Editor’s note: Winnie Leung is vice president at Bits x Bites, an agtech and foodtech-focused venture capital firm based in Shanghai, China. AgFunder produces its annual China AgriFood Startup Investing Report in partnership with Bits x Bites. AgFunder is the parent company of AFN.
Last year, agrifood startups in China – the sector’s biggest market after the US—raised $3.6 billion across 224 deals, according to the latest edition of the China AgriFood Startup Investing Report.
The report, released today by AgFunder in collaboration with Chinese foodtech VC Bits x Bites, provides unmatched insight on the country’s agri-foodtech investment landscape.
Chinese economic slowdown was in full effect in 2019. Add in the African swine fever outbreak and the intensifying trade war with the US, the challenges for startups and investors alike were real. And this was before the onslaught from COVID-19 towards the end of the year.
These developments impacted agrifood in China in two major ways. On the one hand tech investing fell across most sectors, which spilled over to a pullback in agrifood tech deals in 2019. At the same time, food security concerns from these recent threats triggered $44.1 billion of investments in large-scale agricultural projects—almost quadrupling 2018 investments—by large corporates and state-owned enterprises, aimed at consolidating and modernizing livestock production. This is great news for agtech startups looking to layer their solutions on sizable farming production.
With this third annual China report, we clearly see the rapid pace at which the Chinese food supply chain is moving online.
In the past couple of years, we’ve followed the food delivery war between Meituan Dianping and Alibaba-owned Ele.me. Now, the battleground is shifting to eGrocery. In 2019, we saw a number of new e-commerce platforms digitizing B2B food procurement for small businesses and restaurants. Innovations are rapidly going from downstream consumer-focused models toward midstream opportunities.
Perhaps that’s just another example of ‘China speed’. Last year also saw Starbucks rival Luckin Coffee complete the fastest IPO in history, going public less than two years after it opened its first store.
Get free access to the AgFunder China AgriFood Startup Investing Report in full here. Read on for a few of the topline findings.
China leads the world in eGrocery funding
Investment in eGrocery grew 25% from 2018 to reach $2.1 billion. In fact, Chinese eGrocery investments made up more than half of global top deals in the agrifood sector.
MissFresh received a $700 million investment – the largest in the Chinese agrifood space last year. It uses a distributed small-scale warehousing model to reduce delivery time and cold chain costs. MissFresh claims to lead China’s fresh groceries segment in gross merchandise volume and active users, pulling ahead of key competitors including Alibaba’s Hema and JD’s 7Fresh.
In-Store Retail & Restaurant Tech in transition
Matilda Ho, founder and managing director of Bits x Bites, observes that 2019 deals show a “realignment” in the funding landscape toward “value-added solutions which target difficult pain points.”
“The funding hype around unmanned grocery stores and smart vending machines has quietened from its 2017 peak of 55 annual deals. Replacing these experimental retail models [this year] were several companies built to address efficiency gaps,” she says.
This includes startups addressing online order management, helping restaurants handle the seemingly ever-growing number of delivery orders.
The only unmanned retail space that appeared in this category in 2019 is Ubox, which raised $244 million from Alibaba affiliate Ant Financial.
Candao and Order Handler are both tech service providers to restaurants, offering online order management, procurement, and integration for delivery platforms. They each raised $14 million in 2019.
Midstream Technologies move B2B procurement online
Companies in Midstream Technologies raised $336 million last year across 39 deals. Platforms that enable digitized supply chain efficiency continued to draw capital support. The latest group targeted for digitization was the millions of mom-and-pop fresh produce shops and restaurants throughout China.
Yijiupi, an online wholesaler of alcohol and food products, raised $100 million in Series D funding from Warburg Pincus and another $80 million from Tencent.
Online seafood vendor Xinliangji completed a $42 million Series B round, while Lehe Food, a fresh produce wholesaler, closed two rounds in March and October, each at $14 million.
Farm Management Software, Sensing & IoT grew 3x on 2018
Further upstream, smart agriculture startups – previously on the periphery – are now drawing big-name investors like Baidu Ventures, “who see farming as a new application for AI and robotics that aligns with the Chinese government’s food security priorities,” Ho says.
The largest deal in the Farm Management Software, Sensing & IoT category was McFly, which raised $14 million to expand its remote sensing, big data, and AI tech to digitize farming in China. Drone company Skysys secured $10 million to develop data services.
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