A year after a record amount was invested in food tech, a panel of investors from Future Food-Tech in San Francisco said last week that the money would continue to flow into 2022 to help fund a plan to expensive growth for the sector.
In 2021, a total of $12.8 billion was invested in food tech across nearly 1,000 deals, according to Crunchbase statistics presented at the conference. This doubles the amount invested in 2020. Food technology is defined as companies that contribute technology to improve the way food is made and its longevity, as well as to improve the results and efficiency of agriculture.
Phil Erlanger, co-founder and managing partner of Pontifax Agtech, described the food tech investment climate last year as “a huge amount of capital” and “a huge amount of exuberance.”
Chuck Templeton, managing director of S2G Ventures whose company participated in 45 funding deals last year, told conference attendees that food tech is getting to the point where there are tangible results linked to raising funds, and the potential of some of these companies becomes apparent. .
“Every time we think something has been invented, there’s this technology or this overtaking capability,” Templeton said. “We’ve seen technology from Silicon Valley, Austin, and Boston start moving into food and agriculture, like a lot of computing, machine learning, or AI capabilities. It’s really interesting now.”
The conference panel explained that the enthusiasm for food tech isn’t expected to stop anytime soon. As the session continued, a giant screen behind them was filled with sketches illustrating some of the things that needed investment, including bioreactors for fermentation and scientists to work on R&D. It also included reminders about what investors look for in food tech companies.
More money, more investors
It’s not just that 2021 has been a huge year for traditional food tech investors. The segment has attracted interest from more traditional banks and financial firms, said Matt Spence, managing director of Guggenheim Partners, who was on the panel. The reality that food tech will help the planet in terms of sustainability and feeding the world’s growing population has inspired more traditional funders to branch out into food, he said.
Food tech companies definitely need the cash. Equipment to do the kind of science needed to produce different types of protein – including equipment for plant proteins, fermentation to make meat analogues or common animal proteins, or growing meat or fat to from cells – is extremely expensive.
Templeton has estimated that for alternative proteins alone, another trillion dollars of infrastructure needs to be built in order to meet existing demand. And while he said companies that can do this most efficiently are likely to be successful in the long run, investors can see plenty of opportunity for more capital because there’s plenty of room for product improvement. .
Spence said the amount of capital food tech is looking for seems high, but it’s not a lot compared to many other technologies that have seen larger investments over the past decade, such as cybersecurity, energy technology and autonomous vehicles.
Spence said companies that want to succeed in the space must have three big things: great R&D and food technology in order to create a product that consumers want, good branding, and a way to sell products to consumers. while having access to the supply chain and production capacities. Executing on all three requires not only passionate founders and smart scientists, but also access to funds and expertise – the kind of thing that comes from a helpful advisory board or team of investors. .
But in order to really grow the alternative proteins and the future food space, Pae Wu, SOSV partner and IndieBio’s cchief technology officer, said more investment will be needed. The sector will also benefit from new knowledge and technologies that will reduce operating expenses and build the infrastructure needed to bring it to the nine billion people expected to live on the planet, Wu said.
“There are the pickaxes and shovels that underlie this whole space,” Wu told conference attendees. “And I think there’s still a lot of opportunity to find ways to cut costs.”
“There is no lack of interest. Our judgment is that there will be plenty of capital to support mature businesses that are real winners.”
Co-Founder and Managing Partner, Pontifex Bio
Erlanger, who holds a doctorate in economics and finance and has worked in the financial industry for more than 25 years, predicts that as more investors and people in general begin to view agriculture as a essential investment in natural resources, and as the continues to mature, more investors will find the most promising locations and companies for returns.
“We are all looking for opportunities to deploy at different points along the way where we can achieve an attractive risk-adjusted return, but there is no shortage of interest,” Erlanger said. “Our judgment is that there will be plenty of capital to support mature businesses that are real winners.”
Panelists also talked about increasing partnerships with major food companies, both using their technology in product development and through investments, such as those made by the venture arms of Tyson Foods and Archer Daniels Midland.
Wu mentioned the partnership between holding company SOSV NotCo and Kraft Heinz, in which the former CPG giant will work with the AI reformulation startup to produce co-branded herbal products at scale. One thing this partnership does in terms of future investment in NotCo is help prove that there can be significant margins for making food this way. And, Wu said, once that evidence is available, it might seem less important for investors to fund the capital expenditures needed to build manufacturing facilities.
Play the long game
Spence said companies seeking funding should think long-term when planning ahead. As they prepare to fundraise, they should not only seek out partners from whom they want immediate funding, but also those from whom they may want support in the future. Companies should also evaluate their IPO plans. These future funders or public investors will have benchmarks they want to see and financial goals they want the company to achieve. Businesses should start planning to reach them now and build them into their long-term schedule.
Erlanger added that over time, more startups making financial exits would show investors the value of the sector. So far, there have been few initial public offerings in the space, including Beyond Meat, MeaTech 3D, and Ginkgo Bioworks.
But as more and more investors continue to be excited about food in general, Spence said there’s still one important thing all startups really need to do: be able to communicate with people and businesses. groups that are outside of the food tech space.
“We understand here what’s going on, but we’re just a tiny drop in the bucket of others who are starting to realize it,” Spence said. “Having and telling the story of what these companies are doing and what the industry is doing, I think that’s the next ongoing challenge that we really have.”