toppings) to make bowls to-order. Unlike some food automation companies, Mezli is focused on creating a fully automated “restaurant in a vending machine” rather than human-in-the-loop partial automation. In reality, less than 25% of the pricepoint on food is the raw ingredients themselves – the rest is labor, CapEx, and margin buffer:

Mezli’s end goal is to get their tech to work reliably enough to not need a human to monitor it. This would give Mezli food safety advantages because there’s less room for human error, and they could adopt procedures such as bathing the insides of their bowls with high-intensity UV light that kills germs (which would not be very employee-friendly!) With the pandemic accelerating the interest in automated kitchens, there have been many recent activities in the space – a few months ago, Spyce was acquired by Sweetgreen, and earlier in H1 2021, DoorDash acquired Chowbotics. The excitement in investments in this space makes sense as the restaurant industry is deemed essential amid global shutdowns, but finding kitchen staff proved a problem for many, especially early on when questions remained around COVID’s transmission.

In the near term, there will be continued investment in robotics and automation technologies that promise to reduce reliance on manual labor while improving product consistency and personalization. Food robotics, autonomous delivery, fresh vending concepts, and other novel technologies can reduce the cost of food production and distribution while also ensuring food safety. Robotics-as-a-Service (RaaS) sales models will help make advanced technologies more accessible for restaurants with limited investment capital. You can also explore part 1 of our future of food blog series and stay tuned for part 3!

For founders creating companies in the food tech space, we know we would love to chat! Feel free to drop me an email at jozhu@stanford.edu or Kathryn Weinmann at Norwest (kfw@nvp.com).

The post Future of Food Part II: What’s the Hype with Ghost Kitchens & Virtual Food Brands? appeared first on Norwest Venture Partners.

Our guest, Jo Zhu, a student at Stanford’s Graduate School of Business, shares our passion for this future. Jo spent 10 weeks with us focused on the many changes occurring in the space. In this three-part series, she shares how COVID has accelerated a number of key trends, insights on emerging business models, and a breakdown of the core technologies unlocking sustainability levers for the next generation.

This is part 1 of our Future of Food Blog series. You can also explore part 2 and part 3 of the series in the coming weeks. Here, we dive deeper into the cataclysmic impact of COVID and how these trends will continue to impact the food sector.

Introduction

Up until this point, my personal (and now professional) focus has been to identify my role in helping our food systems – albeit at a macro level through my time as a Product Manager at both Uber and DoorDash. As we emerge from the pandemic, It seemed apropos to focus on the food industry. Suppliers, distributors, and other food-related tech startups are a fixture in everyday life even as lockdowns come to a close.

Source: FoodHack

While tech-related investment into the food industry has traditionally flown beneath the radar, new technologies and mobile capabilities have sparked interest in the space. As of 2021, the global food market contributed $11.7 trillion in revenue and is expected to grow at a compound annual growth rate of 5% from 2020 to 2027.  In the first 6 months of H1 2021, food-related tech startups have raised more than $16 billion across 586 deals, 86% of the total raised in 2020!

Expanding Data Reach

In recent years, food system data capture points have dramatically improved and are gathered in real time. This spans across preference data captured through cookies, digitized food ingredients and nutritional information, and consumer and industrial equipment that can harvest vast quantities of production and distribution data.

These new data capabilities have set the groundwork for a new generation of foodtech companies that tap into food system data sources to build products for a growing list of use cases, including demand prediction, food waste reduction in production facilities, and consumer discovery. When we look at the total TAM, this market can generally be segmented into three buckets:

• Food Service: Sales of prepared foods from restaurants, cafeterias, commercial kitchens, and other providers
• Grocery Goods: Sales of goods available at grocery stores, such as packaged foods, produce, and drinks
• Convenience Retail: Quick service food & grocery in a corner shop or bodega with smaller SKU count

What has changed in this industry post COVID19?

This growth is driven by increased online grocery options such as meal kits and online grocers, and pandemic-led heightened demand. These growth drivers have led to an influx of investment and exits such as DoorDash, Harmony Sciences, Freshly, and Instashop.

