Among people steeped in the food space, there is a lot of technology — both in use today and in development — that they find truly exciting.
But cell-based meat, compostable plastic, massive smart greenhouses and meat alternatives made out of unconventional sources don't exactly measure up in terms of investment capital to the things some of the bigger tech and healthcare players are dreaming up.
"I think in many ways, we are undercapitalized," said Sanjeev Krishnan, chief investment officer and managing director at S2G Ventures. "I mean, in some ways, there's not enough hype. ...We have a tanker ship industry and there's going to be a lot of speed boats."
Despite the current lack of hype, there is a lot of investment money coming into the larger food ecosystem, and many startups and projects working to improve a vital industry. Krishnan and several others from the food investment space talked about the current state of investing, financing and companies getting into the next big startup at a session at the virtual Future Food-Tech conference last week.
Even though the COVID-19 pandemic has brought significant disruption and changes to global business as a whole, several investors said there has been no big change in overall investment strategy during the past year. Rahul Ray, director of Tyson Ventures, said they are always looking for the next big thing that has the ability to grow and change the food system. Layered on top of that is a distinct interest in emerging proteins, technology enablers and sustainability.
And, of course, Ray said, they're always looking for good partners for initiatives in progress at Tyson. The meat company's VC arm recently invested in Iterate Labs, a wearable tech firm that makes motion tracking sensors to help analyze what plant workers are doing and improve safety. Ray said there was good feedback on the technology from Tyson's business units, which led the venture arm to put money toward an earlier-stage company than it had previously invested in.
Ray said he had looked at about 1,400 companies for possible investment.
"We have a technology mindset, and Ventures is sort of that edge of that," Ray said. "...We look for technologies that can get us there. And some of our investments reflect that philosophy as well."
"We have a tanker ship industry and there's going to be a lot of speed boats."

Sanjeev Krishnan
Chief investment officer and managing director, S2G Ventures
Ali Morrow, a principal at Astanor Ventures, said the past year has been more of an affirmation for the firm's investment strategy.
"People care more about where their food comes from. They want more trusted sources of food. They want food that is enabling of human health," Morrow said. "There's a greater understanding of the fragility of the food system, and those are all points that certainly our firm and our investments were founded upon, so it's been a magnifying glass to that."
Morrow said that means moving Astanor's focus further up the supply chain to the source of food, rather than companies in the manufacturing business. Some of these include newer and more unique technology to aid food production on the farm. The firm is also interested in "generation two" of plant-based foods — companies that go beyond simply trying to replace animal with plant products, and are trying to find new ingredients and processes that are better from a nutritional and sustainability standpoint. It is interested in companies trying to find new and functional fats, as well as those focusing on ocean regeneration and sustainability.
S2G Ventures, which invests in agriculture technologies, food companies and supply chain tech, is focusing on gaps in its portfolio. Krishnan said the firm is very interested in new solutions for the supply chain, as well as developers of plant-based fats and lipids. It is also investing in robotics to work in next-generation concepts like vertical farming.
"Each of these sub-verticals we're sort of feeling out where there's a friction and a problem set that we'd like the entrepreneur and startup community to solve," Krishnan said.
A lot of funds today are flowing more upstream, he said. This could be a result of investors — at big financial firms, food and ingredient companies and individuals alike — becoming frustrated with a lack of progress on issues of food waste, sustainability, land and water use, and the health profile of products. This means more pools of funding in more places to try to solve some of these issues.
While venture capital and investment firms are providing a lot of the cash injections in the food business today, the hottest new way to raise money is the special purpose acquisition company, or SPAC. These entities, which go public with the intention of merging with another company, are a popular tool in finance to bring a diverse array of businesses to the public market. Hostess's 2016 rebirth came through a SPAC deal, but so did the much more recent trading debuts of Utz, AppHarvest and Stryve Foods. Meanwhile, other food-aligned companies are forming their own SPACs, including Post Holdings and HumanCo.
"The SPAC market is not some cool nightclub downtown where we can do all kinds of weird stuff we can't do in the public markets. You are going to be a public company. You are going to eventually have to do public company reporting. Get numbers, have an investor base that's real and sustainable."

Erik Oken
Global chairman of investment banking, JP Morgan
SPACs are not a new way to raise money for companies, although they certainly provide a quick infusion of cash to businesses that need a lot of specialized equipment to start out, like those that do indoor farming or cell-based food, Krishnan said. Erik Oken, global chairman of investment banking for JP Morgan, said that while the SPAC is becoming trendy, it has the same end result as a more traditional IPO.
"We should not kid ourselves. The SPAC market is not some cool nightclub downtown where we can do all kinds of weird stuff we can't do in the public markets," Oken said. "You are going to be a public company. You are going to eventually have to do public company reporting — get numbers, have an investor base that's real and sustainable. So, what I think happens here is it will be a tool for the right company with the right profile."
As the SPACs come more from entities that truly know the food industry, Oken said, these companies will become an even more powerful way to generate capital and give a business a strong position with the public. And in conjunction with established food companies, they could represent the next way that Big Food reaches out to take advantage of what challenger brands have to offer.
"It's a little bit like some of the smart ideas that the Tysons and General Mills of the world thought of 10 years ago, where they were like, 'Look, we can't pay 15 times revenue to buy this company outright, but maybe we need to have a venture arm that is looking at things and bringing information back to the home base, but also getting their finger into interesting food innovation,' " Oken said.
"That movement, I think, has been very smart," he continued. "The corporate SPAC could be also another direction this goes. There are things that, in theory, a Post could do in that entity, including even acquisitions, over time roll up [mergers] that they couldn't do with a conventional EBITDA-valued business."