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Since Finistere Ventures made our first investment in 2006, the AgriFood technology landscape has grown exponentially. Over the last decade, consumer demands for convenient access to healthier, more sustainably and ethically produced food drove an explosion of investment into FoodTech as investors, corporates, and start-ups hustled to meet these new demands. Consumer preferences will continue to evolve creating the emergence of a new wave of food companies focused around sustainability, impact, and consumer convenience. Despite COVID-19, growth in the FoodTech sector has been remarkably resilient. Here we unpack some of the investment trends and tailwinds that have unpinned the spectacular growth we have seen over the last year
Continued Growth Despite, or Because of COVID?
Since 2010, AgriFood tech investment has grown at a rate of 45.9% year on year, to a total of $9.7B in 2019. We are already on our way to a record year for AgriFood investment, with FoodTech investment totaling $7B in H1 of 2020, in comparison H1 2019 saw only $4.8B deployed into the sector. The FoodTech sector continues to show strong growth in investment, furthermore tailwinds brought on by COVID, in particular a return to dining at home, have resulted in an acceleration of capital deployment in 2020.
Over the last decade, FoodTech has seen a rush of investments driven by blitzscaling (the deployment of capital to take advantage of growth brought on by network effects). Investors are enabling this dynamic with the best in class companies, leading to more mega rounds (financings of $100M+) closed in in H1 2020 than ever before, including those of Rappi ($1B), DoorDash ($700M) and Impossible Foods ($300M). As a result, 2020 will certainly be another record investment year for the FoodTech sector.
While FoodTech has experienced a growth in capital deployment, subsectors within the segment have seen winners and losers due to COVID. Companies focused on foodservice, have been challenged by lockdowns, and inconsistent customer incomes. However, startups focused around Meal Kit solutions and E-commerce grocery are benefiting in revenue growth brought on the move to dining at home. Together, these leading segments within FoodTech captured over 50% of capital deployed in H1 2020 reflecting strong investor interest. Supply chain optimization solutions, smart appliances that help prepare foods with added ease, and platforms that make food procurement, preparation, and delivery decisions simpler are technologies also seeing significant growth in a COVID-impacted world. In fact, companies from the Finistere Ventures portfolio such as Good Eggs, Farmer’s Fridge and Tovala have already experienced strong growth, and improving customer acquisition metrics this year.
The continued rise in awareness and concern around the impacts of meat production on the environment has brought about a boon for Alternative Protein financing. Alternative Protein start-ups are companies that leverage processing, formulation, and biotechnology to produce products and ingredients that replace animal derived products.
In H1 of 2020, Alt Proteins commanded 22.6% of capital deployed into FoodTech, reflecting the increase in investor interest in the sector that has been characterized by mega-rounds like those of Memphis Meats ($186.3M) and Perfect Day ($300M). While the Alt Protein sector holds great promise, deep technical challenges for biotech enabled food platforms combined with the capital intensity required to build operating facilities and marketing/channel investments, mean that this segment will need deep-pocketed support and patient money to succeed. We have seen the first wave of successful alt-protein companies like Beyond Meat and Impossible Foods bring first mover advantage to gain consumer revenues and branding engagement. The next wave will need to show superior product delivery and improving economics especially in fermented and cell-based products.
Conclusions
As we enter a new decade, it is our view that investment will continue to grow as consumer influence on the AgriFood value chain drives the need for innovation across FoodTech. With increasing scrutiny and interest in the environmental and social impacts of food production, corporates and start-ups alike will catalyze a wave of new and maturing start-ups and continued private investment to meet these challenges.
