After a period of relative quiet, the cultivated-meat industry is waking up again but for the wrong reasons.

Recent months have seen businesses close down, with Dutch company Meatable and Israel-founded Believer Meats throwing in the towel less than ten years since fruition.

Yet it’s a natural transformation process for companies to fail and not unexpected for a nascent tech and cash-intensive industry in transition, similar to what we have seen in plant-based proteins and controlled indoor agriculture.

What is different with cultivated meat – or lab-grown, cell-cultured proteins – is most players have not yet commercialised their products, in most cases hindered by regulatory approvals, which are governed on a product-by-product, and country-specific basis.

The initial hype around cultivated meat and the vast sums of investor money thrown at the sector have both dissipated but that’s not to say the long-term potential, and interest, in the category has disappeared, too. It’s still there but with a recalibration around future expectations and what will unfold.

Perceptions remain, however, that cultivated meat is dead in the water, an observation that is likely to be amplified by the consolidation process many predict will now ensue. Those left will also face the ultimate challenge of scaling to generate decent revenues and profitability, made all the more difficult by AI being the choice destination of investor cash.

And the on-shelf price points will have to be competitive, if not cheaper than, field-reared meat – an aspect that can only come with scale – or else consumers are unlikely to switch on a repeat basis.

Consolidation

Even before the recent business failures, Mark Lynch, a partner at London-based consultancy Oghma Partners, had predicted a consolidation phase for cultivated meat more than two years ago, estimating at the time that £2.6bn ($3.1bn) had been invested in the sector since 2016.

Fast-forward to the present and Lynch says: “The valuation hype has been deflated and it’s quite difficult to get that excitement back again. Investors are going to be extremely wary of these businesses which aren’t commercial.

“It’s difficult getting people to fund start-ups anyway but, in a sector that has been around for a while and hasn’t really delivered anything, it’s even more difficult. It’s where the trend of investment is as well and the trend is clearly in other areas and not in cultivated meat.”

Agronomics is an investor that got burnt by the demise of Meatable but is still invested in Israel-based SuperMeat and the Dutch business Mosa Meat, both early moves in the category. Demonstrative of the prevailing interest, Mosa Meat secured €15m ($18m) in additional funding at the tail end of last year.

Nonetheless, Agronomics executive chairman Jim Mellon is critical. “When companies raise too much money, in my experience, they tend to spend it.

The whole space suffered from over enthusiasm at the time of the pandemic

Agronomics executive chairman Jim Mellon

“It’s a shame as there are companies out there that are interesting and doing okay in the cultivated-meat space. But, generally, I think the whole space suffered from over enthusiasm at the time of the pandemic – high valuations, too much money being raised and money being spent like drunken sailors would have done.”

Mellon remains a longer-term advocate and has also invested in Meatly, a UK business in the early stages of development focused on cultivated meat for dogs, a sector he suggests could act as a “gateway” or testing ground for companies to get into the production and scaling for human consumption.

Lynch at Oghma Partners shares that opinion: “I’d start off and flog it into the pet-food industry,” he says.

Mellon adds: “I’m still a believer that clean meat will ultimately emerge as a very potent alternative to conventionally farmed foods. It’s just taking longer than expected, taking more money than expected, taking more dexterity than expected, and there is consolidation.

“Don’t let’s be despairing about this. There are bound to be companies that fall apart.”

Regulatory approvals

The US is perhaps the most significant in approving cultivated meat for commercialisation in 2023 for Upside Foods (previously Memphis Meats) and Good Meat under the Eat Just umbrella. But that’s on an individual product basis and mainly for restaurant sampling, while a number of states have put up the barriers, including Texas, the country’s largest beef producer.

Some European countries are erecting fences too, like Italy and Austria, although selective approvals have been given further afield in Israel, Australia and Singapore.

More will likely soon follow, Didier Toubia, a co-founder and the CEO of Israel-based Aleph Farms, says with optimism.

Nevertheless, Toubia suggests the drawn-out pace of regulatory approvals, which he says are expensive, creates a challenge for manufacturers – by the time they get clearance on an individual product, development has moved on so far that they need to apply for a new approval.

“It took more time than expected. A few companies assumed it would take less time and burnt a lot of money preparing for launching,” Toubia says.

“We’re at a point now where we’ll start seeing the regulatory limitations being lifted in the next 12 to 18 months. We will see more countries and more products cleared.”

Regulation appears to be a key roadblock preventing the cultivated-meat industry from developing and maturing. Without it, companies can’t reach economies of scale or even hope to generate any revenue, let alone provide a return for investors.

“While it’s disappointing to see company closures, as with any highly innovative sector, not all companies will make it through the tough early stages,” Carlotte Lucas, the head of industry at Good Food Institute Europe, says.

“However, regulatory inefficiencies, such as longer, unpredictable approval times, have been a critical barrier for companies hoping to bring products to market and have led to some start-ups considering other regions or even relocating overseas.”

Despite the hurdles, inroads are being made but the number of participants in the industry put forward by Lucas are indicative of the casualty risk.

“Cultivated meat remains in its infancy but huge progress has been made since the first cultivated burger was presented in 2013 at a reported cost of a quarter of a million pounds,” she adds. “The sector now includes more than 50 companies across Europe and at least 150 globally.”

Erika Georget, who has won promotion to managing director of The Cultured Hub, a Swiss venture between Bühler Group, Givaudan and Migros, suggests there needs to be larger scale in biomass – the technical term for animal cells used in the production of cultivated meat.