Source: FutureFoodFinance

And in the course of the pandemic, fundamental marketplace levers have changed:

• GMV across the board rose as basket sizes increase at both grocery stores (through hoarding purchases) and food establishments through delivery
• Churn has dramatically reduced as consumers and businesses depend on their digital providers and offerings not as a nice a to have but as a core capability
• And this is also leading to LTV:CAC improvements, leading many investors to believe in the long-term structural growth opportunity of these sectors as food businesses are generally slower to implement new consumer-oriented technologies relative to other sectors.

Source: DoorDash S1

What is driving the growth in 2021?

• Home confinement leads to a spike in demand: Although the pandemic is temporary, the expectation is that many consumers will continue purchasing through this channel. Also in the last decade, the average size of new apartments in the US—kitchens included—has decreased by 9.7%. This trend of shrinking kitchens reflects US consumers’ ebbing interest in gourmet cooking and concurrent heightened dependence on restaurant dining, food delivery, and prepackaged meals as their primary food sources.

Source: Globest

• Shock to the system: Similar to how many other industries (eg. education, manufacturing, etc.) are holistically rethinking their operating model through the pandemic, COVID-19 has upended the food industry, as 17% (roughly 110,000) of US restaurants have permanently closed since the pandemic started. Of the ones who stay in business, they will need to invest heavily into their respective tech-stacks and reevaluate the infrastructure that supports their day-to-day operating model.

Source: CNBC

• Increasing investment by public behemoths like Amazon and Walmart, but also new players with an arsenal of capital: DoorDash, UberEats, Rappi, GoPuff, MercadoLibre, Meituan, Grab are making investments across the food value chain by extracting better consumer preferences, streamlining data synthesis, perfecting sourcing processes, and holistically increasing the selection and convenience of food. These companies are building the infrastructure that are inspiring a new generation of food startups that can reach consumers faster given the speed to which they can latch onto the growth engines of these behemoths.

Source: FutureFoodFinance

• Labor shortage and razor-thin margins: The COVID-19 pandemic has had lasting effects on the food industry, from production to supply chain to delivery. Labor shortages are one of the biggest issues the industry faces, as restaurants struggle to replace workers laid off during the pandemic. Restaurants like McDonald’s and Chipotle are raising wages and offering bonuses to attract more workers. Traditionally, labor shortages and high churn in the food industry have been significant drags on margins, helping drive the need for kitchen automation technology.

Source: CNBC

What are the opportunities in this sector?

• A future where protein isn’t dominated by conventional meat sources
  • At the moment, meat is still king. By some estimates, 30% of the calories consumed globally by humans come from meat products, including beef, chicken, and pork. During the onset of COVID-19, the meat industry was slammed by warnings of meat shortages due to shuttered plants, resulting price increases, and growing numbers of sick workers — conditions that would potentially present new opportunities for plant-based companies.
  • As an estimate, the livestock sector requires a significant amount of natural resources and is responsible for about 14.5% of total anthropogenic greenhouse gas emissions.
  • From fermented proteins to cultured proteins to microalgae, going forward, the meat value chain could be simplified dramatically, as cultivated meat production facilities could take the place of farms, feedlots, and slaughterhouses.

Source: CNN

• Grocery stores of the future & darkstores
  • Social distancing is driving many consumers to order both food and groceries from home, many for the first time. Aside from ramping up fulfillment capabilities, grocery stores are implementing technologies that enable contactless interactions that are faster than traditional methods while helping ensure social distancing.
  • One way incumbent grocers are responding to increased delivery demand is by creating local distribution centers, or “dark stores,” to fulfill online orders.

• Food delivery can be half the current price point if labor and rent are augmented
  • A Salad doesn’t have to be $15. It turns out that a lot of that high price point comes down to costs that are passed down to customers. An average Sweetgreen restaurant costs $2.4M to build and runs up a $600K/yr bill for on-site labor. That all gets passed on to customers so that a $15 salad bowl has only about $3 worth of ingredients in it, but also $3 of restaurant labor and $9 to cover things like rent and profit margin. A new generation of robotics-assisted D2C Delivery virtual brands are bringing the cost of that meal sub $5.

