1) The document discusses opportunities for food technology startups in China, including addressing issues like food safety, health, and sustainability. 2) It notes consumption upgrades are driving demand for higher quality food products. Technology is poised to be a disruptive force in the food industry as it has been in other sectors. Emerging areas like alternative proteins and insect proteins could see applications in China. 3) The author believes there are significant opportunities for food startups in China to address issues of food safety, waste, and access through innovative applications of technology.

1. Do Food Tech Startups Have the Recipes for Consumers of Tomorrow
—Joseph Zhou, Investment Partner, Bits x Bites
My speech topic today is much the same as the theme of this conference,
which is about innovation. I am very pleased to see that the topic of
innovation is being discussed. I would like to talk about a passage which
a state-owned CEO shared with me when I discussed the topic of
innovation with him last year, which I think it is a classical conclusion. He
said he spent five years in the enterprise doing so much innovation, but
finally he understood he was the bottleneck of the enterprise’s
innovation.

2. For such a large traditional food giant, when talking about innovation,
they are actually forced and helpless. Because innovation, for bosses,
means that they invest a large sum of money, but the return they can get
has a high uncertainty. There is a big contradiction logically, because
when these bosses face pressures from investors, they should submit the
report about income increasing and cost reduction. In the face of such an
obvious economic downturn, their pressures are being forced to do
innovation and to invest more R & D costs without seeing any results at
the same time that revenues decrease, which for bosses is a big pressure.
If we talk about innovation from another point of view—startups’
perspective, they are very dynamic and have no burden, and we can see
innovation from this point of view. We are not just talking about it today,
but we also bring you a case which shows that innovation can actually be
done with very little money and achieve the influential effect in a very
short time.

3. We spent 100 days and 1 million yuan of budget on this project. We
made a boutique ecommerce in Shanghai, but in fact we only did three
things. Firstly, we used very strict standards to purchase food from
surrounding small farmers, ensuring that the food we provide to
consumers was the healthiest and safest. Secondly, in order to let
consumers know what we have done specifically, we have created
nineteen standards to tell them what test we have done, and then
provided products to our customers. Lastly, in order to improve user
experience, we decided to establish our own storage and cold chain
equipment which can enter the market in 100 days. I think for a lot of big
businesses, 100 days is a very short time, which is almost a fraction of
their budget.

4. Why do we think that it is more efficient to innovate in such a lean way?
When we compare conventional innovative ways and lean ones, we find
that innovation in conventional large institutions, in fact, from the very
beginning, is done by the person who is from high-level leadership,
often the chairman. Decision-making mechanism is also from top to
bottom. But the responsibility of the development of this product and
the success or failure of new products listing may be taken by a
department head, so that he or she in the company management has a
lot of pressures from the company's internal communication mechanism.
Time requirements will also be very long, traditionally 18-24 months, but
now some institutions have slowly simplified to 12 months. One
advantage of big institutions is that they really have a lot of resources.
What they lack is just an idea that truly fits consumers, or a very fast
executive power.

5. Our decision-making is more consumer-centric, which is a core starting
point. In the risk-taking ability, we originally accept that he will fail, so we
expect to fail at the minimum cost, and then let us learn quickly. Our time
is 100-120 days, and our resources are very scarce. We have nothing but
an idea and strong executive power.
Therefore, driven by such a background and environment, the Bits x Bites
we decided to set up is the first accelerator + VC in China which focuses
on food technology, including in the investment and the core value, we
hope to use technology to build our new value chain to provide good
food for humans of tomorrow. We divide consumers’ demand for food
into four stages. The first stage is being stuffed. But for Chinese market

6. and consumer’s environment, it is at the stage of eating safely and
eating healthily, which are more of our focus. Then we want to make
people more concerned about food through food education. When we
make investment options, in addition to looking at the company's
business purposes, we will also see its social values, the concepts it wants
to bring to society, or the problems it wants to improve.
Judging from the industry value chain, our investment distribution is
very far-ranging, which will be from the most originally agriculture to
production to distribution & retail and to learning. Each big field
throughout the industry value chain can be divided into different
subdivisions. In subdivisions, there are pain points which need solving
with technology or service from smarter people.

