According to recently released analysis from Finistere Ventures, investment in food-tech reached $8.4 billion in the first three quarters of 2020 – outpacing the previous year’s record breaking $7 billion with one quarter left to go.
In this week’s installment of FoodNavigator-USA’s Investing in the Future of Food, Finistere Ventures investment director Ingrid Fund shares what is driving investor – and consumer – interest in food-tech, and breaks down where the bulk of the funds are going from novel ingredients to innovative processing and packaging to last mile delivery solutions.
Convenience drives demand for delivery, hard tech
With cooking fatigue settling in and many consumers still strapped for time, Fung noted that “anything that makes it easier to get your food and prepare it is going to drive a ton of investor interest.”
This includes meal kits and delivery, both of which have benefited from the ongoing pandemic as consumers look for ways to relieve cooking fatigue, mix up the menu at home and secure ingredients or meals with minimal contact and risk exposure to the coronavirus.
Fung believes that these areas will continue to be important long after the threat of COVID-19 is past and people are free to eat out safely again, because “we’ve been stuck this way for so long, there’s going to be some stickiness to that trend of dining at home.”
But, she also notes, they likely will evolve and continue to become more sophisticated, which is fueling investor interest in hardware tech that simplifies food production and prep.
For example, Fung noted, Finistere Ventures recently invested in the hard-tech enabled meal kit company Tovala, which uses a “smart oven on steroids” to steam, bake and air fry meals that are delivered by the company. Each meal kit comes with a QR code that is scanned by the oven to cook the food “to perfection,” with minimal consumer effort, she added.
Processing and packaging solutions catch investors’ eye
As more consumers have food delivered, they are more acutely aware of the packaging and impact of their food on the environment – an awakening that will place pressure on manufacturers and restaurants to choose more sustainable packaging.
Consumers also are trying to reduce food waste, but because many live in smaller households than previous generations they are struggling to consume products packaged in portions designed for larger households, Fung said. As such, she explained, investors are interested in smart packaging that helps preserve food better.
Novel ingredient development
Investors also are dedicating significant funds to novel ingredients that offer healthier or more sustainable solutions, Fung notes.
“We’ve made an investment in a company called Memphis Meats that does cultured meat products. There’s a lot of interest in removing the animal component to the proteins we consume. So, that’s everything from removing animals from the production of dairy to replacing meat altogether,” Fung said.
She added that while “we think there is a lot of room for innovation in the space … it is quite a ways off from hitting the market and being accessible to the broader consumer.”
While each of these areas hold promise, they also have limitations that could cap their long-term viability beyond the pandemic unless they continue to evolve. This is perhaps most acutely visible within the meal kit space, which has enjoyed a resurgence during the pandemic but still must address fundamental flaws that have taken a toll on the business model since it first burst onto the scene in 2015 and 2016.
Funds shift to late stage deals
Looking forward, Fung noted that flow of capital in ag- and food-tech combined is shifting towards later stage, larger deals. At the same time, she said, exits have been slower than anticipated, which suggest a level of maturation and a potential slow-down of future investments in the space.
“Within ag and food, and ag specifically, we would have expected to see a lot more exits by now as traditional venture investors,” Fung said. However, she explained, in “2015 to 2017 there was a lot of consolidation in the industry, so we weren’t seeing the trade sales everyone was expecting, and then when we came out of consolidation, we had fewer potential acquirers who are a lot more sensitive about their balance sheets than they were before.”
This has pushed some company’s to look for different exit strategies, including initial public offerings that Fung says are becoming increasingly popular in the food space.
An important component to the success of IPOs has been companies improving their storytelling so that average consumers better understand what they offer and their business potential, Fung said.
“I think [improved storytelling] kind of opens a world of possibility for these companies. So, whereas before, you maybe only had a handful of customers, now there’s an option to kind of toll manufacture and then put your product on grocery store shelves as an interest driver for customers,” she explained.
“if you marry a really interesting technology that has a good value proposition for the consumer with a really smart public communications strategy, there are really positive results that can come from that,” she added.