Innovative Food

Innovative Food: Startups Raise $206m to Meet Consumer Demand for Protein & Novel Ingredients

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Consumer demands are changing at a faster pace than ever as our understanding of nutrition evolves. 

Protein-rich foods are in particular demand, and with the meat industry responsible for more than 15% of greenhouse gas emissions, innovators are finding alternative ways to give consumers what they want.

This includes growing meat and fish in a laboratory using cellular agriculture techniques, as well as replacing meat altogether with plant-based proteins to mimic the taste and feel of meat. While still some way away from consumer acceptance across the board, some startups are using insects — known to be much more efficient than cattle and other mammals at converting feed into protein —  into food products. These insect food startups have an emphasis on sporting consumers with insect bars and snacks that are high in protein.

Answering other consumer demands for nutritional value and health foods, other startups in the innovative food category are manufacturing novel ingredients such as algae, novel supplements with custom nutritional profiles for women and children, and replacements for unhealthy and less popular ingredients such as sugar.

Funding to Innovative Food startups is increasing with 17 deals raising $206 million in the first half of 2017 representing a 60% year-over-year increase.

Though venture funding for consumer packaged goods generally is booming, with smaller companies gaining marketshare from the large food brands quickly, food and ingredients that truly buck against convention are still relatively slow to get investor attention compared to other categories of agrifood tech; the whole sector raised $4.4 billion across 369 deals in H1.

Here’s a look at some of the most successful and mature innovative food startups across the category:

Meal replacements

While the category accounted for some of the period’s smallest deals, Silicon Valley liquid meal of choice Soylent raised a $50 million Series B round from GV (Google Ventures) along with Californian VCs like Andreessen Horowitz in the category’s largest deal and the fifth largest deal across agrifood tech.

Other startups in this sub-category include superfoods-focused Ambronite, whey-based Ample, and British import Huel.

Novel supplements & nutraceuticals

BEFORE Brands, an immune-boosting children’s food brand, raised a $35 million Series B round while  Omni Active Health Technologies raised $35 million in a late-stage round backed by private equity.

Macacha a nutritional shake for women raised an undisclosed seed in this period. Also in the category is Nutrileads, which develops nutraceutical food ingredients targeted as specific consumer groups also raised funds in H1-2017.

Novel ingredients

Nutriati is a US-based ingredient firm focused on developing new plant-based ingredient alternatives that raised an $8 million Series A round in H1-2017. Distilling the nutritional components and finding new utility for plant-drives compounds is a major goal in this space with Hampton Creek as a well-known example.

Some startups are also using food waste, or mitigating it, by creating food products such as spent grain rescuer Rise Products, and food-waste rescuer Fruit Cubed.

Cultured meat and fish

Startups in this category are growing meat or fish in a laboratory by applying methods of tissue engineering historically used in the medical field wherein animal cells are submerged in a growth medium in conditions the encourage them to multiply.

Only Finless Foods, the Brooklyn, NY-based startup culturing fish in a laboratory, raised funding during H1 with an undisclosed seed round after participating in the Indie Bio accelerator program. Cultured meat is still a small part of the agrifood tech ecosystem, which may come as a surprise to some as the sector attracts so much media attention, but there still remain some question marks around how much it will cost to bring these alternative food products to the market.

Later in the summer, cultured meat leader Memphis Meats raised $17 million in Series A from some high profile investors such as Richard Branson, Bill Gates, Elon Musk and Cargill. Other startups in this space include Mosa Meats, Meat the Future, and more recently Hampton Creek, the plant-based mayonnaise startup that announced its intention to bring a cultured meat product to the market in 2018.

Plant-based alternatives

Instead of trying to replicate meat without the animal, other startups are using plant proteins to manufacture food products that taste and feel like meat and other animal products such as dairy.

Plant-based cheese alternative startup Miyoko’s Kitchen was the only deal in the animal product alternatives category to raise funding during the half with its $6 million Series B. Miyoko’s Kitchen manufactures dairy alternatives such as cheese using cashews, rice and plant-derived oils.

Also tackling dairy is Ripple Foods, which launched a milk alternative earlier this year and counts GV and Khosla among its investor base.

Startups using plant proteins to manufacture meat alternatives have raised big funds in the past; Impossible Foods, a startup out of California has raised $257 million total from another impressive line-up of investors. The startup’s Impossible Burger is currently being served in select restaurants only. Beyond Meat, another plant-based burger company has raised a total of $17 million and has various meat alternative products on sale in Whole Foods, Target, and other retailers.

Insect-based foods

Insect-based products startups Chirps and Bugsolutely China offer alternative, if not plant-based proteins, and both raised funding during the half. Perhaps the best-known insect food product to-date is Exo, a Brooklyn-based startup that sells cricket bars in various flavors. There are startups in this category selling insect flour for cooking along with incorporating it into chips and snack foods, in the case of Chirps, along with pasta and cookies.

Though insect farmers claim that they cannot grow enough supply to meet demand from these new food companies, crickets and grasshoppers are the only insects that are gaining acceptance for human consumption among non-traditional insect consumers. But, this may be changing as Bugsolutely China is launching a line of silkworm-based products.

Sugar replacement tech

Plant-based sweetener Miraculex, which raised an undisclosed seed round this half, represented this growing group of alternative sweeteners in the first half of 2017. There are a wide variety of technologies from chemistry to neuroscience being employed by innovators in this segment that stands to make huge waves in the agrifood industry, disrupting the status quo for a great many multinationals that use a large amount of sugar in their products such as Coca-Cola and Pepsi. Later in the summer, Myco Technology, a startup removing the bitter taste from food and drink including coffee, raised a $35 million Series B round. Also since the end of H1-2017 Israeli startup DouxMatok also raised $8.1m in a Series A round for a sugar-based product that uses the mineral Silica to increase sensitivity to sugar, decreasing the amount needed to achieve the same taste as opposed to replacing it altogether.

H1 Investors

The most active innovative food investor by number of deals in H1-2017 was SOSV, the VC behind the Indie Bio and Food-X accelerators; SOSV participated in four seed stage deals for cultured fish startups Finless Foods, Miraculex, Rise Products, and Fruit Cubed.

Though corporate strategics have been slow to get in the game across all agrifood tech categories, innovative food might be an expected comfort zone for the likes of General Mills’ 301 Inc, Campbell Soup’s Acre Venture Partners, Tyson’s Tyson New Ventures and Chobani’s incubator

Only two large corporate strategic VCs participated in innovative food deals in H1-2017. British baking giant Tate & Lyle Ventures led ingredient technology company Nutriati’s $8 million Series A Round with Powerplant Ventures, Blueberry Ventures and NRV also participating.

Kellogg’s Eighteen94 Capital joined social enterprise and Moringa products startup Kuli Kuli’s $4.25 million Series A along with Investeco Capital and S2G Ventures.

The majority of the deals reported (70%) took place in the US, with China, Great Britain, Ireland, the Netherlands, and Thailand also seeing deals in H1-2017. Innovative food saw very little M&A activity this half with only two deals in the growing field of alternative protein. Dutch maker of plant-based meat alternatives Ojah was acquired by a European investment house. And Canadian animal protein products company Maple Leaf Foods acquired plant-based protein company Lightlife Foods in what is becoming a routine occurrence as animal protein purveyors seek to diversify their offerings.

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