Kickstarting venture capital investment with food tech
If you’re anywhere in the Philippines around lunch time and haven’t yet had a bite to eat, you’ll likely receive an invitation from an unlikely source. Be it from a street vendor or even the security guard of an establishment already partaking in a meal, “Kain tayo” is something you’ll hear without fail.
It’s quite appropriate as food is at the heart of Filipino culture. Filipinos spend almost 30 per cent of their income on food alone. This gives any food-related business massive potential for growth. It’s quite appropriate that the Philippines impending tech revolution could be kickstarted by its food industry.
The food and beverage (F&B) business used to be a daunting one, particularly for those new to it. A budding restaurant wouldn’t just need a great chef, but lots of capital, some business acumen, and a great location as well. Brick and mortar restaurants were the true test of great food ideas but required massive investment, management, and lots of time and effort.
Yet these days, we’re seeing a bumper harvest of new cuisine. However they’re not found in new restaurants. Many are only available for order online, and exclusively brought by delivery. There’s greater variety too, from reinterpretations of old favorites, the usual comfort food, to increasingly niche cuisines such as rendang or kimchi.
Many of these new F&B entrepreneurs can thank our increasingly digitized lives that have made the gig economy possible. They’re helped by the proliferation of affordable logistics services like Grab and social media networks like Facebook to get the word out, serve as their storefront, as well as deliver the goods. Tech has made the brick and mortar location optional instead of a requirement.
It’s no surprise that one of the more recent disruptors in the F&B market is the cloud kitchen. The cloud kitchen is for restaurants what Grab is to ride sharing. It’s about sharing assets to provide a service. Rather than have entrepreneurs invest in a physical location, cloud kitchens provide them with the kitchen space and administrative means to run an online-based restaurant.
They simply sign up and rent a space to cook while the cloud kitchen operator handles the orders, utilities, administration, security, and even ties to logistics services. No more costly investment in a commissary, or securing the necessary permits. The bulk of the management is taken care of, leaving budding food business owners to simply worry about their kitchen.
As far as cloud kitchens go, Kraver’s Canteen is one of leading in the country. Founded by food industry veteran, Eric Thomas Dee, e-commerce authority, Victor Lim, and finance specialist, Victor Mapua, Kraver's currently has 11 kitchens that cater to online customers across Metro Manila.
“When a brand comes in, what they get is a space that’s tiled, food-ready, inspected, and controlled. Just bring equipment, plug-in and be operational in a week,” explains Victor Lim, one of the founders of Kraver’s Canteen. “No need to worry about wifi, security, utilities, sewage, or garbage. We take care of all of that. All they worry about is their own kitchen operations.”
The formula has certainly appealed to many budding food entrepreneurs, particularly those with little experience running a restaurant.
“The first concept that we did was Joe Devance Jr., a former PBA player,” Victor shares. “He wanted to create a brand. His wife is Mexican, they grew up in Texas. He wanted a Tex-Mex brand. We did it together and created El Nacho Libre. He signed off on the products, some of the recipes are from him. He had these ideas and things to push. We did the bigger portion of that operation.”
Bringing tech into it
The cloud kitchen is a relatively recent invention, yet with the idea conceived by a notable disruptor, it’s no surprise it’s gained the momentum it has in such a short time
“What convinced us was, in 2019, Travis Kalanick, co-foudner and CEO of Uber, raised US$400M to build cloud kitchens around the world,” shares Victor.
The idea took hold in him, already working with tech startups. Though American born and raised, he found himself in Southeast Asia, in Indonesia, working with Zalora in its early days. With contacts from working with tech companies like Zalora, Gojek, and Coins PH, he set about applying a simple premise.
“The common denominator is how does tech goes into that? How do we disrupt the traditional offline industries?”
When it comes to food tech, it wasn’t simply modifying an existing model.
“A lot of people think about it as a restaurant without dine-in. It looks very different from a restaurant. The flow is different. There’s a whole logistics and operations required for delivery segment. Because the operation is different, being tech-enabled is very important.
“So we have to streamline it. How do we get in front of as many customers as possible? We use tech to streamline all of that. In any one location, we might have 20-30 brands coming out of there. There’s orders coming in for different brands. There’s different delivery riders from different services.
“We break it down into kitchen operations. When it comes to the kitchen, it’s one single stream of information. This person cooks this, different kitchens and different brands take care of different orders.
“You’ve got to hyper optimize the flow of everything. Speed is essential. In e-commerce, your lead time is 2-3 days. In food tech, it’s one hour, no matter what, including cook time. It’s a different challenge.
Besides simply offering a kitchen, Kraver’s is hoping to go beyond and serve as a partner for growth and making it easy to scale up a food business.
“The space sharing is just the first aspect. As we grow and develop, we can offer more services: manpower, equipment, logistics, commissary, warehouses. We’ve commercialized all the different parts of our operations.
On the other side of the coin, the cloud kitchen’s potential has also appealed to larger investors. Kraver’s has already attracted interest from reputable venture capital firms. Its Series A round was led by Quest Ventures Asia Fund II, a regional fund with a Digital Economy mandate anchored by Temasak’s Pavilion Capital. Its Super Angel Fund I has backed 3 unicorns to date. Kraver’s is the third cloud kitchen business that Quest Ventures has invested in Southeast Asia, and is Quest Ventures’ first formal investment into the Philippines.
From the start (2020), Kraver’s has been backed by some of the country’s biggest names in the business, with initial investments from Brian Cu, Christopher Po, George Pua, Lance Gokongwei, Paulo Campos III, and the Foodee Group.
In 2021, Kraver’s secured additional Seed funding from Foxmont Capital and Kaya Founders, where the round was a landmark investment for being both Foxmont Capital’s first Lead deal, and Kaya Founders’ first investment ever. In the 2022 Series A, in addition to welcoming a heavy-weight regional investor in Quest Ventures, Kraver’s strengthened its Philippines stronghold by securing local partners Oak Drive Ventures, Martin Cu, Francis Wee, Anthony Oundjian and Rohit Gulati.
“We’re very fortunate to get the big group that we did. Everyone has a unique perspective on things. Our boardroom meetings are very interesting. They’ve seen it all. Between the original board we have, people from food, people from tech, then we got infrastructure guys, collectively, we got the expertise and relevance… It’s really about being able to pick their brains about strategy and direction. They have a different way of perceiving things,” Lim shares.
With many of these venture capital firms marking Kraver’s as their first investment in the Philippines, one begins to wonder if we’re on the cusp of a tech-enabled revolution.
“I feel that the Philippines is becoming hot,” Victor shares.
“Silicon Valley is already very advanced. Southeast Asia is hot because it’s building everything now. Indonesia is a little ahead. Singapore is quite far ahead. The Philippines is exciting these past few years.
Victor explains that interest in the country is largely due to the first generation of startups and disruptors that have opened new possibilities.
“We’re built on the backs of Grabs and Food Pandas… the Food tech space is hot. During the pandemic, it created that need. If not for them, our business would not exist. It’s a different type of wave where these startups are coming together.”
Yet this may be just the beginning as more factors are luring in foreign investors, and similarly, opening the doors for innovation.
“A common term is the ‘inflection point’ where the returns, interest rate, it’s ripe enough for investors to come,” Lim shares. “In the Philippines, we’re just starting to see that. Quest is a signal, Tiger Global is a signal. We’re starting to see these players coming in.”
“It’s nice to be first but more exciting to think of the opportunities. This is really just the first step.”