Last week, Bridges Ventures, the specialist impact investor firm, took a majority stake in Vegetarian Express, a UK plant-based ingredients supplier, in a partial buyout from the founding team. This was its second-ever food-related investment and the first targeting an environmental impact outcome.
The UK-headquartered fund manager was one of the first commercial impact investment firms to focus on delivering market-rate financial returns as well as positive social and environmental impact. But until now has predominantly invested a bit closer to home in education, health, and real estate companies and initiatives. The first food investment is an example; 9Bar is a healthy snack bar company based in North Wales, but the main impact thesis was about promoting business in a deprived part of the country, according to Bridges Ventures.
Following on from our earlier article about how impact investors look at agriculture and technology, here’s a closer look at Bridges Ventures’ rationale for investing in Vegetarian Express.
So why Vegetarian Express?
Like many other impact investors, Bridges has specific themes and outcomes it pursues. The firm’s four main themes are Health & Wellbeing, Education & Skills, Sustainable Living, and Underserved areas.
Within each theme, there are a set of challenges the firm will aim to impact through its investments. Within Sustainable Living, climate change is one clear challenge that can be addressed across multiple sectors including clean energy and transport, sustainable farming, waste reduction, and food processing to name a few. From there the firm will assess the impact and financial return potential of more specific areas or subsectors, and that could lead to the firm developing theses around these areas.
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Vegetarian Express, which supplies over 1k product types including tofu, tempeh, quinoa, nuts, spices, and pulses to a range of food service companies including universities, fits squarely in the Sustainable Living theme, according to Emma Thorne, investment manager at Bridges Ventures. Specifically, it fits the firm’s thesis around the need to reduce consumer reliance on meat-based food products.
Along with a growing number of institutional investors, Bridges Ventures is concerned about the environmental impact of livestock production. Estimates put livestock’s contribution to the world’s greenhouse gas emissions at as much as 14%. Pointing to research by Chatham House that GHG reduction targets will only be reached if meat and dairy consumption is reduced, Bridges wants to promote the production and sale of more plant-based foods with the investment in Vegetarian Express. The firm also recently signed a coalition of institutional investors pushing for more plant-based meat alternatives in global food companies.
“When it comes to our sustainable living theme and food in particular, climate change is a key challenge we want to address; and livestock production is one of the major drivers of GHG (greenhouse gas) emissions,” she said.
Bridges also pointed to increasing demand for plant-based food from consumers indicating that there are health benefits associated with replacing meat. According to a study published by strategy consultant OC&C last year, 41% of UK consumers are now actively reducing their meat consumption.
“We were very focused on making an investment in the broad alternative protein space,” said Thorne. “We did look at some branded meat-free food products. But they were either small-scale businesses that were below our investment threshold, or they were more tech-driven start-ups, which are too early-stage for us – and can also have very high valuation expectations.”
What else does Bridges Ventures look for?
By comparison to the startups it briefly looked at, Vegetarian Express has an established and stable business with good cash flows, a loyal customer base, and a good reputation in the food service industry. This made it a great opportunity to enter the plant-based market, said Thorne.
“Vegetarian Express not only supplies plant-based ingredients that could serve as alternatives to meat; it’s also working hard to promote a change in consumer diets by improving the quality and accessibility of plant-based menu options. It works closely with its clients to provide support around their use of these ingredients, for example by offering menu development advice,” she added.
Other appealing features of the business included its strong logistics, including the ability to deliver small quantities every day, responsiveness to chefs’ needs, a defensible niche with sustainable margins, and a proven revenue model. Bridges is not an early stage investor.
There is also plenty of potential for Bridges to add value to the business, another pre-requisite for investment, according to Thorne. For example, the firm plans to work with Vegetarian Express on its supply chain and sourcing strategy. Vegetarian Express is not an organic-only supplier, and while that’s not necessarily essential to Bridges, the firm is aware of the potential negativities around too much chemical application on soil health and greenhouse gas emissions. So it will be keen to promote Vegetarian Express’s ESG credentials.
“For us to be truly additional investors, it’s not just about the capital. It’s about the support we can provide, using our experience, to help them achieve their next stage of growth, and the professionalization needed to enable that. That’s why we always take a controlling position in businesses,” said Thorne.
What other themes in food and agriculture is Bridges looking at?
- Food waste reduction: scalable operational or tech solutions with a strong commercial opportunity.
- ESG leadership brands that could be “the true future of food” – businesses across nutrition, sourcing, packaging, waste management (and more) that have a best-in-class approach and could be leaders in their space.
- Farm-to-fork supply chain: the firm is looking at ways to cut out long, unwieldy supply chains from farm-to-fork. Could include indoor agriculture.
Bridges acquired the stake in Vegetarian Express through its Sustainable Growth Fund III. This is the fund’s ninth investment. Bridge Ventures has raised nearly £800m ($975m) across its Sustainable Growth, Property, and Social Sector funds. For more about the firm’s impact investment approach, click here.
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