Recently, something noteworthy appeared in my inbox. It was an annual report from AgFunder.com titled “AgTech Investing Report: The Year in Review 2016.” It dissects by category whether investment capital is going to drone companies, e-commerce grocery stores or startups that are growing insects as a mainstream food source. Yes, you heard me right. People are betting on bugs as the new kale!

After digesting the report, it is clear to me that we may be in the midst of a generational upheaval in how and where food is grown. More importantly, it showed that investors are betting against the current status quo in how food is purchased, consumed and viewed by consumers. 

A majority of this “seed” money is not going direct to improving production. Instead, it’s improving the “consumption” experience of food itself. Of the nine different investment categories defined by AgFunder, it was the food marketplace/food e-commerce sector that dominated the lion’s share of investors’ dollars. This niche accounted for 40% of the total funding, or $1.29 billion, last year.

 

Who’s Buying This? Blame it on millennials, but food retailers are struggling to provide the online options that their customers now require. According to Rabobank, this market is worth at least $60 billion.

Meals in a box sourced from locally grown produce are quickly becoming this generation’s equivalent to the frozen dinners regularly eaten back in the day by their parents or grandparents. The U.S. company FreshDirect was a great example of this trend. It garnered $189 million in funding. And this trend is not confined to borders of the U.S. Two other companies, BigBasket.com from India and yiguo.com from China, also topped this trend.

The big unanswered questions are whether these companies can source the necessary quantity and whether they can maintain consistent quality from a matrix of local production sources.

 

The Logistics Of It. If these “locally” sourced niches continue to take root, then the present bulk commodity supply chain and underlying infrastructure we’ve relied on since World War II will need a 21st century makeover.

In the AgFunder report, we’re seeing early stages of this happening. This is true farm-to-fork sourcing that’s taking place, and investors are already putting money in high-tech farms and robotic greenhouse operations such as BrightFarms and Shenandoah Growers.

These new kind of “family” farms have figured out how to grow food closer to their customers and, more importantly, grow a new level of trust in this emerging marketplace. Meanwhile, traditional producers are caught in the paradox of large-scale agriculture where they buy everything at retail and have to peddle what they produce at wholesale.

Investors are betting that the future of the food industry belongs to those whom the next generation of consumers trust the most to feed them. Right now, for most of traditional agriculture, that question of trust remains unanswered. Could this new “millennial” model of food production and trust be replicated on a much larger scale? Billions of dollars are betting that it can.