In closing

Physical goods industries, such as the food business, are generally slower to implement new consumer-oriented technologies relative to other sectors – it’s a huge market and in 2021, there is the right combo of technical innovation and external forces driving the disruption of legacy models. For this reason, I believe food tech represents a large and growing market opportunity.

The space is still nascent, but this is meant to serve as a framework for evaluating new opportunities that arise when these companies do start to solidify. For founders creating companies in the food tech space, we would love to chat! Feel free to drop us an email at jozhu@stanford.edu or at kfw@nvp.com.

The post Future of Food Part I: Post COVID Realities For Food Supply Chains appeared first on Norwest Venture Partners.

First, will we ever look at personal health the same way ever again? The ongoing COVID-19 pandemic has altered the way that we view and treat our bodies, and the result has been a rapid increase in the popularity of health and wellness products.  

Second, Harvard Business Review estimates that 15% of people now working from home aren’t likely going back to an office, at least not full-time. That represents a significant portion of businesses and employees who have found ways to adapt and thrive. By not having to commute (at least not farther than a room or hallway), individuals have found more time to focus on health while also enjoying the comforts and conveniences of staying home.  

COVID Accelerated Four Health and Wellness Trends 

If there’s one thing that these next four trends have in common, it’s that they were all slowly taking shape before the pandemic started. At-home fitness classes, nutritional supplements, athleisure wear, and electric bikes aren’t entirely new. They all however have enjoyed a strong uptick in popularity over the past year.

COVID accelerated these trends by changing the way people live, work, and work out, and it’s easy to see which sectors are poised to thrive for the foreseeable future.

1. At-Home Fitness

In 2013, Peloton shocked the world when they launched a $2,500 stationary bike that came with an additional $40 monthly subscription. Even with the examples of predecessors like Boflex and AB Roller, it was hard to see how most consumers would be willing to shell out that kind of cash outside of a gym.

When the pandemic forced gyms and fitness studios to close, companies like Peloton and Tempo received a significant boost and their momentum hasn’t slowed down. Tempo has perhaps experienced the most dramatic increase in users, perhaps drawn in by the fact that they’re the only real strength training platform in the sector (for now). 

It’s hard to completely predict how workout trends will play out in a post-pandemic world. Some people will be thrilled to return to the social setting of the gym, or to just leave out of the house. But as at-home fitness becomes increasingly social, it’s a safe bet that a significant chunk of this $22.4B industry will be fed by many more happy homebodies. 

2. “Better for You” Supplements and Sports Nutrition 

It used to be that the only people who cared about sports nutrition were athletes, and the only people who drank protein shakes were bodybuilders. Today, the dietary supplements market is on track to reach $272.4B by 2028, adding to the evidence that times have changed.

Our ongoing global health crisis forced people all over the world to re-think their physical and mental health. Consumers from all walks of life are seeking new products, routines and communities to help improve their daily habits.

As a result, the sports nutrition sector is growing in all directions, bringing innovative products to new markets and consumers. For MTN OPS, this presented an opportunity to expand both within and beyond its roots in the hunting community.

The Utah-based health and wellness company provides a wide portfolio of products designed to help its customers reach their health goals, whatever those might be. Its signature product, Ignite, is a zero-sugar alternative that consumers substitute for traditional energy drinks. In 2020, MTN OPS doubled down on offering a community alongside those products. It expanded its coaching platform and held a virtual 5K race event that attracted nearly 20,000 participants. By offering this community alongside its products, MTN OPS drives increased loyalty, with over 70% of revenue coming from returning customers. 

Another business in the supplement space that has been booming is Ritual, the direct-to-consumer multivitamin subscription company. 

For years, the growing $40B US vitamin and supplement market has taken advantage of the consumer’s lack of education and has gotten away with adding harmful colorants as well as hidden and misleading ingredients to many of the top brands. Additionally, many traditional multivitamins contain well over 30 ingredients, most of which aren’t necessary since we get enough through our diets.

Founder and CEO Kat Schneider started the company in 2015 while pregnant with her first child after she couldn’t find a prenatal vitamin that she trusted when it came to ingredients and manufacturing processes. Ritual is based on the belief that better health begins with better ingredients that can be traced to its source.

