By
Susan Caba
Food isn’t just food, anymore, a fact that has created new opportunities
for venture capitalists.
So-called “functional” foods—engineered to deliver benefits
beyond basic nutrition—are part of the growing U.S. “health
and wellness” market that also includes cosmetics, pet products,
and even household disinfectants and cleansers. If a product
can be made better for you using a scientific or medical break-through,
it’s probably part of the health and wellness market.
The food and beverage segment, alone (think nutrition bars,
vitamin-enhanced waters, soy milk, high-fiber cereals, to name
a few), is $20 billion-plus, according to the Nutrition Business
Journal.
“Individuals can do much to stave off disease through lifestyle
modifications, most importantly by not smoking and by increasing
fitness to reduce cardiac disease and obesity,” says Dr. William
A. Peck, director of the Center for Health Policy at Washington
University.
“Promoting health, wellness and disease prevention is where
the commercial opportunities are.”
With its initiative to create a BioBelt around St. Louis, the
region has a broad interest in the health and wellness market,
of which functional foods are just one segment. From small start-ups
to major employers, as well as the region’s major universities,
investors are backing developments that in some way combine
scientific or medical research and technology to create consumer
products that address the business of maintaining a healthy
lifestyle.
A successful health and wellness product combines science with
a creative product concept, says Christine A. Karslake, senior
associate at Prolog Ventures, a St. Louis venture capital firm
with $100 million in funds under management. Karslake’s background—a
PhD in chemistry and an MBA in finance and strategy—mirrors
the mix that epitomizes what Prolog looks for in its investments.
Christine
A. Karslake, senior associate, Prolog Ventures
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“We have identified things that are sitting on the border between
two areas—for example, science and nutrition,” says Karslake.
“Consumers would much prefer to eat their way to health, rather
than take pills or shots.”
“They want foods that combine great taste and convenience with
clinically proven health benefits. People know that a bowl of
oatmeal is good for you, but they’d rather eat tortilla chips.”
Prolog was one of the initial investors in Brand New Brands
Inc., a northern California company launched to develop food
products and beverages that incorporate health-promoting ingredients.
What made the company a desirable investment, says Karslake,
was the combined product-development and nutrition experience
of the three founding partners.
Brand New Brands spun off its first company this summer, with
the launch of Lightful Smoothies. The yogurt-like drink is designed
to taste good and deliver fiber, antioxidants and proteins,
while promoting a feeling of satiety, all for 100 calories or
less. (The smoothies, which come in four flavors, aren’t yet
sold in St. Louis, but can be ordered at Amazon.com.)
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Strawberries
& Cream Lightful Smoothie by Brand New Brands Inc.
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Prolog also provided seed money for Efficas, a Colorado company
that discovers, develops and markets bioactives—nutritional
components or elements that increase the effectiveness of a
food designed to improve the health of a consumer. For example,
the company manufactures products that increase healthy fats
that help fight heart disease. In partnership with scientific
research institutions, the company conducts clinical trials
to back up medical claims for its products.
Like Prolog, there are several venture capital firms across
the country that focus on health and wellness developments.
And large companies are both investing in their own functional
foods or bio-medical food components and closely watching the
smaller or niche companies for potential purchase.
Hershey and the Mars Company are both reported to be pouring
money into investigations of the health benefits of dark chocolate.
Nestlé USA is introducing PowerBar Pria Grain Essentials, snack
bars for women made with 70 percent organic ingredients and
designed to provide 23 vitamins and minerals. They are supposed
to provide 40 percent of a woman’s daily calcium requirement,
along with a natural fiber that boosts calcium absorption.
Energy bars are a significant component of the functional food
market. According to the trade publication Supermarket News,
sales rose more than 50 percent last year, to $114 million.
The key to a successful health-wellness product or service,
says Dr. Peck, is that it has a basis in science—what marketing
strategist Gus Valen calls “the ability to make a claim—more
nutrition, less fat.”
This is where government regulation has a big impact; in rules
that define what claims a company can make for its food. The
labels “organic” or “high fiber,” for instance, can’t be used
unless the product meets certain standards.
In recent years, the federal government has also played a role
in validating claims of health benefits with broad policy changes.
For example, it has recognized the value of “complementary”
or holistic medical approaches used in conjunction with traditional
medical treatments—and required their inclusion in medical school
curricula.
And the FDA recently rebuilt the food pyramid, putting more
of an emphasis on less-processed foods. Valen, president of
the Cincinnati-based Valen Group that works with food and beverage
companies, says the change was a huge opportunity for companies
promoting functional foods. “If you can say your product boosts
health or helps you lose weight, that’s huge.”
As for the future, Valen says, “we’re still in the Wild West
in terms of potential.”
