Why we invested in yamo in 2018 and what we have learned along the road
yamo, the Swiss foodtech startup creating and offering healthier food for babies and young children, just announced a EUR 10.1M Series A investment round. The round was led by Five Season Ventures, one of the leading food VC’s in Europe. They were joined by industry experts like Müller Ventures and other VC’s like btov Partners, Backbone Ventures and the Swiss Entrepreneurs Fund. With Ringier Digital Ventures, we also participated in this round but our journey with the team started much earlier…
How it began
We got to know the team around Tobi, José and Luca for the first time in the summer of 2017 at the start-up competition >>venture>> at ETH Zurich. The product was not live yet but they had some samples available already. They caught our attention because we not only made great experiences and learnings in the direct-to-consumer space with our investment in Foodspring but also because I personally learned firsthand how it is to prepare baby food twice a day as a proud father of a baby boy. In addition, we got a recommendation on the founder team by our very successful Movu founder Laurent Decrue who brought us a good portion of basic trust into the yamo founders. Nevertheless, it was too early for us to make an investment since our investment guidelines require first traction in the market.
Consequently, we passed for the first round of financing while the Movu founders led the round together with other business angels. This allowed us to follow the team and their progress closely. Then in spring 2018, time was ripe for us. Together with btov Partners and the existing investors, we invested in the company for the first time and took the lead of the round.
Why we invested
There were several convincing reasons for us to back Tobi, Luca, José and their team which still apply today (the order does not represent a specific ranking):
💰 Large market
The total addressable market for baby and toddler food in Europe is huge. You can take the number of births per year in Europe, which amounts to roughly 5.1M births per year (according to Eurostat), and multiply this by the number of 120g portions a baby eats until the twelfth month (1’000 portions according to the Swiss Infant Feeding Study) and the price of traditional babyfood. You should end up with a marked size of around EUR 4.8B market size. When adding breakfast and snacks for toddlers to the formula, the number is increased to EUR 41B. While the market for baby purees is relatively stable according to Statista, new categories such as healthy snacks and pouches are growing enormously.
👎🏼Almost no innovation
The market for baby and toddler food is dominated by very traditional and successful consumer brands. Their organizational and production setup is designed for long product development cycles and traditional methods of production or logistics. Even when the packaging or design changed, the production method with heat sterilization remained the same. When using heat sterilization during the production process, some healthy vitamins as well as the colour, taste and smell of the ingredients are harmed to some extent. Nonetheless, the traditional brands were able to conquer the market and to dominate it for a very long time with these products. If parents looked for a real alternative which followed the general food trends of fresh, organic and natural food, they had to prepare the food or snacks themselves. This in times when there was actually a technology on the market that would allow a production according to the needs of the parents. José, Luca and Tobi discovered exactly this gap and were and still are putting all their efforts into closing it.
💡 Customer proximity and data insights
The direct to consumer model of yamo, whether as one-off-sale or subscription, allows a closer proximity to the customer. Until now, baby and toddler food has been sold through retailers, where the brand rarely interacts directly with the buyer and where it recieves almost no data on the consumer behavior. However, it is precisely this proximity to the customer and the respective insights that bring enormous benefits in marketing, product development and customer satisfaction. This greatly accelerates the improvement cycles and allows for a close exchange between all areas of operation.
👦🏽 Team
Three men without children, without experience in neither the baby nor the toddler food segment and first time founders sounds like trouble! Yet, in our eyes, an early-stage investment is always associated with risks. But over time, as we observed the team closely, many of those doubts have dissipated. They approached the task without bias, had to find their own solutions and never stated an “it’s impossible” even though the competition from the traditional players is very strong.
It’s a marathon, not a sprint
In the first two years of our investment, yamo developed extremely well. But, as with most startups, if there are many ups, there are also many downs! Showing off with the up’s is always easy but learning from the down’s is the key to success. We would thus like to discuss the most important learnings from our joint journey with yamo so far:
One product category is not enough for success: yamo started very successfully with the category of baby puree in 120g cups. The customers loved the products, but a baby starts to eat puree in the age of 4–6 months. The portions then get bigger very quickly and around the first birthday, it starts to eat solid food. Accordingly, the lifetime value of a customer is limited compared to the cost of acquiring him or her. Therefore, the team increased the size of the cups to 200g with a second puree product line, which impacted the ingredients and amounts in the recipe, and developed new product categories for children older than 12 months. This resulted in the pouches introduced in 2019 and the yamoghurts, which were brought to market just recently and allowed yamo to enter another new customer segment (snacks). The yamoghurts are a market novelty as they are the first oat milk-based yoghurt for children in Europe.
Customers want to test the products: For their own children, parents naturally want only the best — everyone with children can probably relate to that. Consequently, buyers want to test the products instead of directly buying a package of 16 products. yamo had to find a way to cater to this need: first through a test box, which however did not bring the required results to be profitable on a customer level. As a second option, yamo started to sell their products through the retail channel. This allowed customers to buy single products in the stores and to get the full yamo experience online afterwards. The young company managed to be the first company in Europe to bring fresh baby food to the retail sector in cooperation with Coop (see picture below). Other international retailers like dm, Rewe or EDEKA are about to follow.
Building a trusted brand: Trust is a very important factor in the sector of baby and child nutrition. yamo had to learn to give a lot of context to the products, the development and the testing. Therefore, advertising, appearance, branding etc. had to be designed differently (for example names, colours or key words in the communication) compared to other fast-moving consumer goods brands.
Tough competition: When a founder or a company tries to redefine a category, resistance does not take long. It is a natural reaction of an established brand to defend its market position with both the customers and the fiercely contested retail shelf space. Ways to defend this market position can be manifold but the yamo team and its investors have so far taken such acts as a compliment to their own progress and success.
To sum up, yamo learned a lot over the last couple of years, became stronger and reached another well-deserved milestone with this Series A financing round. With the new funding, the team aims to push further growth in Europe. Nonetheless, there is still a long way to go to become the category leader in the baby and young children nutrition space, especially if they want to change the whole category. But with Ringier Digital Ventures, we are proud to back them in this marathon and are in for the long run! 💪🏽
