The Challenges for Nutraceutical Start-ups

There are many challenges facing start-up and early-stage companies in the dietary supplement business and the broader nutrition industry. The first and most obvious challenge is developing a viable product with a background in scientific evidence and product efficacy, not to mention excellent branding, positioning and packaging, and ensuring good taste (if it applies) or consumer comfort when ingested.

The bar has been raised even higher on scientific evidence in the last five to 10 years. Early-stage companies need customers to have a basic understanding of the ingredients involved, and partners that sell or represent the product need more than just animal studies or proof of safety and a claim that is general in nature. For an investor looking at a company from the outside, these product attributes need to be clear-cut and, if possible, unique, including an intellectual property strategy usually involving patents and a protection strategy around those patents.

Distribution strategy is also very important as there are so many ways a consumer can buy supplements these days. In general, investors prefer a narrower focus and a strong position rather than trying to sell everywhere to everybody. Take targeting by demographics: in many cases, for early-stage companies it is preferable for the brand or product to target a specific population to gain a strong or dominant position in that group, rather than trying to appeal to all customers across a larger market.

Another important point is, to the early-stage company, proof of concept often means little more than having a product in the market that a consumer will buy. At the other end of the spectrum is a private equity company that generally defines proof-of-concept more rigorously as $10 million in sales and $3 million in earnings or profit. When it comes to branded products, whether it's a natural food or healthy better-for-you food, or even a supplement with science behind it, most investors will look at it as a consumer product and value it accordingly based on its ability to generate cash flow rather than on its science, or potential, or intellectual property valuations. This is like the biotechnology industry where a path to prescription drug status is more prevalent.

So, when Nutrition Capital Network (NCN) and its selection committee members pick 15 companies to present their business plans at our fourth NCN Europe investor meeting on Monday, May 8—the day before Vitafoods Europe opens—we consider these product attributes, the maturity of a business model around that product, and the management team responsible for that business to be among the most important criteria in making our selections. We also evaluate many basic science projects or initiatives that have yet to make it to the product stage, but these usually need to have $1 million or more behind them in research funding and scientific data to support a unique compound or formula. If not, they would need a value proposition they can sell or license to a larger distributor who sells ingredients with pre-packaged claims and could be a logical partner for them from an investment or distribution partner standpoint.

Nutrition Capital Network’s fourth annual NCN Europe Investor Meeting focuses primarily on science, technology and ingredients in the nutrition and health and wellness industry. Finished product companies in consumer health, supplements or functional, natural and organic foods will also be considered, but will be held to a high scientific standard.

Companies interested in presenting at NCN Europe IV can apply here.

Grant Ferrier is CEO and Principal of Nutrition Capital Network and Co-Chair of NCN Investor Meetings.