Like Kat, today’s consumers are more aware than ever what ingredients they are putting into their bodies, especially when it comes to vitamins – something you take every day. Ritual has created clean, science-backed, vegan-certified multivitamins for women, men, kids, and more. Customers can track the journey of every single nutrient from its source to how it’s designed to work in your body. 

Kat recently told Forbes that business has boomed during Covid-19, with Ritual shipping one million bottles over the first half of 2020, with one new bottle shipped every 16 seconds. 

3. Athleisure Wear – Like Pajamas, But More Productive

When Lululemon started selling yoga pants, there were more than a few people who questioned the $98 price tag. But by positioning themselves as an aspirational brand and sticking hard to that script, they were able to become a multi-billion-dollar company, complete with fitness classes, local events, and online mindfulness tools.

Athleisure brands like Lululemon have been so successful, that powerhouse companies like Nike and Adidas have been struggling to keep pace.

It’s not surprising then that the safer-at-home needs of a global pandemic would accelerate the athleisure trend. This is a space we’re very familiar with as investors in Vuori, the popular activewear brand that saw a more than 200% increase in sales in 2020 and recently hired a former Lululemon executive to lead its retail efforts.

4. E-Bikes: Transforming Transportation and Capturing Outdoor Fitness Enthusiasts 

Traffic, parking costs, unstable fuel prices, and an increased awareness of greenhouse gas (GHG) emissions, have made e-bikes the attractive alternative for consumers around the globe. Even before the pandemic, the positive trend towards e-bike sharing had investors re-thinking this market.

With the unique challenges of a post-COVID market, e-bikes are in the midst of the category “moment.” Consumers and communities alike have spent the last year re-thinking mobility from the ground up, and micro-mobility options like scooters and bikes quickly found supportive municipalities and happy commuters. As a result, cities are embracing bike-friendly transportation plans like never before.

As it stands, the electric bike market is pretty sizable at ~$10B. This number is expected to increase to $46B by 2026. 

What’s Next for Personal Health and Wellness Businesses

There’s no getting around the fact that the post-pandemic world is going to be a little different, and some familiar consumer spending trends are going to return. But the health and wellness sector was afloat with positive tailwinds even before the pandemic, and the unique circumstances of a global health crisis are likely to keep this trend going for years to come.

In the coming years, we expect to see an even greater surge of health and wellness startups. Each one will have their own unique recipe for “redefining fitness” or “revolutionizing our well-being”. But if the pandemic has taught us anything, brands who are able to pivot quickly and differentiate effectively will survive and thrive in a post-COVID world.

The post How COVID-19 Redefined Personal Health and Wellness appeared first on Norwest Venture Partners.

See below for the interview and if you’d like to hear Priti discuss the topic in further detail, she will be speaking on the panel “Scaling Start Ups: Choosing the Perfect Partner” at the upcoming Future Food-Tech Summit on December 3rd. Register here.

Can you tell us more about your focus at Norwest Venture Partners and what you look for in a food-tech start-up?

I’m a partner at Norwest Venture Partners where I focus on a broad range of areas including consumer brands and software. My investments include the versatile footwear brand, Birdies and cell-based meat company, Memphis Meats.

The criteria I use for evaluating food tech start-ups are similar to the framework I use for assessing investments across the board. I look at the size of the total addressable market, the strength of the founding team and their unique insights on the space, product differentiation, competitive moats, and the ability to execute successfully across go-to-market, branding, etc. There are, however, additional considerations for food tech start-ups. Specifically, cost – relative to replacing existing products, capex investment and payback period, and most importantly, taste and mouthfeel of the product – if it doesn’t taste good, you’re not fooling anyone!

What has been the most exciting or surprising investment so far this year?

Earlier this year, we invested in Memphis Meats’ Series B funding round. Memphis Meats is a pioneer in the cell-based meat industry with a vision of providing a sustainable, humane and healthy alternative to conventional meat while also helping to secure the global food supply. The funding represents the largest capital infusion for any company in the cell-based meat space, pushing the industry forward. We were inspired by CEO Uma Valeti’s vision, strong leadership team, and potential to build and scale a cell-based meat platform. We believe the alternative protein category will continue to grow exponentially, and Memphis Meats has the opportunity to build a great business and have a positive impact.

