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FoodTech Investing – What Is It?

Venture capitalists invested more than $18 billion in food technology startups during the pandemic year 2020.

Expectations for venture capital differed from those of the year 2020, as PitchBook highlighted last July. When the pandemic, which hit in March of 2020, many predicted that the pace of funding was likely to slow due to the uncertainty of lockdownsand social distancing, and strains on the economy overall. However, the year 2020 proved to be the best year ever for venture in the U.S., with $156B invested in startups and $74 billion in funding from VC funds. And, in stark contrast to what one might think when the year begins to enter an apparent economic downturn Corporate VCs (CVCs) nearly reached their 2018 high, investing around $68 billion.

“FoodTech” startups have received record amounts of Venture capital funding in the year 2020 and this was reflected in $18.9B invested in companies in the sector, nearly 10% increase from the amount of 2019. As per PitchBook, FoodTech refers to companies working on technology that aims to enhance consumer experiences through buying, food choices, and consumption. Drivers of this funding and overall trends within the FoodTech market were:

Supply chain disruptions and stock outages for traditional meat and dairy products, and the emphasis on healthier eating habits, accelerated demand for alternatives to protein

The demand for meals that are easy to prepare and the flexibility of take-out from restaurants during lockdowns spurred funding into direct-to-consumer meal kits, eCommerce, and food delivery companies

Investors also funded strategies to reduce the costs in food distribution and production, while maintaining safety. They also offered funding to startups that are able to identify the most optimal flavor, texture, and ingredients

Incorporating information from PitchBook and the quarterly NVCA Venture Monitor report, this analysis shares highlights from this report. It also provides insights from the U.S. VC industry as all-inclusive, as well being specific to foodtech startups. FoodTech startup market and based on the work of Touchdown in partnership with 1894 capital, Kellogg’s venture capital fund for corporate clients.

FoodTech & VC Funding Highlights

2020 was a record year when it comes to VC funding in U.S., with $156B invested. However, the total number of deals decreased from the previous year which suggests that VCs concentrated funding in larger deals that involved fewer companies.

The FoodTech sector is in line with the overall market by attracting $18.9B allocated to 886 companies, which is a 9percent increase over the volume of deals in 2019. Particularly, deal value to meat substitutes made from plant-based sources increased 20% in 2020, in line with a consumer preference for more healthier and sustainable alternatives. In contrast, FoodTech funding saw a higher percentage of growth in value of funding over the last four years than the U.S. market as a total, suggesting that specific factors created excitement for many food tech investor.

There is no doubt that the coronavirus pandemic profoundly changed consumption patterns among consumers however, it also had a huge affect on manufacturing of foods as a whole. COVID-19 infection in the food manufacturing industry caused shutdowns and supply disruptions, leading to shortages as well as increased costs paid by the public. This resulted in a more intense emphasis on managing food supply chains, and have led to a rapid shift to automation and related technological advancements. The result is that artificial intelligence such as food safety and traceability platforms, food delivery as well as cloud retail companies (retail companies that make use of the analytics capabilities offered via cloud computing) have attracted record amounts of venture capital.

Food alternatives, and especially vegan proteins, have benefitted from the meat packing industry’s problems and changing consumer attitudes. When the coronavirus first began to spread within the U.S., sales of vegan meat substitutes rose to triple-digit rates. These alternatives to protein (such as dairy products and meat that are derived from plants — give consumers an assurance of knowing where their food comes from and are environmentally friendly.

The pandemic also shed some light on our “gut microbiome” and the impact it has on overall health and wellness. Consumers are seeking more foods that have health benefits, such as increasing immunity. Although research into how gut microbiome impacts overall health is still relatively new, over $1 billion has been invested into U.S. microbiome-related startups in the last five years, while there was more than $3.4 billion invested across the globe during the same time period as per PitchBook.

CVC Highlights

in 2020, CVC funds poured the equivalent of 48% in dollars and were involved in 26% of the deals that took place in the United States. In the graph below, the $68 billion invested by corporations was more than $10 billion more than in 2019, suggesting that CVCs remained on the market in spite of economic uncertainty.

CVCs are a major funding source for FoodTech startups, especially those that would benefit from commercial or strategic partnership with large corporations. For R&D companies that are heavily involved in R&D using the experience and capabilities of large corporations can effectively accelerate commercialization. The following CVCs are some of the most active FoodTech investors:

Evolv Ventures of Kraft Heinz invests in the latest technologies in the food value chain. For instance, Evolv invested in Zippin an self-contained checkout technology for shoppers, in October of this year.

Tyson Ventures invests in FoodTech companies that are focused on food safety. This includes Clear Labs, a genomic-based testing platform that provides food safety and quality programs.

Danone Manifesto Ventures focuses on food and food technology firms that are disrupting the eating or drinking. The company was a shareholder in Sun Genomics, a company which offers customized probiotic solutions based on whole-genome sequencing diagnostics.

From its original acquisition of Kuli Kuli, a moringa-based product brand, to its latest purchase of Plantible, a plant protein manufacturer, Kellogg’s eighteen94 capital invests on both CPG brands as well as their enabling platforms.

Notable FoodTech Deals & Exits

U.S. plant-based protein leader Impossible Foods closed a $500 million Series F in the month of March 2021. It’s conceivable that the next opportunity in the sector is a plant-based chicken product, as Impossible recently announced the launch of plant-based chicken nuggets, following rival Beyond Meat’s launch of new chicken tenders made of vegan ingredients.

Animal-free dairy pioneer Perfect Day increased its Series C round to $300 million in July 2020 and plans are in place to introduce a brand new Ice cream line. The company creates proteins that are nutritionally equivalent to those found in cow’s milk. Other companies that concentrate on the replacement of dairy milk include NotCo which utilizes A.I. to match animal proteins to their ideal substitutes from thousands of plant-based ingredients. NotCo raised a $235 million series D on July 20, 2021 to broaden its offerings in dairy, cream, mayonnaise and meat substitutes.

Ordermark announced a 120-million Series C in October 2020. The company’s software can direct online orders made through multiple ordering sites to a single printer for fulfillment. The company will utilize this funding to partner with more restaurants , and also to scale its “ghost kitchen” platform, NextBite.
In March 2021, the maker of egg alternatives made of plant material and laboratory-grown animal meat Eat Just raised $200M. The funds will be used to increase the production capacity of its cell-based meat subsidiary’s capacity and accelerate research for creating meat using cells derived from animals.

The portfolio company of 1894 Myco Technology uses fungi-based food-processing platforms to change the taste and value from agricultural goods. Myco Technology has raised more than $100 million in capital, and the most recent round a $39 million Series D that was announced in June of 2020. Other companies working on applications for mushrooms in food have raised similar amounts of money. Companies that operate in this area are Meati Foods, Mycorena, Prime Roots, and Enough.

Food Innovation in the News

Microbiome care could increase lifespan Recent advances in microbiome care might allow people to live longer.
Technology is making food made from plants look and taste better -Startups are now focusing on creating a more vegan food experience for the consumer.
Sugar reduction is on the top priority for both consumers and manufacturers — Stevia and functional fiber could have the potential to cut down on sugar consumption and improve gut health.