Lever VC announces $50m first close of agrifoodtech Fund II

AFN: You reference “consistently strong exit environments” in agrifoodtech. Wouldn’t many people beg to differ?

NC: Most exits of VC-backed companies are via acquisition, and if we look at acquisitions over the past 10 years, the category with the greatest number of exits is real estate and the category with the second greatest number of exits is food. Most large public-facing food companies have for many years been growing primarily via acquiring startups and independent brands that have found success and then scaling them across their distribution networks.

Of course the past two years have been a slow acquisition and very slow IPO environment in all categories, including food and ag, but that is cyclical and things are already starting to revert to back to the norm. Granted, “agrifoodtech” is a very broad category, and there are certainly subcategories within that have not had great exit environments in recent years.

Food and ag are big and broad categories, and generating strong returns in them certainly requires knowing what are and are not areas of opportunity.

AFN: How has your investment strategy evolved over the years? 

NC: Lever VC turned six this year, and myself and our other founding partner have been investing in this space for a decade, so there is certainly evolution in investment strategy that happens.

We’ve always been valuation-disciplined, and we’ve become even more so in the past couple years as it’s become a great buyer’s market for VCs like us with capital to deploy. We’ve progressively heightened our expectations for revenue, pathway to profitability, and ability to survive with minimal access to additional capital, which is needed in this current environment.

We’ve become more focused on particularly large existing categories where 30x-type returns are possible for early-stage investment bets. And our Fund II is investing notably more broadly across the sustainable food and agtech sectors.

AFN: How challenging was it to raise money in the current environment?

NC: The fundraising environment is certainly more challenging than it was some years back when Lever was raising its Fund I. Close to one third of VC funds either went out of business or went “dark” last year, as in not making any new investments, and there has been a big drop in LP commitments to VC and PE funds in the past two years.

There are two reasons Lever VC has been able to successfully raise even in these tougher conditions. First, we have a very strong performance record with our Fund I, as well as a strong performance record from our partners’ family office investments in this space prior to launching Lever in 2019, so combined about 10 years of strong returns in this category.

Second, we are sector specialists and one of the most active investors in food and agtech globally, so for LPs with strategic aims, we’re able to bring a lot of value add beyond just the direct financial returns.

AFN: What areas in the agrifoodtech space are most attractive right now?

NC: Lever VC’s Fund II is investing pretty broadly across the sustainable food and agtech space, but there are certainly areas we feel represent stronger areas of opportunity. Novel ingredients that improve health and sustainability, while being the same or lower cost and working well from a formulation perspective, are good examples of that.

Lever has already invested in several companies in that category with its Fund II such as Gavan and Mush Foods, which are producing b2b ingredients that can replace a portion of meat or dairy protein in baked goods, meat products, confectionery, packaged foods and so on, and that are clean-label, taste-indistinguishable, and cost-neutral or cost-saving.

We also see opportunity in digitization/software plays in the ag space, and in that area Lever’s Fund II has invested in companies Fox AI and HerdDogg that are able to cost-effectively help producers lower disease and mortality, improve animal welfare and sustainability, and similar by turning a production black box into a more quantified and data-driven approach.

There are also always opportunities among emerging food brands with healthier and more sustainable products in large categories, and we’ll be able to announce some investments in that area soon as well.

AFN: How do you see the role of strategics in this space ?

NC: We certainly see strategics, particularly corporate strategics, continuing to have strong interest in tracking novel technologies in areas relevant for them, and selectively partnering with and/or investing in startups whose technologies, ingredients, or products represent opportunities for business expansion.

A large chunk of Lever VC’s LPs from Fund I and Fund II are major food and ag corporates spanning the packaged foods, ingredients, retail, animal and crop ag, and other food and ag categories. These types of companies are well aware that emerging technologies can be incredibly valuable drivers of cost savings or business unit expansion, and that emerging brands can be opportunities for sizable revenue expansion, as well as threats to their existing product lines and business models.

The value of closely understanding the cutting edge of new technologies and startups in these sectors through partnerships with funds and startups can be incredibly high.

AFN: Where are we in the current downcycle? Have we hit the bottom?

NC: Funding dropped significantly across essentially all VC and PE categories from late 2022 into 2023 and 2024 as a result of macroeconomic conditions, and the ag and foodtech sectors were no exceptions to that broader trend. Second, more specific to food and ag, I also think that the boom in funding in these areas (as part of a general boom in VC funding) in prior years led to a number of investors who did not know the space that well, and/or were not willing to exercise sufficient valuation discipline, making some not-very-wise investment decisions.

This made some investors hesitant to make further deployments in the space. And I think it speaks to the importance of investing with or partnering with a team that knows the space in granular detail.

From a high-level perspective, the food and ag categories are massive, have a very nice CAGR (about 5%), and will continue to grow for many years to come, and are clearly facing disruption across a variety of fronts. So the opportunity is there.

AFN: Are you still excited about alt protein?

NC:  Lever VC absolutely still sees a lot of potential in the category. Many sub-categories of the alternative protein sector in many geographies continue to grow quite nicely from an annual sales perspective. Government funding to support the category has also started to tick up considerably. And government and corporate policies supportive of the sector are adding and will continue to add tailwinds to the sector: for example major retailers in Europe are setting policies of significantly increasing the amount of plant-based proteins they sell.

That said, as with everything, the opportunity is in the particulars. Category, team, and valuation make all the difference in the world; some are of great interest to us and others seem like dead ends.

Areas within alternative protein that Lever VC sees strong potential in include b2b ingredients that fully or partially replace animal protein in ways that are taste indistinguishable and cost-savings, as is the case with Lever’s Fund II investments into Mush Foods and Gavan; novel ingredients derived from fermentation that can meet key price and functionality benchmarks; differentiated brands in plant-based food and beverage categories that are large, growing, and have higher margins; and companies developing truly breakthrough reductions in cost-of-production in the particularly high-tech areas of the category.