Why are food tech investors shifting focus: a summary of key trends
- Food tech investors are prioritising capital efficiency and unit economics over bold ideas
- The sustainability narrative is no longer enough to secure investment
- Valuations are lower, and start-ups must scale more quickly to secure funding
- Investors favour tech that integrates into supply chains and boosts margins
- Consumers will pay a premium for food that brings direct personal benefits, such as health, but not sustainability
The food investment landscape is changing. Gone are the heady days when plant-based meat companies were springing up everywhere and new forms of protein were being explored almost every day. Now, investors’ budgets are tighter and their gaze is more scrutinising.
This has brought a greater focus on economics, rather than simply bold ideas and innovative technology. The question on everyone’s lips when looking to invest is: will this product actually make money?
This has brought about a greater degree of caution from investors, as well as shifted the focus away from the narrative of sustainability.
Why food tech investors are more cautious
Caution is now front of mind for many food tech investors, who are no longer willing to splash out as much cash on exciting and innovative ideas that have not been tested on the market.
For example, they are more interested in how capital efficient each business is, explained Christina Ulardic, partner at agrifood-focused VC Astanor Ventures at Future Food-Tech London last week.
Valuations are now lower, and investors are expecting companies to go to market quicker and build their businesses faster.
However, she stopped short of saying that investors are only looking for revenue-generating companies. “You have to stay true to what VC is actually about.”
If all you have is a good story to tell, it’s hard to gain investment, added Ivan Farneti, managing partner at sustainability-focused VC Five Seasons Ventures. The numbers of people investing in food and beverage start-ups is shrinking.
The food tech investment landscape is “going back to a state of normality” after the bullishness of previous years.
The early stages of a company’s life are where investment is declining the most, he pointed out.
Investors want any company they are investing in to have good financials. This is one of the key components that Mondelēz International looks for when investing, explained Richie Gray, vice president and global head of snack futures at the CPG giant.
“Excessive cash burn is a red flag for us”, he added. “Growth without solid unit economics is not the right type of growth”.
Why the sustainability narrative is declining
“Where a lot of the capital has gone in the past is into solutions which have a great sustainability story, but tended to fall down on the economics”, said James Caffyn, partner at food-focused venture capital firm Lever VC. “In reality that was never going to work”.
Now, investors are prioritising technology that can slot into existing supply chains, and have a net positive on unit economics.
“It is very, very simple. It is the economics. All that matters is you can produce an economically viable product. There are so many people who talk about the sustainability side or the fact that they have approval to sell. It doesn’t matter. At the end of the day people choose with their wallets.”
While the focus-shift from sustainability to economics is more prominent in the US, it is also clear in European companies, Caffyn added.
One of the reasons that sustainability has lost priority is that consumers won’t pay a premium for sustainable products.
“The area where people will pay a premium is when there is a very direct benefit to themselves that is immediately viewable.” This is why sectors such as health and supplements have done so well – they appeal directly to consumers’ self-interest.
At the end of the day, investors want what can make them money, and, in both sustainability and elsewhere, they’re being more discerning over what companies can fulfil this purpose.
Despite this, Caffyn is optimistic. The level of disruption in the food supply chain is high, but he sees many companies reacting to this in effective and innovative ways.
