Today there are multiple startups making dairy proteins without cows. But back in 2014, Perfect Day founders Ryan Pandya and Perumal Gandhi were in a field of one, creating a completely new category in food.
So what was Pandya’s vision for the business in the early days, how different is it today, and what’s the exit strategy for Perfect Day’s investors, who have pumped almost $750 million into the precision fermentation startup over the past decade?
In our 25-minute chat with Pandya, we covered:
- Market drivers: What is driving interest in whey protein from fermentation? Is this primarily about hitting ESG goals?
- Unit economics: How cost-effective is it to make dairy proteins with microbes?
- Raising money: Perfect Day is already at the series D stage, what happens next?
- The business model: b2c or b2b? Did it make sense to buy Coolhaus only to sell it again?
- The recent layoffs: How should the market interpret them?
- Terminology: What do you call dairy made without cows?
- Industry challenges: What are the biggest hurdles facing startups in precision fermentation?
Market drivers: “There’s a growing demographic that wants animal-free, vegan, lactose-free, sustainable… there are so many different angles… but it’s not the majority. The majority is still buying animal products. So the question is, how can we reduce the impact that that large majority of the pie represents?
“So on the one hand, you have the animal-free market, but you also have the massive ESG [environmental, social, and governance] benefit of being able to reduce the impact of dairy. When we talk to Starbucks, they’re one of the largest dairy buyers in the country, and when they set their ESG goals, they’re looking at dairy because that is the biggest lever to drive their ESG, and that’s true for pretty much any company that’s buying dairy.”
Terminology: “We started off describing it as ‘animal-free.’ And for that for that smaller part of the pie, I think that’s correct. But the reality is the overall impact that can be achieved here isn’t necessarily in products that are entirely animal-free. And I think that was a huge learning for us. We realized that companies wanted to use this ingredient [which Perfect Day now describes as ‘whey protein from fermentation’] not necessarily in entirely animal-free products, but to start to move their portfolio or their product lines in that direction.”
Funding: “We really want to get off the need for venture [capital], which I think is a healthy mindset… the way that we’ve always viewed it is that we’re trying to build a business that could exist as a really strong public company. And whether the end game is public, or whether the end game is an acquisition, you’re best served by building a great business, and that’s what we’re trying to do. We’re not quite there yet. So we will probably end up raising [another round], but we’re very close to that finish line.”
Unit economics: “[Back in 2014] people didn’t believe that the economics could be achieved, quite frankly. The yields you would need were not known to be possible. I remember in the first year or two, most of what we were doing was talking to experts in the field and asking what are the highest yields possible? Without going into specifics, we’ve now achieved more than five times, probably 10 times, what experts in the field thought was possible 10 years ago.
“Our entire business model is predicated on [the basis that it’s commercially viable to make whey protein from fermentation] … and [based on improvements in titer, productivity and yield made in recent years] that’s why we have companies approaching us to work with nth bio [Perfect Day’s subsidiary enterprise biology business].
“We’ve built this incredibly capable, versatile platform, but there’s only so many things that we’re going to end up commercializing. And yet we know that there are so many different companies that are making different proteins or targeting different things that would benefit from our platform. And so we’ve found the best of both worlds: to be able to do what we do, and leverage what we’ve built for other companies.”
Business model: “We had the assumption at the very beginning that we would be like Impossible Foods. You build the technology, you make a product using that technology, you put the product on the market. But very quickly, we were getting a lot of inbound inquiries from companies that were saying, I buy milk ingredients and I would love to have an animal-free version or a lactose-free version, can you sell [your ingredients] to me? So we quickly realized that b2b was a stronger business model and a way more flexible approach because brands come and go. So in 2016, we decided to shift formally to a b2b model.
“Over the following four years, we realized that large food companies move kind of slowly, and what we were really hoping to do [by launching The Urgent Company, a consumer products arm with brands including Brave Robot] was prove to the big companies that really drive impact that this was ready for prime time. What I think we maybe didn’t anticipate when we started, was how we would feel when that box was checked [Perfect Day recently agreed to sell The Urgent Company to a new company called Superlatus for an undisclosed sum].
“What we were trying to do was show this model of fermentation-derived dairy is fully ready to go and people are ready for it, and overall, we accomplished the mission to such an extent that we didn’t feel the need to run consumer brands anymore, quite frankly, because we started having pretty much every Fortune 500 food and beverage and dairy company working with our ingredients.
“Typically, they’ve launched small things to start, but what we know behind the scenes… is that these are all leading towards much, much larger launches, and much, much larger parts of their portfolios, and so we don’t have to do this consumer branded thing anymore. And as we think about our resources, our focus, why would we dilute our focus if we don’t need to?”