Tyson Foods launches $150 million venture fund, to be based in Chicago

Springdale-based Tyson Foods Inc. has selected Chicago as the home of its newly created $150 million capital venture fund focused on investments in food innovation and technologies. The fund’s first investment was a 5% stake announced in October with the startup Beyond Meat, a vegetarian food product company.

Tyson New Ventures LLC will be managed by Mary Kay James, recently named vice president and general manager of the fund, according to Tyson’s announcement Monday (Dec. 5). James was the managing director of DuPont Ventures and the chairwoman for the National Venture Capital Association. James and a small team will work out of the company’s Chicago home base, the former headquarters of Hillshire Brands, where much of Tyson Foods marketing and brand strategy personnel now work. Tyson New Ventures is a subsidiary of Tyson Foods Inc.

The company said New Ventures will seek out startups that complement Tyson Foods’ existing business and product development efforts. They will focus on the areas of alternative proteins, elimination of food waste, and leveraging innovative trends in technology. Tyson said the fund is about broadening its exposure to innovative, new forms of protein and ways of producing food, while remaining focused on the core fresh meats, poultry and prepared foods businesses, which are also experiencing consumer demand and growth.

Tyson said the fund will concentrate on three food areas:
• Commercializing safe and affordable alternative proteins;
• Tackling food insecurity and food loss through market making and other commercial models; and
• Tapping the internet of food to promote more precise and productive resource application, safety, and consumer empowerment in the food chain.

“We intend to collaborate with promising food entrepreneurs who are pioneering new products and technology that are making meaningful changes and improvement to food systems,” said Monica McGurk, executive vice president of strategy and new ventures and president of foodservice for Tyson Foods.

McGurk is based in Springdale.

“We believe we can accelerate the growth of startups through our capabilities in such areas as food and culinary research and development, sourcing, insights, customer relationships and distribution. By doing so, we hope to materially advance the state of the U.S. and global food system, McGurk added.

The venture deal follows Tyson Foods CEO Donnie Smith’s announcement of his retirement at the year-end. Smith, who recently turned 57, negotiated a three-year consulting contract with the company valued at more than $12.8 million with a stock portfolio valued at $27.425 million, not counting options and deferred income which will vest on Dec. 31. Tom Hayes, a former Hillshire executive, will succeed Donnie Smith as Tyson Foods’ CEO on Dec. 31.

Smith, who recently spoke to business professionals in Northwest Arkansas, said when the Hillshire Brands acquisition was completed he wanted to take a “Brady Bunch approach” to how he staffed the top-tier executives of the new combined company. He said half of the execs were from Tyson’s own legacy ranks, and half of the execs were from Hillshire Brands.

THE CHICAGO ANGLE
Tyson Foods said travel logistics and connection to the investment community is why the fund is being based in Chicago.

“Chicago was chosen because of the strength of ag tech in the Midwest and greater accessibility to other investors and entrepreneurs. Chicago is also a travel hub,” Tyson Foods corporate spokesman Gary Mickelson said. “While Tyson New Ventures will be based in Chicago, it will still rely on the expertise and involvement of team members from other company locations, including our world headquarters in Springdale.”

Clint Lazenby, who has many years in the food industry and is a former Lamb Wesson executive, said Chicago and Dallas are the biggest cities in proximity to Northwest Arkansas with a food focus. He said Tyson Foods already has a team in Chicago of brand marketing and innovation. He said it makes sense for the company to put the venture fund there so long as there is ongoing engagement between top executives in Springdale.

“I think the venture fund is a nice move for Tyson Foods, but it’s not anything new. FedEx, UPS, Campbell’s Soup and General Mills have all made similar plays in recent years trying to position themselves on a growth trajectory,” Lazenby said, adding that as long as Arkansas entrepreneurs have access to the new Tyson Foods fund, where it’s located is not material.

Alan Ellstrand, who studies corporate governance and is professor at the University of Arkansas, said Northwest Arkansas would have benefited more if Tyson Foods had chosen to base the venture fund in Springdale. While he’s sure local startups could still have access to funds if their innovation can benefit Tyson Foods, Ellstrand said loss of personal connections which startups often need may be difficult for Arkansas-based startups with the fund managers in Chicago.

“It also takes away from the local angel networks in this region that have been working for so long to gain traction on the national scene. I am sure Tyson’s decision to locate the fund management in Chicago was thought out carefully, but Northwest Arkansas loses something by not having it located here,” Ellstrand said.

Ellstrand did agree Chicago has better access to talent and food expertise that may not be as available in Northwest Arkansas. He said as Tyson Foods continues to morph from a chicken company and meat packer into more of a food company, former Hillshire executives may have greater control of the company, and it’s possible Tyson’s growth could be more centered around Chicago than Springdale.

EXECUTING INNOVATION AT THE PLANT LEVEL
Product formulations and work conducted at Tyson Foods Food Innovation Lab in Springdale is the extent of Tyson’s innovation. Market watchers suggest more innovation and new ideas will be needed Tyson Foods wants to grow an e-commerce presence with Amazon, Walmart and other online food outlets. Lazenby said Tyson could get that expertise though the new fund, perhaps taking a stake in startups like Blue Apron, Home Chef or Peach Dish, which focuses on healthy Southern-inspired meals.

However, Lazenby said Tyson Foods leadership will have to figure out how new operational technologies can be tested and deployed in production plants without disrupting core businesses, like running chicken McNuggets for McDonalds, or processing chicken parts for retail sale.

“I know in the past Tyson management has been very interested in working with entrepreneurs offering promising technologies to enhance the overall business. But when it required the disruption of a plant’s operational schedule that was a different matter. Consequently some innovations never got adopted,” he added.

Tyson Foods shares (NYSE: TSN) closed Monday at $57.27, up 22 cents. Over the past 52 weeks Tyson shares have traded between $48.52 and $77.05. Shares are up about 7.8% year-to-date, trending downward from the near-$77 range in late September, after the company became entangled in class-action litigation involving alleged price collusion with its competitors.