Declining investment in European food tech is set to worsen in 2024, amid ongoing geopolitical uncertainties and a more cautious VC landscape.
According to projections from Forward Fooding’s FoodTech Data Navigator, just $4.7bn (€4.3bn) is set to be invested into European start-ups and scale-ups by the end of this year, a 30% decline versus the $6.8bn invested in 2023 - and a 70% drop compared to the $14.7bn raised in 2021.
Against a backdrop of market volatility, “VCs are currently struggling to raise capital, and fewer are deploying capital,” explained Forward Fooding co-founder Max Leveau. “They are surely pickier when it comes to making investment decisions as well.
"We've seen a lot of companies phased out in the past couple of years as a result,” he added. “And I think it's not going to stop. I think the next couple of years are going to be quite tough because companies are struggling to raise funding, and many of them will run out of cash.”
How is food tech investment faring globally?
Globally, investment in food tech reached its peak in 2021, with $64.1bn raised, 23% of which was channelled toward Europe’s ecosystem of start-ups. But rising interest rates and increasing questions over the viability of start-up business models, saw this quickly begin to fall, with total investments dropping 50% in 2022 (though they remained considerably higher than in 2020) and then again in 2022, as broader market factors impacted VC funding across all sectors.
This slump has only deepened in 2024.
On the one hand, investors have tightened purse strings across all sectors. Globally, VC activity was at a five-year low in Q1 2024, according to Pitchbook data. “The absence of mega-rounds that significantly bolstered previous years' totals has impacted the overall figures for 2024,” said Christophe Maire, founding partner at food tech investor FoodLabs. Its own research in June, alongside database management group Dealroom.co, forecast that VC cash injections into climate-related food tech start-ups would drop 45% this year to $1.1bn. “Additionally, rising interest rates and broader economic uncertainties have made investors more cautious.”
Food tech start-ups also face some changes in funding models unique to the sector, however.
One of those is the way in which funds are being distributed, points out Leveau. “Historically, if you aggregate ‘food delivery’ and ‘alternative proteins’, those categories represent more than 50% of all AgriFoodTech investments. In fact, if we look at just these two in 2021, which was the peak year of investment in total, they represented 68% of all the capital that was going into the sector. And now in 2023, it's 38%. The landscape is definitely changing, and investments are going towards a broader range of solutions, such as ag biotech, solutions to fight food waste, precision farming, and functional foods amongst others.”
A big reason for this is an evolution in the typical investor persona within food tech, he believes. "Many generalist investors, perhaps more inclined to invest 'on hype' without having the full picture, have now left the space, in favour of specialised investors who are still actively investing but are more discerning in where they put their money and how they evaluate investments too.”
It follows some high-profile hiccups at leading food tech companies in the US, with cultivated meat company Upside Foods announcing its latest round of layoffs earlier this month in a bid to conserve capital and alt-meat brand Beyond Meat reporting an 18% plunge in Q1 revenues in May as demand in the category continues to weaken. As a result, “there's a bigger focus on focusing on high-impact solutions, and also on making sure that companies have healthy economics, in terms of revenue and cash flows, and that they have solid foundations to grow the company in a 'healthy' way rather than relying on VC money.”
“Commercial traction and price competitiveness have become more important than, for example, IP,” agreed Maire. “Investors expect start-ups to be leaner and more resilient in order to operate with less capital.”
Hope on the horizon for food tech
This change in focus has also seen B2B start-ups working on enabling technologies fare better than those focused on end products. “If you talk to many investors out there, when talking about alternative proteins, they will tell you: "we only invest in B2B ingredients companies and enabling technologies,’ i.e., companies that are focusing on certain specific aspects to improve the taste, texture or nutrition value of plant-based meat products or dairy products. That makes a lot of sense, as these are the companies that ultimately will help in achieving better and more scalable products.”
There is hope on the horizon for the sector as a whole too. Forward Fooding is projecting a slow rebound in the next 12 months, with a forecast of approximately $6B to be raised in 2025 and $7.7B in 2026. But it’ll take the right type of sector to see that cash translate to long-term growth, suggested Leveau. “What this sector needs is patient and smart capital: investors cannot expect the same type of return and exit timeline when investing in fintech or software vs AgriFoodTech."
