Summary of alt protein investor sentiment
- Investor confidence has dropped as long timelines clash with revenue expectations
- Sector struggles as key plant based and cultivated players face major setbacks
- Later stage funding gap widens as hype fades and due diligence increases
- Corporates view alternative protein supply chains as fragile and needing reinvention
- Investors want clear commercial pathways and long term capital planning from start ups
In food tech, investor confidence has plummeted. These days, they’re cautious – often wanting to see clearer paths to revenue in a shorter timeframe, and are not willing to plough as much capital into expensive projects with uncertain outcomes.
The alternative protein sector is certainly not a clear win for investors. With key players in plant-based, such as Beyond Meat, struggling, and many once-promising cultivated meat companies going under, the path to profitability isn’t always clear.
Indeed, the sector can come with lengthy regulatory approval times and uncertainty around market uptake, posing particular challenges for investors. This is why the sector is currently aiming to make investment less risky.
“We see more research in academia and more grants in the space which helps derisk technology and product development,” explains Rodrigo Ledesma-Amaro, director of the Bezos Centre for Sustainable Proteins. “There is more science than ever in the space and that will bring back investor trust.”
But what is investor confidence in the sector like? And what can start-ups do to attract investor attention?
Are investors excited by alternative proteins?
Excitement still exists in alternative proteins, but many investors in the sector have become disillusioned by long wait times and high infrastructure costs.
The investment landscape for alternative proteins is “a tale of two cities”, says Deborah Zajac, general partner at venture capital firm SOSV. Some are excited, while others are far more cautious.
Venture funding is a mismatch between timing and expectations, she explains. Many investors are still waiting for a return on their investments.
While some are excited by improvements they’ve seen, such as less costly business models, others remain deeply sceptical.
Investor caution has resulted in a variety of companies shutting up shop. Cultivated meat has struggled more than most, with lack of funding leading to casualties like SciFi Foods and Meatable.
Venture capitalists are not always willing to undertake long-term project financing of infrastructure projects, explains Zajac. In alternative proteins, this reluctance is clear.
The funding gap – Early stage to scaling
Much of the capital for alternative protein companies is generated in the early days, where bright, bushy-tailed founders are selling something that is often more ideal than infrastructure. But as companies begin to grow, scaling and commercial relevance become more significant issues.
Alternative protein companies often face a ‘funding gap’ during the later Series A and Series B stages, explains Rosie Wardle, co-founder and partner at VC firm Synthesis Capital.
Even at the peak of hype around alternative proteins, roughly from 2018 to 2021, there was a dearth of investors that could underwrite deals, undertake deep due diligence, and take roles on boards.
In the early stages, investors are looking at success in R&D and proof that the concept works; as companies grow, they want to see stronger potential for commercial relevance.
This problem has not got better but worse, as hype in the sector has died down. There is a lot of ‘disillusionment’ in the sector. However, on the flip-side, “valuations are much more rational” than they were, which she suggests provides opportunity for the sector.
Large corporates often see alternative protein supply chains as lacking resilience, explains Vicky Grinnell, food tech and futures lead for Lloyds Corporate and Institutional. These supply chains will need to be reinvented.
Long-term thinking is needed
Investors want companies that are commercially viable. This not only means those that have clear consumer appeal and pathway to market, but a strong idea of how a scaled business will be financed, and the structure of this finance.
Investors want start-ups to look at capital formation from the early stage of the life cycle, explains Synthesis Capital’s Wardle. Rather than thinking only about the next funding stage, these companies need to think long-term: if they manage to scale the business how they hope they will, they should know how their capital stack – essentially, the structure of different kinds of investment and which have priority in terms of repayment – will look.
Yet in the end, if companies cannot create a product that supermarkets and food service will pick up, says Lloyds’ Grinnell, none of this matters. “Ultimately, the rest is noise”.
