- Farmhouse Culture, a fermented and probiotic food and beverage startup, has completed a $6.5 million Series D investment round led by General Mills' venture capital unit 301 INC, according to a press release.
- The startup plans to use the investment to scale production, create new products, and grow sales and brand awareness in the marketplace. Farmhouse Culture currently sells sauerkraut, kraut chips, fermented vegetables and probiotic-rich "Gut Shots," but says it plans to break into additional categories this year.
- 301 INC joined existing investors — including White Road Investments and Renewal Funds — in the latest investment round. Farmhouse Culture has not disclosed how much money it has previously raised, according to Fortune.
The new investment round from General Mills' venture capital unit and other investors should give Farmhouse Culture an advantage over its competitors in becoming a leader in the probiotic food space. The company's products boast shelf space in over 3,000 U.S. stores, including Whole Foods and Costco, Fortune reports. As Farmhouse Culture looks to scale nationwide, leveraging the capital, institutional knowledge and established relationships of a food giant such as General Mills can provide a huge boost.
The investment comes as consumer demand for probiotics is growing and health-conscious consumers are becoming increasingly aware of gut health. While consumers tend to view probiotic-rich foods as healthy, there are still lingering questions over the effectiveness of probiotics and the science that touts their benefits. A 2015 meta-study found little to no evidence that probiotics "improved the balance of gut bacteria in healthy adults," according to the UK's National Health Service.
Regardless, the probiotics market is a fast-growing opportunity for food brands and manufacturers looking for new revenue streams. According to a report from BCC Research, the global probiotics market for the food and beverage industry is projected to grow 8% annually from $24.8 billion in 2015 to $36.6 billion by 2020.
The investment in a probiotics food startup is a first for General Mills' venture capital arm 301 INC. The fund has invested in six other companies to date, including plant-based snacking startup Rhythm Superfoods, high-protein cottage cheese manufacturer Good Culture, dairy-free protein bar brand D's Naturals and plant-based meat startup Beyond Meat.
“We’ve been watching the functional foods space grow exponentially over the past few years, with Farmhouse Culture emerging as a leader,” John Haugen, vice president and general manager of 301 INC, said in a statement. “The recipe for success is there: probiotic-rich products that taste great, led by a team with strong experience in the natural foods industry. Our collective goal is for consumers across the country to have access to the full line of these products.”
General Mills and other major food manufacturers have turned to investing in startups in recent years as they have struggled with declining sales and weak growth, especially at a time when consumers are turning toward increasingly healthy food options in the grocery store. In the company's most recent earnings report, General Mills said its comparable U.S. sales tumbled 6% during the quarter — a number that's worse than the industrywide sales decline of 0.6%, according to the Wall Street Journal. Profits at the food maker, known for its Nature Valley granola bars, Annie's organic products and cereals such as Cocoa Puffs and Cheerios, fell 9%. The company blamed its disappointing earnings in part on the fact that it didn't launch enough new products.
A smart bet on a fast-growing startup could help General Mills turn those fortunes around. Nascent companies like Farmhouse Culture can point to where the big food giants need to go — and if these startups really do strike gold, they could lead to further investment or an acquisition down the line.