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October 29, 2019

The food-tech landscape – the investors’ view

The Future Food-Tech event in London heard from corporate and VC investors as they surveyed the challenges and opportunities in the sector. Here are the top takeaways.

By Dean Best

The Future Food-Tech event in London heard from corporate and VC investors as they surveyed the challenges and opportunities in the sector. Dean Best presents the top takeaways.

Free Report
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What’s the forecast for the food and grocery industry?

The food and grocery sector thrived during the pandemic, largely due to the shutdown of the food service industry and the sector’s subsequent necessity, panic-induced bulk purchasing, and spending more time at home. The market has grown as a result of inflation. Consumer unwillingness to go out and socialize, and the reopening of several hospitality facilities, helped maintain the demand for groceries, particularly online, in 2021. As consumer behavior changes, we consume more food and drink at home, and inflation increases basket sizes. GlobalData predicts that the sector will continue to hold a higher share than had been predicted prior to the pandemic. This is true despite the fact that the food and grocery sector's share of overall retail will decline from its peak in 2020. This report will discuss market forecasts and key themes in the global food & grocery industry in 2022 and beyond. It covers:
  • Market drivers and inhibitors
  • Five-year forecasts and the impact of COVID-19
  • The performance of the online channel versus offline
  • Major trends in the market including rapid delivery, ambient retailing, supply chain disruption, and inflation
Assess developments within this sector to help your business thrive in 2022 and beyond.
by GlobalData
Enter your details here to receive your free Report.

As what consumers eat and how they shop go through a period of profound change, food-tech is a very active area of investment.

The transformative impacts technology is having on the food industry has given rise to the ‘food-tech’ sphere and led legacy manufacturers and venture capitalists to roll up their sleeves and vie for a piece of the action.

We’ve written extensively in recent years about how members of Big Food have set up in-house, VC-style investment arms to put cash into not just branded businesses but those looking to disrupt all parts of the food supply chain through the use of technology.

Kraft Heinz, home to some of the oldest, most enduring brands in the business, has Evolv Ventures, a Chicago-based fund to invest in what the company has described as “emerging tech companies transforming the food industry”. Kraft Heinz said it wanted to “accelerate the company’s exposure to emerging technologies and businesses”.

Evolv Ventures’ latest investment – announced last week – is in Flowhub, a US software firm that helps cannabis companies in areas like compliance, point of sale and inventory. That joins investments in San Francisco start-up, New Culture, which is developing “animal-free” varieties of cheese and in GrubMarket, a food-to-table delivery service, also based in San Francisco, which sources local food from producers and delivers it to businesses and consumers.

There are other examples. Danone has its own internal fund scouting out investments that are, in the words of executive Laurent Marcel, “disrupting the industry at all steps of the value chain”. He told us in March: “What makes our activity exciting is we have a fairly broad mandate to basically invest in food and food-tech companies that disrupt the industry at all steps of the food value chain. In a way, our investment thesis goes from farm to table.”

The list of major food manufacturers doing similar goes on.

It’s not just the packaged-food majors of the industry making investments. More upstream, agri-food players are monitoring the food-tech arena closely. Venture capitalists are heavily involved, too.

In London a fortnight ago, food companies, financial investors and others gathered at the two-day Future Food-Tech event. On day one, the conference heard venture-capital fund Five Seasons Ventures predict the amount of money that will be invested in European “food-tech” companies in 2019 will more than double year-on-year.

Niccolo Manzoni, founding partner at Five Seasons Ventures, said some EUR1.7bn (US$1.89bn) would have been invested in what the fund calls the “next generation of European food tech”, compared to EUR1.1bn 12 months ago.

Among this group of companies are Germany meal-replacement start-up YFood Labs, UK meal-kit supplier Gousto and Yinsect, the French insect-farming business that raised US$125m in Series C funding earlier this year.

“The next gen is really innovating across the value chain and it’s not just food delivery, it’s going as upstream as agriculture … all the way down to food brands and food products,” Manzoni told the Future Food-Tech conference.

The final session of the event had a panel of investors looking at the wider food-tech environment.

