When the pandemic started, venture capital firms hit the brakes on new investments. But food was the one thing that everyone still needed, regardless of where they were in the world or how the pandemic and its health and economic impacts were affecting them at any point in time. Thus, a lot of money continued flowing into agrifood tech companies; the tally of agrifood venture dollars committed in the first half of 2020 nearly matched the same period in 2019.
“There was a mad rush in the beginning to redeploy capital in portfolio companies to make sure they last,” observes Ingrid Fung, a Toronto-based investment director with Finistere Ventures. “We’re seeing a little more normalization now.”
The lasting impact, however, is unlikely to result in a “return to normal”—at least not the “normal” we knew before. The pandemic has shone a spotlight on the global food chain’s weaknesses: inefficiency, waste, and environmental destruction. The capital pouring into the agrifood sector in the first half of 2020 was largely focused on addressing those gaps, and promisingly, reshaping a more resilient and sustainable food system for the future, says Fung.
Fung will delve into how the pandemic has shifted agrifood tech investors’ perception of risk and opportunity at this year’s AgTech NEXT conference, hosted virtually by the Donald Danforth Plant Science Center. Top areas for agrifood investment so far in 2020 include technologies that can reduce the amount of on-farm labor required and supply chain and logistics technologies to help food companies cope with shortages and bottlenecks, Fung says.
Another big area of focus: sustainable, alternative sources of protein.
“This is not a ‘nice thing to have.’ It’s imperative for the future of the planet,” says the Danforth Center’s president Jim Carrington. Carrington will be kicking off the conference with a one-on-one conversation with Impossible Foods founder and CEO, Pat Brown.
Brown’s company is known for its “bloody,” meatless burger, the impossible burger, which has been popularized through celebrity endorsements, fast food chain distribution, and marketing that emphasizes sustainability to a generation of young people for whom climate change is an urgent priority. Last month, Impossible raised $200 million from investors to expand its range of alternative-meat products.
“Meat consumption around the world is completely unsustainable at its current levels,” says Carrington, pointing to the resource intensity of rearing animals, particularly large livestock, for consumption. “To make animal protein, you first have to make plant protein, whether it’s soy or something else. Then you transform that into feedstock to then make animal protein. It’s simply inefficient.”
More than that, there are significant consequences to having animals play such a prominent role in the global food chain, Carrington continues.
“There is an awful lot of greenhouse gas emissions, fertilizer waste and also animal waste for what is, in the end, a relatively small amount of protein.” Plant-based proteins as a substitute make “a lot of sense,” he says. “And this is entirely feasible, as Impossible Foods and many other companies have shown.”
Carrington describes the work that Impossible and other innovative agrifood tech companies are doing as crucial to solving grand challenges at the nexus” of food and the environment. That is precisely the mission that Danforth Center itself was based on when it was founded more than two decades ago.
“We see grand opportunities to use science to benefit humankind—to feed the hungry, to protect the world’s environment for our grandchildren and great-grandchildren, and to provide discoveries that will help spark the next generation of science-based industry,” said the center’s founding Chairman, William Henry Danforth, who passed away this week at the age of 94. (Read the Danforth Center’s tribute here.)
But meeting both grand challenges and grand opportunities requires collaboration across all stakeholders in the global food chain. That is not always instinctive for large research institutions or corporations, who guard their discoveries and intellectual property to maintain a competitive edge.
Laura Lee, senior manager of digital innovation at seed supplier KWS has some ideas of how large corporations and small startups can step out of this guarded and minimally collaborative way of working.
“We make seeds. So, there’s not a ton of high-tech internal expertise and not a ton of software engineers,” she says. But in an increasingly digitally-driven world, KWS needs those skills to remain competitive.
“The primary way that we aim to make digital a strength at KWS is by entering into partnerships with external technology companies,” explains Lee, who is hosting a discussion on corporate innovation partnerships as part of AgTech NEXT’s publicly open Table Talk series. “Partnerships are the primary vehicle that we use and that includes really small companies like Earth Sense and big companies like the Microsofts and Googles of the world.”
Other corporates looking to keep pace with innovation and consumer demand are also coming around to the value of partnerships. In lieu of building out internal R&D departments or attempting to operate like a young, nimble startup, startup partnerships offer corporates the energy and fresh ideas that entrepreneurs can bring to the table. In return, the benefit for startups is market exposure, growth opportunities, and most importantly, capital.
But how to forge these kinds of mutually beneficial collaborations? Lee explains that what she and KWS look for in partners is whether they can be collaborators towards achieving a common goal, like developing a new product, service, business model, or go-to-market strategy. They’re less interested in situations where KWS is simply buying a product or service from the would-be partner, she explains.
Lee also touches on the reality that partnerships require a bit of a leap of faith, and not all will work out.
“Sometimes companies just aren’t a good fit. Every company is unique and what makes a partner a fit for a corporation [comes down] to a variety of things,” including many “squishy, intangible” factors that aren’t directly related to strategic fit, she says.
Investors, too, are confronting uncomfortable risk factors as they place their bets on new agrifood innovation, particularly in the Covid environment. Fung recalls that agrifood tech investors immediately paused new investments when the pandemic started, stepping back to focus on getting their portfolio companies through the storm. She also witnessed a decrease in valuations meant to encourage reticent investors to close rounds faster.
“There may be a continued slow down in terms of deal flow as everybody kind of doubles down on their favorite portfolio companies,” she estimates. “What will be left out there may potentially be of lower quality or earlier stage.”
But that could be good for the emerging agrifood tech venture capital ecosystem, if it results in more attention to quality, high-impact solutions, and how capital and knowledge resources are allocated to them.
“That remains to be seen,” she says. “But that is the feeling from the more seasoned agtech investors.”
Check out AgTech NEXT’s full agenda of speakers and Table Talks.