A year after a record amount was invested in food technology, a panel of investors at Future Food-Tech in San Francisco last week said the money will keep coming in 2022 to help fund an expensive growth plan for the sector.
In 2021, a total of $12.8 billion was invested in food tech through almost 1,000 deals, according to statistics Crunchbase presented at the conference. This doubles the amount invested in 2020. Food tech is defined as companies that are bringing technology to improve the way food is made and its longevity, as well as improve agricultural outcomes and efficiency.
Phil Erlanger, co-founder and managing partner at Pontifax Agtech, described last year's food tech investment climate as "a massive amount of capital" and "a huge amount of exuberance."
Chuck Templeton, managing director at S2G Ventures whose firm participated in 45 funding deals last year, told conference attendees that food technology is getting to the point where there are tangible results tied to raising money, and the potential of some of these companies is becoming apparent.
"Every time we think something has been invented, there's this leapfrogging technology or capability," Templeton said. "We've seen the technology from Silicon Valley and Austin and Boston start to move over to food and ag, like a lot of the computational capabilities, machine learning or AI. It's really interesting now."
The panel at the conference talked about how the enthusiasm for food tech is not likely to end anytime soon. As the session continued, a massive screen behind them filled with sketches illustrating some of the things that need investment, including bioreactors for fermentation and scientists to work on R&D. It also included reminders about what investors are looking for in food tech companies.
More money, more investors
It's not just that 2021 was a huge year for traditional food tech investors. The segment attracted interest from more traditional banks and financial firms, said Matt Spence, a managing director with 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 expanding population has inspired more traditional funders to diversify into food, he said.
Food tech companies definitely need the money. The equipment to do the kind of science needed to produce different kinds of protein — including equipment for plant-based protein, fermentation to make meat analogs or common animal proteins, or growing meat or fat from cells — is extremely expensive.
Templeton estimated for alternative proteins alone, another trillion dollars worth of infrastructure needs to be built in order to meet the demand that exists. And while he said the companies that can do this most efficiently are likely to succeed in the long-term, investors may see a lot of opportunity for more capital because there's a lot of room for improvement in the products.
Spence said the amount of capital food tech is looking for seems high, but it is not much compared to many other technologies that have seen larger investments in the last decade, such as cybersecurity, energy tech and self-driving vehicles.
There are three big things Spence said companies wanting to be successful in the space need to have: great R&D and food tech in order to make a product consumers want, good branding and a way to sell products to consumers while having access to supply chain and production capabilities. Executing on all three requires not only passionate founders and smart scientists, but access to funds and expertise — the type of thing that comes from an advisory board or a helpful investor team.
But in order to truly build out the alternative protein and future food space, Pae Wu, SOSV partner and IndieBio's chief technology officer, said more investment will be needed. The sector also will benefit from new insights and technology that will reduce operating expenses and build the infrastructure needed to bring it to the nine billion people expected to be living on the planet, Wu said.
"There's the picks and shovels that underlie this entire space," Wu told conference attendees. "And I think there's a lot of opportunities still to find ways to bring down the costs."
"There's no lack of interest. Our judgment is there'll be plenty of capital to support the maturing companies that are real winners."
Co-founder and managing partner, Pontifex Bio
Erlanger, who has a Ph.D in economics and finance and has been working in the financial sector for more than 25 years, anticipates that as more investors and people in general start to consider agriculture as a critical investment in natural resources, and as the sector continues to mature, more investors will find the places and companies that are more promising for returns.
"We're all looking for opportunities to deploy at various points on the way where we can get attractive, risk-adjusted return, but there's no lack of interest," Erlanger said. "Our judgment is there'll be plenty of capital to support the maturing companies that are real winners."
Panelists also talked about the increase in partnerships with large food companies, both by using their technology in product development and through investments, such as those made by the venture arms at Tyson Foods and Archer Daniels Midland.
Wu mentioned the partnership between SOSV portfolio company NotCo and Kraft Heinz, in which the legacy CPG giant will work with the AI-reformulation startup to produce co-branded plant-based products at scale. One thing this partnership does in terms of future investment in NotCo is help prove that there can be meaningful margins for making food that way. And, Wu said, once that proof is out there, it could seem like less of a big deal for investors to fund capital expenditure costs needed for manufacturing facility construction.
Playing the long game
Spence said companies looking for funding should think of the long game as they plan ahead. As they prepare to raise money, they should look at not only the partners they want for funding immediately, but those whose support they may desire in the future. Companies also should evaluate their plans for an initial public offering. Those future funders or public investors will have benchmarks they want to see and financial goals they want the company to hit. Businesses should start planning to reach those now and work them into their long-range timeline.
Erlanger added that as time passes, more startup companies making financial exits would show investors how much value there is in the sector. There have been few initial public offerings in the space so far, including Beyond Meat, MeaTech 3D and Ginkgo Bioworks.
But as more investors continue to get excited about food in general, Spence said there is still one important thing all of the startup companies really need to do: Be able to communicate to people and groups who are outside of the food tech space.
"We in here understand what's happening, but we are still a small, small drop in the bucket of others who are starting to realize that," Spence said. "Having and telling the story of what these companies are doing, and what the industry is doing, that I think is the next ongoing challenge we really have."