What advice would you give to a start-up when seeking investment?

Be clear about what is important to you as you pick your investor – size of fund, expertise in the industry, contacts to grow the business, etc. Create a short-list of partners and firms that fit your criteria and ask for warm intros from your current board members and advisors. Have informal chats with potential investors and test for fit – after all, these are multi-year relationships you will be building! Once you have your top 3 to 5 investors identified, pitch them with a clear vision that includes specific asks on both the fundraising and strategic fronts. Remember, once you secure the financing, the real work of company building starts – leverage your investors and advisors to help get you to the next level.

What will you be looking out for at Future Food-Tech this December?

I’m keeping my eye on a number of trends. Obviously, anything related to the cell-based meat space is interesting to me. As a firm, we’re also tracking companies tackling food waste – we’re an investor in Imperfect Foods, which is making a huge impact in decreasing food waste. Other key areas that seem promising include microbial alternatives to dairy and novel plant-based proteins. Additionally, I’m excited to hear about the latest innovations in food supply chain and food safety, especially in the form of robotics, hardware and software.

This Q&A was originally published on the Future Food Tech Summit website. 

The post Venture Capital Advice for Aspiring Food Tech Startups appeared first on Norwest Venture Partners.

To commemorate, we’ve developed this holiday gift guide – inspired by our portfolio brands and the many wonderful products and services they offer. From activewear to smart home cameras, there’s a gift idea in here for everyone on your list! 

Health and Wellness Gifts

Looking to give the gift of wellness this holiday season? These companies have gifts for a healthier lifestyle.

• Grove Collaborative – eco-friendly household and personal care products
• Imperfect Produce – ugly produce at 30% less than grocery store prices
• Ritual – essential women’s vitamins delivered to your door each month
• Talkspace – mental health support through mobile therapy

Fashion and Beauty Gifts

Give the gift of fashion this year! Our fashion and beauty brands have the perfect gifts for the stylish people in your life.

• Birdies – the stylish shoes that are secretly slippers on the inside
• Kendra Scott – timeless jewelry, home decor, and beauty gifts
• Senreve – expertly handcrafted bags from 100% genuine Italian leather
• Madison Reed – subscription-based hair care and hair color products
• Vuori – clothing inspired by the active, coastal California lifestyle
• Jolyn – unique swimsuits and workout clothes for female athletes

Lifestyle Gifts

Stuck on what to get that special someone on your list? For fail-proof gifts, look no further than our list of lifestyle brands.

• Casper – award-winning mattresses, sheets, and more for the gift of good sleep
• Minted – stationery, fine art, and more designed by independent artists
• Modsy – life-like, 3D interior and home design guidance
• Topo Athletic – athletic shoes designed to honor the shape of the foot and respect the body’s mechanics
• Wine Access – the world’s most inspiring wines curated and delivered direct
• Wyze – affordable smart home cameras and devices, packed with features

As we head into the holiday season and reflect on wonderful products our direct-to-consumer portfolio companies offer and the incredible growth they’re experiencing, we’re grateful to work with such innovative founders and teams. We look forward to supporting their success, and the success of all of our portfolio companies, in the new year and beyond. 

The post Our Holiday Gift Guide appeared first on Norwest Venture Partners.

The reason: Retailers and brands of all kinds want to strengthen their relationships with their customers. And no matter how great a website they have, they can’t connect emotionally with people the same way online as they can in their own stores.

Research shows that while consumers are more likely to explore a brand’s products online, as well as do research for what they need, offline channels still matter more for discovery and increasingly for entertainment.

Some 61% of shoppers surveyed by Forrester Research said they still value interacting with store associates and asking them for advice—one of many ways that stores become outlets for online loyalists to have a deeper level of engagement with a company, its products, employees, and fellow shoppers.

Within two years of opening its first brick-and-mortar store in New York City, Warby Parker’s eight storefronts were profitably selling an average of $3,000 per square foot annually. Kendra Scott Design found success with its omnichannel approach which also includes wholesale sales to aid in brand discovery.