7. Judging from the investment field, our field distribution is relatively
far-ranging. We see four categories. The first is CPG which is
prepackaged food we see on the shelf; we also see software and
hardware which can be combined together into IOP; we also focus on
biotechnology. In China, there are more prepackaged products and less
software and hardware in the food field, but there are some. At present,
most of biotechnology is from Silicon Valley, which we will later have a
more detailed description to share with you.
At the Bits x Bites there is a key point. We will give you 120 days of course
for the core of the whole project. In the 120 days, we will help you grow
from 0-1 or 1-10. There may be only one or two people when the team
join in Bits x Bites. And there are no products but ideas. We help him to

8. evaluate, so that he can continuously do improvements and updates of
products after consumer research within 120 days. At the last 120 days
when we throw a demo day, they can display the product to users, and
investors may even be the media. And some teams join in Bits x Bites
with products. They already have very early users. The next thing to do is
the expansion of channels. In this respect, we will provide many
resources which may be the improvement in the packaging, design on
the UI, or something else. Whether it is expansion in online or offline, we
will exchange resources and provide additional value to them at this
stage.
A startup in Bits x Bites will get capital investment, and we will even have
equity investment. In addition, we will have a strong mentor group who
are experienced experts in the field of food science and technology to
provide consultants and guidance for startups. Besides, there is a very
strong community resource that has all kinds of people who love science
and technology and are concerned about food safety to share
experience with you. In this community, there are angel investors to see if
there are any projects worthy of investment; there are lawyers to provide
consultations for early projects. Startups may need a lawyer's assistance
in how to register a company, a trademark, and a sign.

9. More importantly, everyone in the core team of Bits x Bites has his or her
own entrepreneurial experience. We will share with entrepreneurs our
entrepreneurial experience, pit we stepped on and mistakes that we
made, hoping that they do not make the same mistakes. We understand
that they will definitely make mistakes, but we hope that their mistakes
are new ones and at low cost. We also hope that they can join this
community in the future and share their mistakes with the follow-up
businessman to let entrepreneurship become more efficient, more
scientific and more successful.
Next we want to share with you from the investor's point of view. Actually,
in China, food technology is still a relatively new concept. Why do we do
it? What trend did we see?

10. The first one is consumption upgrade we have been discussing in this
conference. Consumption upgrade is indeed happening. Our definition
of consumption upgrade is that consumers are willing to pursue higher
performance for higher price, which is a great incentive for consumers.
Now for the traditional leader or food giants, the problem they are facing
is that they cannot sell the product out at this price. A food enterprise’s
sale can decline by 10% -20% in a year, which is a very horrible thing.
Because the growth of the food industry is not very fast, it should follow
the growth of GDP, and in China, growth is qualified if it falls to 5% -6%.
Why are we so nervous when seeing such a big recession? These
state-owned executives are nervous too. According to their judgments,
the price will be reduced at a certain degree if they cannot sale the
product out. It must be their first step. But strange thing happened; they
could not sell the product out even after the price had been reduced.
Why? Is the economics principle wrong? In fact, it is not wrong. It is just
that this curve changed. That is, your product is not in this curve.
Therefore, you cannot see change in demand even you do any
adjustment. In other words, consumption upgrade pushes the whole
demand curve up. So the consumption upgrade we do now is to find the
new curve. We are finding it with different new products.
The price has been changing all the time, but what is constant?

11. Consumers are not pursuing cheaper products, but the highest
performance. Frankly speaking, consumers never want to buy the
cheapest product, but the product that will make them fell profitable.
Once they have this feeling, they tend to buy. We see a good trend now
that consumption upgrade is indeed happening in China. We saw several
categories, including new Greek yogurt which sells 8x higher than
traditional ones, HPP juice which brings better juice, more fresh concept
and sells 6x higher than concentrated ones. And it is also happening.
Craft beer sells 6x higher than industrial beer. In China this may also
occurs, and may be faster than consumption upgrade in US.
The second observation, we believe that technology will become an
important force in the industry, which will bring overturning changes. It
already did bring overturning impact in different fields in the past 5 to 10
years. In traffic, we have Didi and Uber; in accommodation, the power of
science and technology affects Airbnb; in the field of food, we have not
seen a project with impact happen. Of course we think this time is
coming soon. For example, we just shared biotechnology, which may be
the next overturning force in this industry. Now in this field, most
investment occurs in Silicon Valley. The hottest three fields in Silicon
Valley are about alternative protein. The reason to solve it is continuous
growth of population. In 2050 we have 9 billion of population, but we

12. cannot meet their needs in this time. Silicon Valley’s entrepreneurs and
investors are crazy to do one thing — alternative protein. What is
alternative protein? It has three main fields. The first one is lab-meat,
"laboratory meat", which sounds terrible. Therefore, they changed it. It is
called clean-meat now, which is also done in the laboratory and may be
extracted from the plant or animals’ DNA. The most famous project in it
is impossible-food. It gets investment from Bill Gates and Li Ka-shing,
because the clean-meat and Hamburg of burger king at the same time
are brought to Bill Gates to eat, but he cannot distinguish the difference
of the taste of meat. When the supply cannot catch up with people's
consumption, this may be a good solution. But this project is still at an
early stage, and still stays in the laboratory. It has no way to
commercialize and enter the market. So in the future at least 10 years we
can see the product can really enter the market, as well as a reasonable
price.