One of the panellists, Aaron Rudberg, a managing director at S2G Ventures, underlined how the US firm at which he worked – and which has backed companies including cell-based meat firm Future Meat Technologies, baby-food start-up Once Upon a Farm and dairy-free business Ripple Foods – continues to monitor the whole supply chain.

“We’ve been around for about five and a half years. We invest across the entire food value chain, so everything from ag tech, ingredient tech, retail, procurement, logistics, brands and fast-casual restaurants. We have about 45 companies across the US, Canada and Europe, and are actively looking to make an investment for our second fund.”

How important is the tech in the food tech?

The chair of the panel was Arama Kukutai, managing partner at US-based Finistere Ventures, which backs businesses “disrupting” the food and agriculture sectors. Finistere Ventures’ investments have included backing for Farmer’s Fridge, the US-based automated smart refrigerator business in which Danone is also an investor.

Kukutai asked of the panel a pertinent question: “How important is the tech in the food tech?”

“Very important,” Rudberg replied, who relayed to the audience his attendance at Expo West, the giant annual US trade show and conference that takes place each March. “That has grown from 30,000 people maybe ten years ago to 85,000, 90,000 this year. Most of those brands are not technical. Most of those companies, I would say the products are kind of crap and me-too. They don’t really have core IP.

“For us, the technology is very important. Tech in IP, even in a brand, needs to be something that is kind of a core differentiator. And if you don’t have that, we’re not the right partner for you. You still may be a brand that can scale and a big CPG will want to buy you to get into the category. But, for us, that’s not of interest.”

Kukutai echoed Rudberg’s comments on IP. “For us at Finistere, probably the first wave of questions we ask when talking to start-up companies is to really understand what the intellectual property or technology is behind the company. If that isn’t there, what we tend to think of is ‘Is this a branded play?'” he explained. “There’s nothing wrong with it, but it’s just not our area of expertise and really what we think is defensible in terms of building a long-term value. 

Two other panellists sought to underline how they saw the tech helping the food industry to feed the world’s growing population more sustainably.

“The tech is enabling disruptive new processes and production platforms that are dramatically reducing resource use and increasing sustainability. To me, that’s where the excitement is,” Alastair Cooper, senior investment director at ADM Capital, an asset manager based in Hong Kong and London. “We’re looking for companies utilising cutting-edge technology to increase resource efficiency and increase sustainability.” Among ADM Capital’s recent investments is in MycoTechnology, a US firm that produces ingredients for the food and beverage industry using mushrooms as a constituent. S2G Ventures is a fellow investor in MycoTechnology – as is Kellogg.

Kristen Weldon, the head of food innovation and downstream strategy at US-based agribusiness behemoth Louis Dreyfus asked a rhetorical question that appears central to a growing number of investment strategies in the food-tech arena: “How are we going to feed the world going forward? To do it, we need new technology. That’s how we look at food tech.”

This year, the 170-year-old commodities giant that is Louis Dreyfus set up a ventures unit and is looking to have a fund in the market early next year, Weldon said, outlining some of the specific areas the company is monitoring includes alternative proteins, food waste and “traceability across the value chain, all things that enable better use of what the world has given us so far, and extending it further so we can continue to feed a growing population”.

Food-tech investors and sustainability

The food industry’s role in the climate crisis has risen rapidly up the agenda of scores of manufacturers (and not simply because more consumers are paying more attention. There have been some more enlightened capitalists operating out there).

Investors in packaged-food manufacturers are also putting pressure on companies to take action to make their businesses more sustainable; the issue is no longer at the margins of business strategy and is increasingly becoming central to companies’ plans for growth.

As ADM Capital’s Cooper demonstrates, there are venture-capital investors that count sustainability as a critical factor in where they are going to put their cash. That said, of course, investors still need to make a return. And the chair of the session, Finistere Ventures’ Kukutai, put a cute question to the panel: “To be a little pointed about it: is this an area where we can not only do good but also do well, in terms of a venture return or financial return back?”

Before ADM Capital invests in a business,  the fund performs “a full ESG [environmental, social and corporate governance] audit”, Cooper said, looking at “water use per kilo, electricity use per kilo, labour force turnover, amount of female employees. All the good stuff”. He added: “It’s an essential part of all what we all should be doing obviously. We could do a much better good of actually measuring the benefits, capturing those benefits, holding companies to account for those benefits, and then telling the wider world about those benefits.”

