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Bioreactor for alternative proteins
The entire alt protein space is in its awkward teenage years. It grew up during a historic bull market and there are going to be adjustments...' Image credit: iStock/sergeyryzhov

Survey: Alternative protein investors cautiously optimistic despite 42% drop in funding as category navigates ‘awkward teenage years’

February 16, 2023

  • A survey of alternative protein investors showed continued optimism about the space over the long term despite recent short-term concerns and a 42% drop in funding during 2022 to $2.9 billion (vs a 35% decline in overall global venture funding), according to Pitchbook data.
  • The December 2022 global survey of 125 investors* conducted by the Good Food Institute (GFI)— a non-profit focused on promoting the transition to an animal-free food future—suggests ESG (environmental, social, and governance) impact is the largest driver of investor interest in alternative proteins; 80% of respondents include alternative proteins in their ESG funds’ core mandates.
  • 81% of respondents were already invested in alt protein, with 87% expecting to make further investments in 2023.
  • Interest in plant-based is dwindling, with more firms planning to invest in fermentation-derived products.
  • Investors are diversifying their alt protein holdings with greater emphasis on business-to-business (B2B) ingredients and equipment versus business-to-consumer (B2C).

Presenting the findings at the recent Fermentation Enabled Alternative Protein event in San Francisco, GFI startup innovation specialist Audrey Gyr said that while there is some short-term ambivalence around alternative proteins, investors remain optimistic and interested in the category as a new frontier for their ESG mandates.

“We are increasingly seeing investors wanting to diversify from solar and batteries to food, so food and agtech really are next for those ESG investors. We also found 42% of investors cited ESG factors as being a primary driver of interest… When it comes to business models, we’re also seeing that more investors want to invest in b2b companies working in ingredients and equipment.”

She added: “Most investors in our survey are looking at early rounds, so pre-seed to Series A, which is where a lot of innovation happens. However, as the market matures, more companies are out there seeking later-stage capital and investment dollars will really need to mature and grow with the market.”

“We also asked investors about their thoughts on why investment in alt protein slowed in 2022. For those that thought investments have slowed down, they blamed broader economic conditions [more than specific concerns about alt proteins].

GFI investor survey alternative proteins
Source: The Good Food Institute investor survey, Dec 2022

‘More and more investors are looking for techno-economic models and detailed financial projections’

When GFI asked alternative protein investors why they passed on specific investments last year, terms of the deal (cited by 62%) and concerns about the potential returns they could get from investments (ROI) — 48% — were the top two reasons, The third reason (32%) was that the companies did not share adequate technical validation, while 23% said the companies did not share adequate financial projections and analysis, she said.

GFI investor survey alternative proteins
Source: Good Food Institute investor survey Dec 2022

“Of the 60 largest global meat, dairy, and seafood companies tracked in the The Coller FAIRR Protein Producer Index, half are investing in the alternative protein market as of 2022, more than double the amount in 2019.” The Good Food Institute

Dan Altschuler Malek: ‘This sector was overhyped, but now its demise is being over exaggerated’

Speaking at a panel debate during the event, Unovis Asset Management managing partner Dan Altschuler Malek said the sector had been overhyped, “but now its demise is being over exaggerated.”

Some kind of market correction was inevitable as valuations got to a point where they did not make sense given the margins and the capital requirements of building a food company, said Malek, who has invested in alt protein players from MyForest Foods (mycelium-based whole cuts) to The Protein Brewery (biomass fermentation) to cell-cultured meat (Mosa Meats).

“I think people are overestimating technology in food,” he argued. “We invest in companies. At the end of the day, it’s food, and that has been forgotten in the equation. When we do due diligence, we start by tasting the product.”

‘A couple of years ago money was basically free’

Regardless of the technology underpinning it, he added, “Food is a nickel and dime business where day in and day out, you have to deliver consistently to customers… and that has been lost. I do not believe we’re going to find a world where there’s one company that owns all the IP or anything else.”

He added: “Most of these companies will not be billion-dollar companies, so having that mindset at the beginning, you’re not setting yourself up for success. Be laser focused. Try to solve for one pain point, be strategic, be focused, and start small. Then try to use as much leverage as possible, everything from government grants to working with CMOS and third parties.

“A couple of years ago money was basically free, but that’s not the real world and we’re back to reality to a certain extent.”

‘If you’re raising now at a real valuation, you’re much better off because you’re not going to be facing the high likelihood of a down round’

Beatriz Franco at Vita Ventures added: “A lot of the correction is at the later stages [bigger funding rounds], so if you are an early-stage company, you shouldn’t feel the effect so badly.

“I also think that if you’re raising now at a real valuation, you’re much better off because you’re not going to be facing the high likelihood of a down round, like some of these companies that raised in 2021 will.”

‘There’s going to be a lot of consolidation’

Nate Crosser, principal at Blue Horizon, told AFN: “The entire alt protein space is in its awkward teenage years. It grew up during a historic bull market and there are going to be adjustments.

“People are going to have to think harder about go-to-market, and there is going to be consolidation. A lot of companies are also going after the same targets such as recombinant casein proteins.

“It’s been propelled by the need and the excitement, and the market size and the amount of investment floating in, but consolidation is good. It needs to happen… and it will happen.”

*42% of investors surveyed were based in North America, 32% in Europe and the UK, and 20% in APAC, ranging from venture capitalist to angels, family offices, accelerators, private equity, and corporates.

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