It’s been a grim couple of years for foodtech investment, with the whole segment, fairly or unfairly, often judged by the performance of some high-profile alt protein players that have burned through huge amounts of money with little to show for it. So what have we learned and where do we go from here?
One thing that has become increasingly clear is that we cannot rely on consumers to pay a premium for products promising environmental or societal benefits, regardless of what they say in surveys, said Lever VC partner James Caffyn during a panel session at the Future Food-Tech innovation summit in London last week.
“There’s a vast chasm between what people say they will pay a premium for, and what they do when they walk into the store. There are too many companies who fundamentally believe a lot of this consumer research.”
Ultimately, he said, “If you look at the environment, there is a very, very, very small subsection of society who’s willing to pay a premium for a product that is in no way beneficial to them, but is beneficial to society and the environment, because it’s just not immediately tangible enough.
“If you are going to charge a premium, there has to be a very clear value proposition above other products in the market that you can deliver directly to that individual customer.”
‘What we need is exits…’
As to what will get capital flowing again, said Mary McCarthy, partner at Sofinnova Partners, “What we need is exits… not only for food, but for agriculture, because what has happened is all the capital is stuck where it is, so our LPS cannot reinvest… and if the capital is not moving, you get stuck in this loop. So we need exits to catalyze every level of that capital market, especially for private markets, and that will catalyze new capital into funds to be able to invest in startups.”
The challenge, said Caffyn at Lever VC, is that “Most of the capital that came into the space in 2021, 2022, was generalist capital, and a lot of it lost money, and therefore those people are not going to come back until there is more proof that you can make money from the space.”
He added: “We’ve seen a few exits, but we haven’t seen many where the acquirer or the public via an IPO have been successful.”
‘A period of cleansing and resetting’ with the IPO market to open up in 2026?
That said, there is “no lack of quality deal flow out there and still quite some dry powder as well,” said Laurent Vermer, partner at Kharis Capital, who noted that that the funding winter currently engulfing the agrifoodtech sector won’t last forever.
“It’s a period of cleansing and resetting after some excess, and from my point of view, there are signs that we’re moving towards spring, but it’s going to be a long spring, and I’m not sure the summer will be as lush as the previous one.”
Bodil Sidén, general partner at Kost Capital, said there had been a “correction in the market valuation wise, but also maybe in the terms of the focus and the type of business models we see.”
She added: “I think in the first waves, it was very brand-driven and funded by more generalist VCs that maybe couldn’t assess the market as well as specialists.”
Today, she said, “I see a lot of very exciting cases that are a little bit more deep tech with stronger IP, going more upmarket with higher margins, so I see great potential.” As for exits, she said, “I think the IPO market will probably open up in maybe 2026.”
Emerging from the bottom of the down cycle
Speaking to AgFunderNews at the sidelines of the event, Andrew Ive, founder and managing general partner at early-stage agrifoodtech investor Big Idea Ventures, said foodtech firms needed to keep calm and carry on during the current downcycle, and stressed that the same basic rules apply regardless of the funding environment.
“You can’t escape the fundamentals. You have to produce something that adds significant value, and make sure you’re focused on solving a problem and bringing something to people that really need it and are prepared to pay for it and be really good at serving your client and your customer, and that’s it.
“If you can do that, you’ll survive. I think we’ll start coming out of this downturn in the next 18 months to two years. Right now we’ve got corporates who are running around saying, ‘Hey, I can invest in these companies and get a lot of value for my money.’ And they’re right. They can. There’s a lot of really good companies that need cash right now. So now is a great time to make the investment.
“But in two years’ time, it’s going to flip again, and we’re going to see these great innovators, these great companies, getting access to capital again, and food corporates are going to say, ‘Hey, what happened? I thought we were going to have this run of the game forever.’ And the answer is they’re not. I’d say in two years’ time, we’re going to have the startups and the young companies back in the driving seat.”
Eventually, he added, “It all shakes out and the less smart money decides to go chase the next opportunity. So we had foodtech, we had crypto, and now we have AI. So there’s that fluid money that’s running in and out after these opportunities expecting quick cash.”
Corporate funds and government funds
The good news, he said, is that large food and beverage companies are “still looking for great innovations that are going to bring dramatic efficiencies to the food system,” which creates opportunities for enterprising startups.
“We created a fund called the Global Food Innovation Fund that is focusing on protein and innovations in fat and ingredients. We’ve had three, four, global food corporates coming into that fund in the last nine months. And in the last week, we’ve had an additional two food corporates coming into that fund and investing circa ten million.”
On top of that, he said, “We’re seeing governments who are really enthusiastic about taking the underpinnings of the foodtech technologies that we’ve been backing for the last five to 10 years and helping those companies to scale. So, for example, a lot of conversations are going on in the UAE and in Japan.”
Tech transfer
Stepping back, he said, we also need to find ways to help large and small companies work together to utilize IP coming out of universities and accelerate innovation through more efficient tech transfer, something Big Idea Ventures is focused on in its Generation Food Rural Partners Fund.
He added: “There are people who believe that the food system is going to urbanize, that we’re going to feed everyone from vertical farms in Brooklyn. We think that’s rubbish. We believe that the traditional farmers, the traditional growers, the traditional key players of the food system, will continue to be just as important, if not more so, in the next 10,20, 30, 40 years.
“What we need to be doing as innovators is helping to give those traditional players more tools, more technologies, to bring more efficiency to the food system.”