The cost to acquire new customers online increased by almost 50 percent according to a recent Forrester survey of Internet retailers. As the costs to acquire customers online continues to climb for many, brands are thinking about offline retail as a customer acquisition opportunity, as well. A retail store can behave like a large billboard. For those customers acquired via wholesale or direct retail channels, once the emotional connection is made, often future purchasing can happen online.

Casper, the online mattress seller, has carefully built its brand as a different, more thoughtfully designed mattress and reinvented the whole mattress-buying experience—delivering mattresses to customers’ doorsteps for a 100-day trial with free returns. However, they recently tested pop-up stores in Venice, California and New York to begin attracting offline customers with an in-person mattress test.

Popup stores now account for $10 billion in sales a year, according to Popup Republic, an industry website.

Kendra Scott Design often will do a pop up event in advance of opening a new retail location to help spur awareness locally of the brand. Recently, Kendra Scott Design did a jewelry tour in an airstream trailer from Southern California to Northern California.

So as we continue further into 2016, here are a few things this means for online and offline brands and retailers:

50/50 is the new 80/20 – As the benefits of this omnichannel approach become more obvious, we expect e-commerce and fashion startups to consider it from day one, both selling direct to consumers online upon inception and opening stores as soon as they have enough capital to afford them. Moving forward, newly created retailers and brands—regardless of where they started (online or offline)—may look more like 50/50 split models with half their sales from online and half from brick-and-mortar stores.

We saw this first with home goods retailers who had catalog roots. Both William Sonoma and Restoration Hardware are operating with something close to a 50/50 sales split, with benefits around inventory levels as well. New brands are following suit.

More retail companies will create titles like head of omnichannel – Just recently, footwear designer and distributor Deckers Brands hired former Nike executive Stefano Caroti as its “Omnichannel President.”

Running an e-commerce site isn’t so much about managing technology these days as it is marketing, brand building, and acquiring customers. It makes sense that one person should be in charge of making sure the customer experience is seamless across channels and the brand is consistently represented.

Retailers will double down on selling an experience – At fashion jewelry company Kendra Scott Design, where I’m a board member, the company recently launchedits updated “Color Bar” where shoppers can design a piece of jewelry and wear it home. The experience of the Color Bar often leads to jewelry making parties and events at Kendra Scott retail locations where customers spread the word and bring their friends.

Men’s clothing retailer Bonobos has “guideshops” throughout the United States where men can book an appointment to have a stylist take their measurements and curate new looks or outfits for them. This model is gaining traction among other online retailers like ModCloth.

Retailers need to think beyond the products on the shelves and remember that a store is a place to make customers feel something, a place to create some sort of emotional experience. If successful, it can reduce the cost of customer acquisition as consumers share their experiences with their friends.

In short, 2016 will be a year where customers can expect more consistent brand messaging online and off as retailers make more of an effort to provide them with personalized, immersive experiences. And with online and offline continuing to converge, the retailers might actually catch up with the consumers.

The post This Will Be the Year Online and Offline Retail Converge appeared first on Norwest Venture Partners.

In addition to being some of today’s most innovative companies, all those who presented reflect a few common themes:

• Building Community Marketplaces. Both Minted and Udemy are companies leveraging and amplifying individual expertise to build online communities that, in turn, are marketplaces of experts. Minted is a design marketplace that connects consumers with the world’s best artists who make everything from unique stationery to home furnishings. Udemy provides experts with a technology platform and distribution center for sharing their specialized knowledge with a paying audience. Leveraging the power of the community is an area that we’ve long been invested in—RetailMeNot and Jigsaw being examples of companies that leveraged communities to build large businesses with successful exits.

• Shaking up Staid Industries. Casper is a great example of a direct-to-consumer company that is shaking up a staid industry – the mattress business. By cutting out the middle man, it is able to provide a superior product at a disruptive price point directly to the consumer. Historically, shopping for a mattress has been stressful and unpleasant for consumers, who often felt as though they were at the mercy of high-pressure sales tactics that ended in expensive and irreversible purchases. By removing the commissioned sales person, innovating around product and packaging, and committing to taking back any bed that doesn’t meet customer expectations, Casper has effectively revolutionized mattress sales as we know them.

