After co-founding advocacy group The Good Food Institute, Nick Cooney became an investor, backing the likes of Beyond Meat and Miyoko’s. He now has his own fund, Lever VC, and talks to Dean Best about his moves to back start-ups in the plant- and cell-based sectors.

just-food: Why did you set up Lever VC?

Nick Cooney: My fund partner Lawrence [Chu] and I have been investing in alternative protein since 2015, previously through a family office and family-office vehicles. It’s clear the sector is growing – and is going to continue to grow – very quickly. We felt there would be a need for a traditionally-structured VC fund, focused squarely and entirely on alternative protein. There’s a lot of investors that realise there’s opportunity but don’t really have the deal flow, sector knowledge, or access to invest into these early-stage companies. We wanted to set up a fund to extend that access to other investors.

just-food: When was Lever’s first investment?

Nick Cooney: July last year. We did a couple right around that time. One was Avant, the first cell-cultivated meat company in the Greater China region. Another was Bond Pet Foods. They’re based in the US, the first company in the world producing real meat protein from fermentation.

just-food: How many investments has Lever made?

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Nick Cooney: We’ve ten portfolio companies. We’ll be adding a couple more within the next month. We have reached first close of the fund with US$23m in capital committed and we’ve used part of that capital to invest in those ten companies.

just-food: Are there typical deal structures for your investments?

Nick Cooney: The average has been US$500,000 – at the low end it’d be a couple of hundred thousand, at the high end $750,000. The stake varies depending on the company. For some of these companies, we’ve been able to get very competitive valuations and take 18%, 25% stakes. For others, they were raising much larger rounds at a much more progressed valuation and so it’s a much smaller percentage.

just-food: Are there common attributes the ten companies share?

Nick Cooney: On the plant-based side, we’re looking for companies we think are among the two best in their category and large geographic region. A couple of examples: The Good Spoon based in Paris, which is the best plant-based mayo and condiments company in Europe; in the US, Good Planet Foods, which is one of the two best plant-based cheese companies globally.

On the higher-tech side, all of them are trailblazers in some aspect, if they’re a first mover in a certain geographic region or product category. I mentioned Avant and Bond. TurtleTree Labs, the first company in the world producing human breast milk and cow’s milk via cell cultivation. Mission Barns, the first company focused exclusively on cultivated fat.

One other commonality on the high-tech side is these are companies targeting a very large, commodity, animal-protein category that, if the price gets to the right point, they could do very well – but they also have secondary categories that are not as large but still sizeable with much, much higher price points, which of course is a nice de-risker for us. If they ultimately can’t get the price point low enough to really compete with, say, commodity beef, pork, dairy, they have secondary markets where we’re very confident they will be able to be at a lower price point with superior benefits to incumbent products, things like higher-purity, higher-customisability etc.

just-food: On the plant-based side, at what stage of development do the companies have to be?

Nick Cooney: We don’t have a bright red line. All the companies, with one exception, Grounded, were at a significant number of points of sale, in most cases several hundred points of sale, if not more. Those included points of sale with major accounts, and had been there long enough to make clear they’re meeting their weekly/monthly turnover, they’re going to stay on the shelves and it’s really just about scaling the brand, building out the team, building out production to get them more points of sale.

There were a few reasons we backed Grounded. One is the team had the proven ability with a prior product line they had launched and gotten into very major retailers. We really liked the quality of the products, the branding and the fact they were first mover in this category. And, even though they weren’t on store shelves yet, they also lined up 100-plus points of sale for the launch.

just-food: What have been the lessons you guys have learned from investing in those ten companies?

Nick Cooney: The importance of the quality of having somebody at the helm that is a doer and knows how to execute. We’ve been able to provide a lot of value-add to our portfolio companies on things like fundraising and strategy so on. I’m very glad we’re able to provide those things but one thing that for me has been reinforced is I really like companies where they don’t need much of that assistance because they’re just so good at doing it on their own. That’s really the ideal scenario, even though we can add that value and we’ll always add whatever we can.

just-food: How else do you try to maximise the chances of a successful investment? There will be some investments that won’t work out over time.

Nick Cooney: Having a finger on the pulse of the market and what other companies are doing in terms of sales, points of sale growth and things like that. Having our ear to the ground for things the core, early-adopter audience like. Having a clear sense of the trends in specific product sub-categories. You have a number of these different areas and so keeping close track of everyone that’s out there in these sub-sectors and how each of those is developing. Also, looking at a company and its team for a long enough period of time that we can see those dots and watch that trajectory to see how quickly they’re gaining traction and so on.

Among the companies Lever VC has backed is French plant-based condiments firm The Good Spoon

just-food: Is Lever expecting to make further announcements of new investments before the end of 2020?