13. A second one in Silicon Valley now focused on is plant protein. In fact,
plant proteins are some new products that are launched in the United
States through different science and technology. But as a Chinese
investor focusing on food technology, I firmly believe that the
application market of plant protein must be in China. Because as Chinese
consumers, we have drank soybean milk for 5,000 years. We are so
familiar with this product, and have all the bean products. It is just that
this product has not been much changed in 5000 years. In the plant
protein, we see that a lot of new technologies in Silicon Valley are
breaking through continuously. But I think its application market is in
China.

14. A third one is actually insect protein. This topic is also discussed heatedly
in the United States, mainly because from the environmental point of
view, animal husbandry like the production of cattle, pigs and sheep is
actually a very inefficient production process. Raising a cow needs to
consume 15,000 liters of water, and from the output’s point of view, it is
extremely inefficient. In addition, a cow may needs lots of antibiotics and
hormonal growth hormone in the breeding process. All of these may
affect the health of food and may also have follow-up infectious disease.
Eating beef, we may be careful of mad cow disease; eating seafood, we
may be careful of heavy metal pollution. Then people have to ask what to
eat. Actually, we have answer now: eat insects.
This principle is also verified in the United States. Two top students
graduated from Brown University and they refused high-paying job in
Wall Street but launched a product made by cricket. They also got a high
valuation and financing, and spent a lot of resources, including funds and
time doing consumer education to tell people that eating insects was not
disgusting but healthy, environmentally friendly, and even fashionable.
But doing consumer education is a big trial for products and needs to
face a great risk. But in China, we do not need to do consumer education,
because in China there is already a culture of eating insects, probably in
the northeast or in the southwest. And including my surrounding friends,

15. even working in the first-tier cities, they will eat insects when they return
home at the holidays. The types of insects are very diverse. Therefore, we
are also confident that although now Silicon Valley is the leader of the
insect protein technology, the application market of this product is in
China in the future.
Looking back the relatively whole food development, food science and
technology investment field was ignored by investors of the whole world
until 2014 which was as a turning point with a small scale and a $ 2.4
billion investment. Food technology investment doubled in 2015 while
dropped 30% in 2016. As investors, we think 2016 is on the contrary the
best year, because most projects in 2014 and 2015 are related to O2O.
Actually, O2O does not solve food safety, food health and sustainability,

16. but convenience. In 2016, although investment dropped 30%, we were
happy because more early projects had been financed and the amount
of projects increased 30% to about 200 million dollars totally. This means
that more funds will be invested in food safety, food health and
sustainability, rather than O2O that requires very high project volume.
More early projects are focused, which is a healthy development for the
whole food science and technology field. Another interesting
phenomenon is that US deals accounted for 90% in 2014 but dropped to
40% in 2016, which is a good development trend.
Back to China, in fact, we like startup in food technology most just like
Chobani, such as the Greek yogurt. Yogurt market is a very mature one,
but in the United States we bring consumers the concept of Greek yogurt
like this: you can have such a yogurt, more protein and a better nutrient
source. What I am talking with you today is not to make 1.6 billion dollars
in 10 years, but to return to how he started and where his first
production line. He bought this abandoned production line with
commercial bank loan of 800,000 dollars. This kind of thing was
absolutely impossible in China in 2005, because no commercial banks
would borrow 800,000 funds to such a company. It is still impossible in
China today, because no bank will lend a company who has no collateral
800,000 dollars to buy product line, but this is the opportunity. If such a