The rest of the panel saw it as imperative they made a return when they invest in food-tech companies that have a sustainability angle to their business models.

“It’s profits and purpose, right? Otherwise, you’re not going to draw enough investment capital into the space to make a difference,” Louis Dreyfus’ Weldon said. “We too have that set of ESG metrics that we look at for every investment that we make. I think we have to hone in on probably one or two sets of metrics as an investment industry to make this really work.”

S2G Ventures’ Rudberg added: “We’re an impact fund. Hopefully, we can provide impact and generate top returns. Our limited partners, who are our customers, ultimately we have to make them happy. I think it’s important for entrepreneurs to understand that.”

Over-hyped or under-cooked?

The data and estimates from Five Seasons Ventures underlined how much activity and deal-making there is going in Europe’s food-tech arena (let alone the transactions being struck in the US). Kukutai sought to tease out the panel’s views on the business being done in Europe and in the US – and their outlook for the field over the next 12 months.

“We’re definitely in a bubble in terms of venture-capital valuations generally. Is food tech a bubble within the bubble? And do we see in Europe versus, say, the US any material differences in valuation?” Kukutai asked the panel, adding he wanted to hear whether they expected to make more or fewer investments during the next year.

“I would dispute the bubble comment,” Rudberg said. “Yes, for broader venture capital, pricing may be out of whack in some areas but I really believe that, if you look at the food and ag landscape across history, we are at an interesting time. You have what’s been primarily oligopolies in different parts of the market changing. These big players have not had to – with all due respect to them – innovate at the level they need to today.

“If you talk to any big CEO around the world today, they would say that innovation is happening faster than ever. Food in particular is going through a dynamic right now where there’s massive change happening. There’s lots of entrepreneurship and innovation going on, more than ever before. And so I think, to some degree, we’re at the beginning stages of this. Some valuations are definitely higher they should be but that’s typical of venture capital broadly.”

Rudberg added: “I think next year we’ll have a similar number of investments as we did this year. I do see valuations very different in Europe than they are in the US, which is a potential opportunity. The challenges is that European companies tend not to get funded at the same level as US companies on series C and D rounds. The IPO markets aren’t here like they are in the US.”

Weldon argued there is “a bit of a bubble” but suggested it is a US phenomenon. “There’s still a lot of value here in Europe,” she said, before adding: “You have to do a lot more work. Some of the companies aren’t as prepared. They aren’t coached in the same way that they would be in the US. The onus is on you to find the value and help those companies create value.”

ADM Capital’s Cooper had a different take on asset prices. “Across the sector, I don’t think there’s a bubble at all. I think, as a sector of venture investing, we’re at a nascent stage. If you look at the agri-food sector and you look at venture-capital investing into that sector as a percentage of GDP, it’s one of the lowest of any sector out there. It’s about a tenth of the level of comparable sectors like pharma or healthcare. We’re at the first rung of the ladder.”

The signs are there, then, that food tech will continue to be an active area of investment as we move into 2020 and beyond.

Related Companies

Free Report
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What’s the forecast for the food and grocery industry?

The food and grocery sector thrived during the pandemic, largely due to the shutdown of the food service industry and the sector’s subsequent necessity, panic-induced bulk purchasing, and spending more time at home. The market has grown as a result of inflation. Consumer unwillingness to go out and socialize, and the reopening of several hospitality facilities, helped maintain the demand for groceries, particularly online, in 2021. As consumer behavior changes, we consume more food and drink at home, and inflation increases basket sizes. GlobalData predicts that the sector will continue to hold a higher share than had been predicted prior to the pandemic. This is true despite the fact that the food and grocery sector's share of overall retail will decline from its peak in 2020. This report will discuss market forecasts and key themes in the global food & grocery industry in 2022 and beyond. It covers:
  • Market drivers and inhibitors
  • Five-year forecasts and the impact of COVID-19
  • The performance of the online channel versus offline
  • Major trends in the market including rapid delivery, ambient retailing, supply chain disruption, and inflation
Assess developments within this sector to help your business thrive in 2022 and beyond.
by GlobalData
Enter your details here to receive your free Report.

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