Nick Cooney: Absolutely. Our strategy is we’re doing around 20 to 25 of these smaller $500k-ish early-stage investments, and then we’ll from there do a smaller number of larger follow-on checks. We started that process about 12 months ago and that will continue. We should be announcing another one to two. One is, I’ll say, a European a plant-based meat company and the other is a really fascinating US company working to produce real animal protein in plants, in crops. My guess projection is we’ll probably do maybe an additional two before the end of the year. We have a number of companies quite far down the due diligence pipeline that we’ve been looking at for quite a while.

just-food: Looking into 2021 and further investments, where might they focus geographically?

Nick Cooney: We’re looking at companies globally but our main three geographic regions are the US, western Europe, and Greater China region – and sort of lumping Singapore into that. All of our investments are from those regions. We’ll probably have one or possibly two that are outside those regions, but most will be in those three.

In terms of the breakdown between them, right now, it’s 50% US, 20% Europe, 30% Greater China region / Asia. We don’t have any hard lines around that. It’s really looking on a company by company and deal by deal basis.

In terms of product type or sector, we’re fairly evenly split between plant-based meat and dairy and high-tech. For the early-stage investments, I would expect that to roughly remain true. We’ll likely do more follow-on funding and deploy more capital in total on the plant-based meat and dairy side of things. For the cell-cultivated companies, there is huge potential for this technology. This is absolutely going to be a part of the future of protein. We’ll do some follow-on funding into these higher-tech companies but we’re most likely to do much more follow-on funding into plant-based companies because there’s that much clearer record in terms of sales that makes it far safer investment.

just-food: In your experience as an investor, what are the principal challenges facing cell-cultivated companies?

Nick Cooney: In the shorter term, it’s two things: the cost from a technical perspective. It’s not ‘Can we do it?’ It’s ‘How cheaply and efficiently can we do it?’ The second thing is raising the capital they need because this is not an easy thing to do. These are novel technologies and technologies that require a good amount of capital. Even the ones that succeed are going to need to raise a significant amount of capital over the life of the company.

Mid to long term, there’s a question of market entry. Are you doing it for your own branded product? Are you B2B? How do you get enough traction early on with the products you have in order to be able to continue to raise funding, continue to grow and ultimately be successful?

just-food: Does Lever plan a second fund?

Nick Cooney: We’ll close this fund next year, we’ll work very hard with our portfolio companies to help them grow and add value and then we definitely plan on raising a second fund at that point.

just-food: What kind of returns and exits do you envisage from your investments? 

Nick Cooney: These initial investments we’re making, which are early stage, we’re looking for companies that, if they do pretty well as a company, we can expect a 10x or greater return to compensate for the risk of it being an early-stage investment. That is the threshold we’re looking at. In terms of what that path looks like, if we look at all the exits in the space so far, we have Beyond Meat’s IPO, one other small IPO in Canada, and everything else has been acquisition. There’s no doubt we’ll have a number of additional IPOs in the next couple of years, but it’s still certain the primary exit path is going to be acquisition so that’s our expectation – mostly acquisitions, maybe we’ll have one or two IPOs.

just-food: Could the weight of the second fund’s investments be different to the first?

Nick Cooney: It certainly could. We’d anticipate it to be a larger fund and able to write larger cheques. I would envision the geographic regions being roughly the same but subject to what’s going on in the market. North America, Europe and China are by far the largest markets for these products and they’re all growing at a quick rate. That underlying fact is probably not going to change in the next few years.

just-food: Do you see Covid-19 having any long-term impacts on consumer interest in alternative protein?

Nick Cooney: We’re seeing increased consumer interest. The data around how the sales of these products have jumped post-Covid is telling.

We also see a lot of increased interest from governments, especially in Asia both because of the general food safety angle and also because of the questions around having adequate and diverse protein supply. The Chinese government has announced it’s going to try to get more foreign investment funding in three animal protein areas – two would be conventional animal protein and one is plant-based meat. We’ve seen similar increased interest from the Singaporean government and a few other governments in the region. I don’t think Covid is going to be this watershed moment that causes a dramatic tip. I think we’re already seeing the space grow very quickly. Covid just adds yet another tailwind to the space.

just-food: And plenty of opportunities still for start-ups, even amid growing competition from Big Food?

Nick Cooney: Nearly all the value creation in the plant-based meat and dairy space in terms of sales is from smaller brand products, either smaller brands that are still independent, or that were acquired by major companies and then grow. Even Nestlé, which has been expanding its plant-based meat offerings aggressively, they didn’t develop the product, they acquired companies, and they worked off of those products and further developed them.

We’ve seen companies introduce their own in-house products and those haven’t done very well. Most of the value is still coming either from stand-alone brands or brands that have been acquired and that will continue. Meat and dairy is is a huge sector and, on the plant-based meat side, still less than 1% of sales in the US and Europe. There’s huge room for growth and a lot of opportunities for start-ups, especially ones targeting product categories where the quality of the existing products is not nearly as good as it could be, or where there’s just not a lot of product competition.