Hybrids, or a combination of animal and plant proteins, could be a solution until mass-market scale can be achieved in the wider context, she says, acknowledging regulation is still a barrier.

“I wouldn’t underplay regulation because at this point all the regulatory approvals are not for entire categories. It’s not that one player has an approval and the whole sector is unlocked,” Georget emphasises.

“While the regulatory work is essential, it’s very resource intensive, it’s very time intensive, and each player needs to go through that process.

“Even for those that have had approval for restaurants and so on, a challenge is that companies don’t have enough quantity yet to really serve a classical retail business and at an acceptable cost based on pure biomass.

“There is not enough biomass available to supply the market. We need players to create hybrid products which delight consumers, with an attractive price point and in sufficient scale to serve retailers.”

Scaling through partnerships

When investor cash is drying up, scaling cultivated meat through factory investment is difficult, especially when still faced with regulatory barriers before a product arrives on consumer plates. It’s a catch-22.

Partnerships, mergers and sharing resources might be the way forward rather than companies trying to go it alone and counter the challenges independently. And those potential avenues could even ensure, but not guarantee, survival.

There need to be hubs to enable efficient capital use for intermediate scales

Erika Georget, The Cultured Hub

The Cultured Hub offers solutions in shared hubs which can help to “drive cost effective scaling”, according to Georget.

“I think companies that are looking to raise capital to build large-scale assets as a means to demonstrate their process scalability will find many closed doors,” she says.

“There need to be hubs to enable efficient capital use for intermediate scales. There need to be places where companies can show investors that the process they’re working on is viable at a scale, that it is credible enough to be representative of an industrial scale.

“A lot of companies have been scaling or looking to scale while they were managing their regulatory process because everything had to happen at once to enable a fast go-to-market. This is not impossible but it’s very challenging if it depends on having to put steel in the ground at an early stage.”

Oghma’s Lynch agrees. “I think it’s still a very tough place. One way of making that cash runway last longer is through some form of merger with other businesses.”

Recalibration

Toubia’s Aleph Farms is doing just that in a partnership with The Cultured Hub having realised the business needed to adapt to the new realities. Aleph Farms is setting up its first European production base in Kemptthal, Zurich, to add to a pilot facility in Israel.

At the same time, the company is outsourcing production “without losing a lot of money and with limited investment in capex”, Toubia says.

He explains how Aleph Farms raised $100m in 2021 and planned to secure more at a time when investment was flowing into the sector but then funds started to dry up in the back half of 2022.

“We understood that and recalibrated the company, refocused our plans to spend more time reducing our production costs, improving the scalability of our process,” Toubia says.

We made a lot of tough decisions and adapted to the changing environment. Some companies haven’t done that

Didier Toubia, Aleph Farms

“We were in the process of investing massively in the US market but we took a step back and refocused first on smaller countries where we can maximise the profitability.

“There’s a recalibration. Companies which are refocusing on the fundamentals, unit economics, the business model, the right product and being capital efficient are emerging from this downturn as the category leaders.

“We made a lot of tough decisions and adapted to the changing environment. Some companies haven’t done that.”

Financial backers in cultivated meat are also becoming more savvy with their cash allocation, with those that now understand the new dynamics more thoroughly largely in for the longer term, The Hub’s Georget suggests.

“These investors are also challenging and supporting companies to be more cash efficient…injecting capital meaningfully and asking for viable plans, and routes to scale up,” she adds.

“If you approach an investor with a sound plan to demonstrate scalability, demonstrate the unit economics without requiring hundreds of millions, it is feasible.”

The winners

Some cultivated-meat products are starting to slip into the commercial arena, the likes of Meatly in dog food, Vow and Mission Barns in human meat, but the quantities are relatively small, says Nick Cooney, a managing partner at New York-based Lever VC.

“It needs to go from trivial sales to the first couple of million in sales, more mainstream listings and major markets. That’s the bridge that needs to be crossed,” he says.

“There certainly are multiple companies that can do that in the next couple of years with not a lot of capital to get that next level of energy and momentum back into the sector.”

However, bringing prices down to a level competitive with field-raised meat, ultimately through scaling, will be critical to get to revenues of $1-2m, he suggests, dependent on the availability of outside capital.

This year and next could still be quiet periods for the category until the AI funding furore passes its peak and comes down to a more “normal level”, Cooney says.

“It’s definitely quiet in the sense of there’s a lot less funding going to it than there was several years ago, quite significantly less,” he adds.

“If you leave aside the funding issue and look to other things like new countries granting regulatory approval, companies starting to sell products in certain geographies, breakthroughs on certain costs of production, there’s been a lot of those things over the past two years.

“It will not be some extremely fast adaption curve among the general public. But I think if you look at the surveys, if you look at how the small initial offerings have gone, there has been a lot of consumer interest.”

Over a longer-term horizon, it’s going to take time for cultivated meat to become entrenched in the consumer psyche, Agronomics’ Mellon reflects, speculating that prices will eventually be on a par or below field-raised protein.

“This is going to take multi generations to have a big impact on the world. This is a nascent industry. This is like the car industry in the early 1900s – thousands of car manufacturers, most of them went bankrupt. You ended up with General Motors, Ford and Chrysler in the US and a couple in the UK.

“We’ll have the same thing here. We just have to try and make sure that we are the ones that succeed, not the ones that fail.”