Dear Startup Investor,
Buck Jordan here. With the primary focus at Wavemaker Labs being emerging technology, I don’t often talk about health – but it’s something I care about deeply, both personally and societally.
However, I’m not focused on healthcare just because it’s important; it is also a gigantic market.
According to the Centers for Medicare and Medicaid Services (CMS), U.S. healthcare spending reached $4.1 trillion in 2020, or $12,530 per person. That accounts for 19.7% of U.S. GDP, an enormous chunk.
There are tons of opportunities in healthcare to build large and valuable businesses that help solve problems across the board. A lot of the technologies and trends in healthcare are hard to invest in without a really deep understanding of how hospital systems work or deep understanding of biotech and medical compounds. Admittedly, those aren’t personal areas of expertise.
However, one thing I do know a lot about is consumer products.
I’ve invested in companies like Blue Bottle Coffee (I’m sure you’ve seen one in your city) and Figs (which went public last year). Consumer products are one area that any smart investor can capitalise on, even without specialized medical expertise.
How is this related to healthcare? Well, right now there is a surge of interest and demand in new healthy, natural products. For example, sugar-free and gluten-free products are seeing huge amounts of organic growth (no pun intended). Consumers are changing their preferences, and it’s driven almost completely by health concerns. Let’s find out why…
Americans Aren’t Healthy
Why is demand for healthy, natural consumer products growing across the United States today? Well, it’s simple: Americans aren’t healthy, and we’re moving in the wrong direction.
One of the biggest health crises in the U.S. today are the rising levels of overweight and obese people. Today, 42.5% of Americans qualify as obese. When you include the number of overweight people, this number rises to 73.6%. The data is clear; a significant majority of all Americans are overweight.
Being overweight has numerous negative side effects, including increased risk of high blood pressure, heart disease, diabetes, sleep apnoea and so many more conditions. Obesity is not just bad for individual health, it is bad for the economy. Experts estimate that, annually, obesity costs the American economy $173 billion, which translates to $2,000 per obese adult. This is a huge drag on productivity and growth.
There are a lot of causes for obesity, but by far the most important driver is excessive caloric intake. Let’s face it: as Americans, in an average day, we eat too many calories. For example, a can of Coke – an emblem of the American diet – has about 10 teaspoons of added sugar. That’s a lot. The World Health Organization (WHO) recommends a healthy person have no more than 6 teaspoons of added sugar per day. The average American man consumes roughly 24 teaspoons of sugar daily.
Houston, we have a problem…
Making matters even worse, the pandemic has amplified the issue. Working remotely, commuting less, stress eating and generally moving around less has seemingly caused everyone to gain weight. Harvard Medical School estimates that the average American has put on 25 pounds throughout the course of the pandemic. The below chart from Statista shows that could be on the conservative side of things.
Investing to Make Us Healthier
While we have a collective weight problem, the good news is people are becoming more aware that what they ingest matters, especially among younger people. Consumer packaged goods (CPG) companies are noticing this shift and are adapting.
For example, diet sodas are increasingly disappearing off of shelves and being replaced with rebranded, sugar-free alternatives like Coke Zero. Sugar, in particular, is uniquely bad for your health and increases the risk of high blood pressure, inflammation, weight gain, diabetes, and fatty liver disease, among other things.
Besides sugar-free products, the market for organic food is also growing rapidly in the United States. In 2020, sales of organic food jumped 12.4% to reach the $60 billion mark – the fastest growth rate since 2013. Consumers are increasingly concerned with what chemicals are used in food production, driving growing interest in organic products. On top of all this, there are numerous categories of healthy products catering to specific health needs. For example, the market for gluten-free products has grown rapidly in the last decade, reaching $7.5 billion in 2020.
There has been an explosion of startups founded upon this clean-eating trend in the last five years. One of the earliest examples (and success stories) is RxBar which developed a range of healthy protein and snack bars; it was acquired for $600 million by Kellogg in 2017. The company’s products are gluten-free, non-GMO, low in sugar and so on.
Today, a lot of these health-focused companies are crowdfunding.
As I’ve written about before, one of the huge benefits of crowdfunding is being able to rapidly raise brand awareness and build a network of investors who act as ambassadors for your product. The healthy-product companies that crowdfund are particularly well positioned to take advantage of this effect. As a startup investor today, you have a lot of options to invest in this trend, with many more coming this year and in the future.
- AMASS Botanics: A maker of premium botanic beverages and self-care products, and a company we invested in at Wavemaker
- True Made Foods: A maker of sugar-free, all-natural condiments made from vegetables
- We are the New Farmers: Creating sustainable food products based on microalgae
- Might Monkeys: A maker of gluten-free cookies
Each of these brands are focused on improving the quality of what we put into our bodies so that we can live healthier lives. Whether it is making sugar-free or gluten-free products, plant-based or organic products, or using novel ingredients like algae, there is tremendous innovation happening in consumer packaged goods today.
The shift to healthier, cleaner products is a long-term shift in American consumer behavior that is not going to reverse. As an investor, you always want to support trends that have a long road ahead of them to develop. Healthy products are one of those trends. More excitingly, as an angel investor, you can directly impact the success of these companies by helping promote their brands and products across the world.