Despite recent turmoil, food tech investment appears poised to endure

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KANSAS CITY — As major players in the space struggle, food tech investments have plunged over the last two years. While the forces driving the flight from venture capital funding of food startups are powerful, it would be a mistake to write off the food sector as a future target for venture investing.

Josh Sosland Portrait.Josh Sosland, editor of Milling & Baking News.
Source: Sosland Publishing Co. 

In 2023, global food tech investing dropped to $9.2 billion, down 59% from the year before and off 80% from the peak $44.9 billion in 2021, according to data gathered by the consultancy Pitchbook.

Much of the decrease may be attributed to an overall decline in venture investing over the past two years, estimated by Pitchbook to have fallen 51%. Additionally, from this smaller pie of venture investing, artificial intelligence has proven to be a powerful magnet for venture capital, now accounting for about 20% of all such investments.

Not all the challenges facing food tech are attributable to external factors. A darling of the investment community only a few years ago, prominent plant-based foods startups have struggled. In its most recent quarter (ended March 30), Beyond Meat, Inc. said its sales fell 18% from a year earlier to $75.6 million, while sustaining a loss of $54.4 million.

For years the company has touted that its burgers result in 90% fewer greenhouse gas emissions than beef burgers, require 46% less energy, have 99% less impact on water scarcity and 93% less impact on land use. A similar figure, 98%, is how far the company’s share price fell when it hit a recent low of $5.73, versus the all-time high of $239.71 in July 2019. It remains to be seen whether a healthier version of the company’s product, now in the launch phase, will help.

Another publicly traded plant-based food/beverage maker, Oatly Group AB, has seen its market value similarly decimated. While rebounding a bit in recent weeks amid signs its business is stabilizing, Oatly shares late last year traded as low as 48¢, down 98% from the June 2021 high. Caulipower, still another erstwhile plant-based star, saw its frozen pizza sales fall each of the past two years, and the company recently changed chief executives. Data from Circana show unit sales of meat alternatives dropping 21% in the 52 weeks ended May 19. Plant-based foods may be the fastest shrinking category in the food industry.

Unsurprisingly, successful non-public exits for food tech businesses have been few and far between. Meal replacement Soylent, once proclaimed by Time magazine as a “best invention” and Business Insider as a food tech startup that is “shaking things up” was acquired last year in an all-stock transaction valued at $29 million. In the 10 preceding years, investors poured $133 million into the business.

Food tech advocates insist the need for a sustainable food system and a healthy food system hasn’t changed and is only intensifying. Also an attraction is the vast size of the addressable market. In the United States alone, consumers and businesses spend more than $2.3 trillion on food and beverages at home and away from home, according to the US Department of Agriculture. The global figure is much larger, of course, with bread and baking the single largest segment.

Pitchbook sees signs of life in plant-based foods, noting a recent partnership between Impossible Foods and the US Army to supply plant-based products in the military’s dining facilities globally as well as indications from Danone of increased demand for plant-based foods.

Meanwhile, other alternative protein technologies continue to draw interest. In the fourth quarter of 2023, half of pre-seed and seed deals recorded by Pitchbook were either closed by companies developing fermented protein solutions (four) or cultivated protein (one). E-commerce, restaurant/retail technology and bioengineered foods are other areas attracting investor funding.

The last several years have proven that food tech investing is not for the faint hearted. But the sector’s untapped opportunities remain as lucrative as ever.

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