Two years ago, investors were throwing money at alt protein startups. Today, the environment is significantly more challenging for firms seeking to raise money. What changed?
We caught up with Michal Klar, founding partner at Better Bite Ventures, an early-stage investor in alt protein startups in the APAC region, at the Asia-Pacific Agri-Foods Innovation Summit in Singapore, to get his take on the evolving foodtech investment landscape.
Funding: “Obviously the macro situation changed over that period (2021-2023). So I think the main driver of the drop of investment in alt protein is actually coming from the overall VC market correction. If you look at the percentage year-over-year drop, it’s roughly in line, maybe a little bit more than what we see overall in the VC market.
“But I think a few other things changed as well. I think it’s fair to say there was some initial hype in this industry, and this is now subsiding. So we see a healthy correction in fact, where investors are looking for companies with stronger fundamentals. So I think, overall, this trend is healthy.”
Valuations: “Valuations have come down, but it very much depends on the stage. So later stage valuations… we are talking Series B, C, and growth stage definitely went down. Earlier valuations pre-seed and seed are somewhat less impacted. There’s some correction there but maybe not to the same extent.”
Lead times for deals: “We have really seen much longer time needed to close rounds. Investors are spending more time on due diligence, but there are also fewer deals happening so investors have the luxury of spending more time with fewer startups. And unfortunately, this often prolongs the timelines, which of course in this funding environment is difficult for founders.”
APAC alt protein investment trends: “Growth [in APAC alt protein investment] in 2022 was driven by several larger deals. So Better Bite Ventures’ portfolio company TiNDLE raised the largest series A in this sector at $100 million and another company in China called Starfield raised $100 million in a series B. And because of these two deals alone, it kind of skewed the figures a bit.
“But the longer-term trend here is an increase in Asia-Pacific’s share in the global pie of alt protein investments. So today we are at about maybe 10-12%… but there’s a huge gap between the amount of dollars coming to Asia Pacific and actual consumption trends in the region.
“So about 40% of meat and more than 70% of seafood is actually made in Asia-Pacific, but only about 10% of the dollars are coming here. So what we are trying to do at Better Bite Ventures is to close this gap in early stage funding and encourage more global investors to come to the region.”
[Editor’s note: Download AgFunder’s Asia-Pacific AgriFoodTech Investment Report 2023 HERE.]
Challenges in alt meat: “The products definitely need to get better, and I think they are getting better. So I have seen personally some innovations inside our portfolio and outside of our portfolio. On my recent travels in Europe and in the US, I tried several different whole-cut new generation products. They’re not perfect, they’re still a work in progress, but… in my opinion, they are a clear step-up from previous generations of products.
“But price is a very important factor in this macroeconomic environment. How do we get these high tech innovations to a price point that is acceptable to consumers?”
Better Bite Ventures’ First Bite very early-stage investment initiative: “We are supporting founders at the very early stages, sometimes literally at the idea stage. So in some cases, when we start to talk to founders, they haven’t even incorporated the company. It’s really all about finding talented founders with great ideas and being very often their first institutional investor.
“Our [First Bite] investments range from $50-100k, and the most typical form would be SAFE [simple agreement for future equity] or convertible notes [a loan that’s repaid with equity once a milestone has been reached] because it’s the fastest, easiest way to close this investment and also the fastest way to get money to founders so they can start building their prototypes.”
First Bite investments: “We have invested in seven companies via First Bite so far (click here and here)… a lot of the investments we’ve made recently via this program have to do with how we improve [alt protein] products. So for example, we invested in a company from Singapore called Allium Bio, which is co-culturing microalgae and mycelium and producing ingredients that have better functionality and better taste than the current base ingredients for some of these products.
“We also invested in a company called Fattastic, that is doing better fat, as it’s often under-appreciated how important the fat is in plant-based products. Another recent investment via First Bite is Everything But from South Korea, which is Asia’s first cultivated meat startup focusing on petfood, which is an under-appreciated part of the broader protein industry.”
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