Plant-based protein maker Impossible Foods — which designs vegan burgers that simulate the oozing, bleeding effect you get with rare meat — has closed another private funding round this week, securing a further $300 million of capital and bringing its total raise to $750 million.
It’s a shot across the bow to its rival alternate protein powerhouse Beyond Meat, which scorched the stock market with its IPO on May 2, when its shares spiked by over 163%, reaching a valuation of $3.77 billion at market close. “I was joking with my colleagues here that I wanted to high-five the TV when I saw their extraordinary performance in their initial offering,” Impossible Foods CFO David Lee excitedly told AFN during a phone interview from his office in Redwood City the following day. “The more credible brands that are providing good solutions for the environment, the better. So we’re excited to see that performance.”
Red Carpet Red Meat Disruptors
Little more than a week later, Impossible, a recent winner of the AgriFood Tech Innovation Awards, shared their own exciting news to offer as further evidence for the sizzling investor interest in alternative meats. And it all comes with no small thanks to a glitzy red carpet’s worth of celebrity investors. Among them — Jay Z, Trevor Noah, Serena Williams, Will.i.am, Katy Perry and Jayden Smith.
With less glamor but deeper pockets came Temasek, the Singapore government’s investment fund, which led the round alongside Horizons Ventures, a personal fund of the Hong Kong magnate Li-Ka Shing. Other backers of the company include GV, Viking Global Investors, Sailing Capital and the Open Philanthropy Project.
The round’s closure comes off the back of Impossible attaining distribution partnerships, including White Castle and Red Robin, all from its one set of production facilities in Oakland, California. (Their patties are frozen and freighted across North America and the Pacific.)
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Most significantly, Impossible has become an anointed vassal of the fast food behemoth Burger King. The two teamed up to offer the Impossible Whopper at 59 branches in St Louis, Missouri last month. This Tuesday, Burger King announced further rollouts of the meatless patty at some of its stores in Miami; Columbus, Georgia; and Montgomery, Alabama — all part of plans for national distribution to its 7,300 US branches by the end of the year.
“These conversations had been happening over a fair amount of time,” recalls Lee of the deal brokered with Burger King. He described “a very thorough diligence project” into whether they are capable of meeting national scale at such a large firm, especially contingencies that their offering that could be in high demand. “The ability to actually supply is an important consideration for them.”
It looks like this will be where a good deal of the further funding will be deployed. “Frankly, we’re sparing no expense to increase our capacity to serve all of them,” says Lee. “We have been looking at co-manufacturing options … We are in active negotiations with many states. We have been looking for some time. We have been whittling down to the most promising locations.”
Are they also looking to partner up with that other fast food giant, McDonald’s? “We respect the privacy of prospective customers,” Lee replied, not denying that conversations had taken place. However, in Germany this month, there were signs McDonald’s will be going its own way, rolling out a vegan patty of its own to positive reviews.
There are threats for these new players that some of the other established players will launch products of their own, adapting their products to fend off the disruption brought by consumers moving towards more vegetarian or flexitarian diets. Tyson Foods, for instance, pulled out of Beyond Meat before the IPO shortly after announcing its intention to launch its own meat replacement option.
US Regulation is still an open question, despite a breakthrough last year. Impossible makes its plant-based burger with synthesized heme — the non-protein part of hemoglobin in blood that carries oxygen. This compound ingredient helps Impossible’s burgers cook, taste, and bleed like beef. It obtains heme by genetically modifying yeast and using fermentation to produce a heme protein naturally found in plants, called soy leghemoglobin.
“If the firm wishes to sell the uncooked, red-colored ground beef analogue to consumers, pre-market approval of the soy leghemoglobin as a color additive is required,” FDA spokesman Peter Cassell informed Bloomberg last December, a blow to the company that had gained wider FDA approval for its serving in restaurants earlier in 2018.
“We are, by our origin, a science-driven company,” says Lee, unfazed. “So working with regulatory bodies and presenting the facts is something that feels quite comfortable here.”
He also still holds high hopes of European expansion, though the focus is mostly on the US right now, and then Asia, where he has identified 40% of the global meat market. With far stricter regulations on the use and application of GM technology, the European Union may be trickier, but Lee says that “Now is the time where we have reached sufficient scale; we are just beginning to meaningfully explore what it means to go to the EU — that will be an exciting development in the years to come.”
“I imagine in the EU there are lots of consumers of plant-based curdling agents,” he says, likening the GM yeast-enabled fermentation process of heme to that used making some cheeses.
Risk of over-cooked expectations
Despite recent talk of expansion, other fresh players are entering the market as well as the oldies, making the stellar valuations look a little exposed given the context of impending competition and potential regulatory pressures.
We also heard stories of long term equity houses making a lot of money out of Beyond Meat’s IPO by selling within days of purchasing IPO stock, taking advantage of the aftermarket boom.
“It has the feel of the dot com boom,” warns Andy Shovel, the founder of This, a London-based startup that is just emerging out of stealth mode with bacon and chicken alternatives predominantly based from soy but steering clear of GM heme — all with the help of food scientists from the University of Reading and Nottingham. Even his company’s name — This — is designed to circumvent European regulations mooted in the European Parliament which suggest outlawing the use of the term ‘burger’ on products that do not include meat.
If those European regulations go through, the Impossible Burger will have to enter Europe under a more ambiguous pseudonym or an irritating misspelling like Impossible Birga. And they may face a stern test in the long run from nutritionists, many of whom already find that even with advantages of lower cholesterol, calories and a lower carbon footprint than a traditional beef patty, that does not make these hearty meals a genuinely healthy, nutritious alternative. They’re still fast food, after all.
Even so, Lee describes how the company’s mission “commands us” to go global and woo meat eaters in the name of countering climate change and limiting carbon footprints. “Meat eaters, of which I’m one, we’re addicted to the craveability of meat, and we couldn’t imagine a world where there can be something just as craveable that didn’t come from an animal. And now we know that there can be.”