Natural Food Sector Feeds on More Dollars

Optimistic forecasts regarding consumer demand for health-enhancing foods and beverages appear to be spilling into the venture sector.

In the last few weeks, at least five gastronomically oriented companies raised initial or follow-on funding from private equity investors. Startups’ product specialties ranged from cholesterol-reducing chips to nutritional supplements to supply chain automation software for natural foods retailers and suppliers.

While the sum total invested in the so-called healthy living companies is miniscule in comparison to the billions pumped into established venture industries such as health care, VC interest in the sector is growing, says Ilya Nykin, managing director at Prolog Ventures. The St. Louis-based firm invests in a combination of health care and “wellness”-oriented startups.

Prolog’s most recent investment was in Los Angeles-based Corazonas Foods, which makes tortilla chips fortified with plant sterols. The company raised $4 million from 10 investors, according to a regulatory filing last month. Other investors in the company include Burrill Capital, Great Spirit Ventures, and Unilever. The company had raised $3.5 million in a previous round that closed in August 2006.

Corazonas CEO Ramona Cappello says that the latest round will help expand the retail market for its tortilla chips and to launch a new product—low-fat, cholesterol-reducing potato chips—set to come out in January.

Not all investments are in branded consumer products. The largest recent round for a nutrition-oriented company went to North Brunswick, N.J.-based WellGen, which is developing a line of functional ingredients for food, dietary supplement and therapeutic applications. The company raised $9.5 million in late October from private equity investor Amphion Capital Management.

On the tech side, Venice, Fla.-based Living Naturally, which develops tracking programs for natural food retailers and suppliers, raised $2.4 million from 18 investors, according to a November securities filing. Its beneficial owners include Oak Stream Investors, United Natural Foods, and Anasazi Capital.

Private investors also backed food startups in Montana and Northern California. Billings, Mont.-based Montana Ranch Brand, which sells meat products from animals raised without antibiotics, growth hormones, or animal-based feed, took in $1.3 million from eight investors in November, according to a regulatory filing. And Mary’s Gone Crackers, a Gridley, Calif.-based maker of wheat-free baked goods, raised $1.3 million in October from Greenmont Capital Partners.

Potential for big acquisitions is also whetting appetites. Nykin points to Coca-Cola’s acquisition of vitamin-enhanced water maker Glaceau for $4.1 billion earlier this year as a watershed moment for the sector. The company was operating for more than a decade before it was acquired, he says, “but a lot of people would say that’s not a bad time to wait for $4 billion.”