Insights into the start-up landscape in China

We interview Dee Zheng from Bits x Bites to discuss about the start-up landscape in the food & beverage industry of China.

Can you please give me an overview of who Bits x Bites, and what you do?

Bits x Bites is a food tech venture capital fund that invests in early-stage companies tackling China’s food system challenges. As principal, I’m part of the investment team leading investment sourcing and due diligence. And I cover the full spectrum of food tech startups along the supply chain, from farming to production to distribution to consumer goods and services. 

I have seen that Bits x Bites have set up the new China Food Tech Hub, can you also give me an overview of what this is, and what is aim of this hub? 

China Food Tech Hub is a new model to foster cooperation between startups and corporations in collaboration with a multinational consortium of biotech firms, agricultural processors, flavor houses, consumer food companies.

Two years ago when we started Bits x Bites as China’s first food tech VC, food tech was so new in this territory and there was no ecosystem to support startups in this space.

It became increasingly clear that we need a safe space for startups and food corporations to be in close dialogue and together tackle the big problems in China’s food system.

The Hub was created for this purpose. And we are fortunate to have the support of companies in this new initiative, including Coca-Cola, Danone, General Mills, Givaudan, Griffith Foods, Louis Dreyfus Company, Novozymes, Nutreco, PepsiCo Greater China, Puratos. 

What is the start-up scene like in China; what are the main trends that you are currently seeing? 

Bits x Bites invests along the supply chain, from farm to production and logistics to consumer-facing innovations. But our focus is on startups that are addressing key food systematic challenges, and this may be food security, food safety, and nutrition.

More than 80% of China’s agrifood startup investments in 2018 were downstream. And a main driver was the consumption upgrade trend in China. Consumption upgrade is the demand for new and better food experiences by the growing middle class. These invested startups range from coffee shops to tea shops to snacks to fast food chains.

That said, we are increasingly seeing companies that are addressing the opportunities upstream and midstream, which are our key focus at Bits x Bites. How do you use data and IOT to improve farming efficiency and address the shrinking of labor forces in rural agricultural areas? How can breeding help improve disease resistance in crops and animal agriculture? How do you use extract a byproduct from one industry to create a new nutritious ingredient of value?

We believe we are only scratching the surface of how startups can bring new innovations to address the many challenges. 

And the main challenges in the Chinese market?

We look at food security, food safety, nutrition, and consumer mindfulness as the four key areas opportunities for disruption in China’s food supply chain. Each food system challenge in China is an opportunity for entrepreneurs, to apply technology and innovative business models to make the food system more sustainable.

Taking food security for example. China has 20% of the world’s population and only 7% of its arable land. It uses far more chemicals in its agricultural production and its agricultural productivity is far behind western countries. All of this provides opportunities for technology companies in gene editing, cellular agriculture, precision farming, agricultural robotics, contaminant detection, to name a few. Business landscapes, regulations will present different challenges to these startups as they apply their technology to the Chinese market. And that’s where Bits x Bites comes in, to provide the support and network to help them achieve their milestones.   

For an international company looking to break into the Asian market, how essential is it that they adapt their product(s) to appeal to the Asian market? 

There is no simple answer that applies to everyone. Each solution is different. For example, a B2B company that provides chickpea protein concentrates for other food companies should have a very different adaption need compared to a B2C company that produces plant-based burgers.

Regardless of the product, understanding the nuances of the targeted market is absolutely essential. And that’s a key consideration when we interview startup pipeline companies. We much prefer working with founders who show a deep understanding of the Chinese market or a humility to learn and adapt for what the market needs. 

How do you think the Chinese food market will look like in the next five to 10 years? 

The Chinese market is changing rapidly. Given the prevalence of food-borne diseases such as diabetes and obesity, we expect consumers to grow increasingly educated and skeptical for the nutrition value in their food products. And policy and technology will move forward simultaneously to enable systematic shifts upstream in new ingredients, new processing, new formulations, and more. And the results will be a group of next-generation health-benefiting products that truly are better than the ones in the market today.