17. project can be put into the accelerator early, we can provide investment
opportunities to make it an enterprise after 10 years who may take 20%
market share of the US yogurt market.
This story tells us that there is absolutely a great opportunity in China. As
Chinese consumers, we are complaining every day, worrying about food
safety and food waste from the production side to the transport side to
consumers’ waste at the table. These are all opportunities. As long as
there is a waste of food, we have the idea to solve it with technology.
There is an Israeli technique that I think it can be called genius. It finds an
essential oil powder, and mixes needless power together in milling to
reduce the rate and time of volatilization. The effect of powder is the best
in the refrigerator or cold storage. When the essential oil evaporates, the
power will kill the bacteria in the refrigerator and extend the shelf life of
food in it. The technology can be used in the supply chain of origin
transportation, and even consumers’ refrigerators. It can solve the
problem of food safety, because you will no longer eat moldy food; it can
solve the problem of food waste, because the shelf life of food is
extended, even letting access has a longer consumption time and thus
reduce scrap because of zero protection and over protection.

18. Food education is concerned about most. We grow up in China and have
so many exams since being a student. We learned Chinese, mathematics,
physics and chemistry, but no one ever told us how to choose food, so
that we had a weak awareness as for how to buy it and what kind of
nutrition we need. Currently, Chinese obesity has gone beyond the
United States, which is most serious in the world. But these pain points
are opportunities. From the investment’s point of view, where the food
safety is the most serious, where the waste of food is the most serious
and where the food is the most scarce are also why we started last year
to do food science and technology investment. We summarize the
current status of Chinese food science and technology for you.
We get a conclusion from it: there is indeed a hidden gem in it. When
we are crazy about chasing some very hot projects whose valuation has
been boasted higher than the secondary market, whether we can get
down to think what problems consumers are facing and what method
can be used to solve them specifically. It is a good chance. We hope that
more investment institutions will pay attention to this field together.
When we were doing the Bits x Bites' official website last year, we said
that we were going to use technology to subvert the food industry. We
were worried if people could understand what we were talking, because
our recruitment of the project faces the whole world. I can share with you

19. that we published application in the official website. Our first recruitment
had only 8 weeks and more than 100 projects joined. We were very
worried that these projects would tell us that they wanted to open a
delicious hotpot restaurant, or they wanted to open a great coffee shop.
But none is like a hotpot or a restaurant retail project. All projects are
using technology to solve the problem of the currently whole food
industry chain, which gives us great confidence.
The quality of these projects is far beyond expectation, and many
applicants are from China, which is a great encouragement for us. We are
confident that the food science and technology industry has begun to
flourish. Through our continuous promotion in the future, offering
consumers more projects and services, making people know that
technology can really play a great influence, or have a subversive change
in the industry chain, , we really can affect the ecosystem to solve food
safety, food waste and sustainability that we focus on.
Finally, I want to share several conclusions with you. Back to the
discussion of innovation, in fact, innovation should really be simplified,
and we do not need to send an army to do this thing. What it really
needs is right soil. So back to the more specific content a state-owned
CEO shared with we in the beginning, he said he really did not

20. understand why in the past five years, the innovation team could not
innovate even with money, people, best retail place, production lines,
packaging and designers. Because the soil and the system are wrong,
and finally all these products can enter the market after his approval, but
he is the problem, all his favorite products will eventually fail after
entering the market. We hope when you are innovating, you must give
him an absolute autonomy and let him do this thing independently. So
just like flying a kite, if you dare to fly it more, it flies higher. But the boss
will be nervous about where it flies to. Investment is the kite line, and
investors establish a connection with innovative enterprises with
share-participation.
Actually, we can see a lot of innovative enterprises are acquired by large
enterprises, just because their soil is wrong. I am not saying that large
enterprises have no advantage. In fact, startups have a big risk. They are
indeed high-risk investment and worried if products sell not well. They
either have no quantity guarantee or have quality problem. And at this
time they need to combine with traditional enterprises, because
traditional ones have a lot of production, and have a strong advantage in
quality control and standardized process. It is a strong binding point, and
how to make it happen is the kite line. That is to use investment to find

21. more brands and subjects suitable for traditional enterprises’
innovation.
Finally, I think innovation needs constant learning. There is absolutely no
enterprise who can boast that he has fully understood innovation. I
participated in the forum yesterday and the day before yesterday. We as
the generation after 80s want to understand the generation after 90s
and 00s. After 10 years the generation after 90s will say they do not
understand the generation after 00s and 20s. This trend will always exist.
A product as an innovation and the representative of consumption
upgrade will be an old one after 10 years and be innovated again. We
need to find a way in innovation, which will lead us to make innovative
products and technology continuously in the next 5 to 10 years, and then
to solve products and services consumers probably need after 20-30
years.