• Re-inventing the Shopping Experience. Modsy and Jet show two very unique approaches to creating a customer-centric shopping experience. Modsy leverages advanced 3D technologies to enable consumers to visualize inspired design ideas based on their taste preferences, all pictured within the exact context of their own homes. Jet reimagines the consumption experience of everyday goods with its smart shopping concept. Both put the customer experience first to create uniquely tailored and compelling shopping experiences.

These are themes we believe in and are continuing to invest in across our portfolio.

This event, which connects our portfolio company CEOs with Wall Street, even if they are a ways off from a liquidity event, is just one example of how we provide value to our portfolio companies beyond the initial monetary investment. At Norwest, we pride ourselves on doing more than just investing capital into our portfolio firms. We see our role as essentially entrepreneurial, and lend our expertise and networks to do whatever it takes to help the business succeed. And it’s not just a benefit for us—the bankers we work with tell us that they love our annual Investor Summits. Why? Because these events are designed as an efficient way for the investor community to see high-quality companies present their business model in a compressed period of time while gaining access to the CEOs.

We look forward to introducing our next crop of up-and-coming companies to the investment community at next year’s summit.

A video highlight reel from the event may be viewed below.

The post Norwest Portfolio Companies Showcase the Latest in Consumer Internet Innovation appeared first on Norwest Venture Partners.

Here we are, the transaction has closed and the proverbial keys have been given to the new owners. What an amazing journey it has been.

More than 15 years ago I started Clarus Marketing Group (now known as Clarus Commerce) without a clue of where it would end up. To say I didn’t know what I didn’t know is an understatement. A seedling of an idea and a URL launched an amazing journey for me and the incredible people who joined me for the ride. As the e-commerce revolution was unfolding, it became clear to me that shipping charges would become the friction that could slow down the freight train of commerce that was on the way. In 2001, Clarus launched Freeshipping.com and the world’s first prepaid shipping program was born.

The next 10 years were spent growing the product and the company. Planning for succession, I realized having the right leadership in place was an absolute necessity, so I brought Tom Caporaso on board as COO in 2009. Tom seamlessly fit into the Clarus culture of hard work, fun and integrity, and it became clear he was the right person to guide the next chapter of our growth. As Tom led the team to new heights, he kept the importance of the Clarus culture front and center. If we have a secret sauce, this is it.

Norwest joined as an investor partner in 2011 and quickly recognized what I saw in Tom, promoting him to CEO after only six months of working together.

We sensed nothing but positive vibes from the Norwest team from the get-go. I remember Jon Kossow, the lead partner for our transaction, who took a different approach from our very first management meeting. He truly listened to what we had to say, and questions were not intended to make sure we knew he was the smartest guy in the room, but rather to truly understand our business and what our goals were. I assure you, this is unique. Jon explained the “invited guest” philosophy his team deploys, and that certainly turned out to be accurate.

Norwest’s David Su who worked relentlessly on our transaction also became a board member alongside Jon Kossow. This was David’s first board seat at Norwest, and Jon asked in advance if this is something we would be comfortable with, while putting zero pressure on us if there was any hesitation because they were “invited guests.” We were happy to welcome David to the board, and his diligence and hard work came through time and time again. David is a true warrior and I will leave it at that and let you figure out why.

The Norwest relationship was everything that was advertised, and more. The team always responded with poise and professionalism to any bad news, and we heartily celebrated success. They made countless business development and customer introductions, leveraged their deep network to help recruit two outside board members, and provided thoughtful insight on everything from new product ideas to acquisitions.

Additionally, Norwest’s portfolio services team added tremendous value by helping us with compensation planning, connecting us with its portfolio network through diverse content-oriented events, and facilitating business development relationships via Norwest Partner Days.

When I look back now with the benefit of hindsight, I believe the reason our experience with the Norwest team was so successful is very simple: our “invited guests” fit right into the culture of the company, one that was built over many years, and a world away from Silicon Valley. They didn’t try to change it, and their presence enhanced, rather than detracted, from this central concept so important to the success of Clarus Commerce.

The post Entrepreneur’s Corner: The Clarus Commerce Story appeared first on Norwest Venture Partners.

The post Bridging The Gap Between Education and the Future Workforce appeared first on Norwest Venture Partners.