The FoodTech Innovation ‘blind spots’ of the last decade – Going beyond the Hype – Part 2
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In this first article, we talked about the first 2 ‘waves’ of investment that have characterised the (Agri)FoodTech sector to date, namely Food Delivery and Alternative proteins.
Yet, if you refer to our taxonomy, FoodTech entails A LOT more.
According to our own definition, “(Agri)FoodTech is the emergent sector exploring how technology can be leveraged to improve efficiency and sustainability in designing, producing, choosing, delivering & enjoying food.”
So what were we missing in the first part?
The (FoodTech) Innovation Blind Spots
If you haven’t read The Innovation Blind Spot by Ross Baird, I highly recommend it. In the view of the author, “while big companies in the American economy have never been more successful, entrepreneurial activity is near a 30-year low. More businesses are dying than starting every day. Investors continue to dump billions of dollars into photo-sharing apps and food delivery services, solving problems for only a wealthy sliver of the world’s population, while challenges in health, food security, and education grow more serious.”
As I was reading, I started wondering how this applies to the FoodTech sector? Which areas are overfunded and which ones require more capital? In other words, what are the ‘blind spots’ in FoodTech?
Looking at investment data, almost 60% of overall capital invested in FoodTech to date went into food delivery and alternative proteins, which account for only 13% of the ecosystem in terms of numbers of companies.
How did this happen? Well, as a generalisation, in the investment world no one wants to go first, and herding is a well known pattern…This is indeed how investors regularly and repeatedly create froth, bubbles, and hyper valuations, something also highlighted in a recent article from the FoodCons. The ‘hype’ in recent years contributed to bringing a lot of generalist investors into FoodTech and they brought large amounts of new capital to the space. But, not being sector specialists, they started by investing primarily in what one may call the ‘flavour of the day’.
I very much believe that there are many other impactful areas investors need to look at, and I would sum these up around (some) key questions to answer:
How do we build a resilient ‘future-proof’ supply chain, by increasing yield sustainability and efficiency?
In other words, how do we make more resilient and nutritious crops and create new ones? How do we restore soil health? How do we grow more with less? And how do we grow food everywhere? This is mostly what the Agtech sector is aiming for, starting with what we call Ag biotech. While companies like Benson Hill are leveraging plant gene editing to increase the protein content of crops, the likes of Pivot Bio harness the power of naturally occurring microbes to provide more nutrients to crops with their bio-fertilizers.
Last but not least, companies like Moolec leverage what is called ‘molecular farming’ (a combination of plant and cell-based tech) to produce plants that express animal proteins, and can improve the taste, texture, nutritional value and colour of meat alternatives (yes, you can do that, and as a side note the company has also announced that they are going public via a SPAC this year). While this Ag biotech segment has been gaining a lot of traction recently, investment growth is still fairly low compared to other subsectors.
Moolec genetically modified plants
Precision farming has been around for quite some time now. The likes of Planet rely on high-resolution and high frequency satellite solutions to provide critical insights for farmers; companies like CropX offer an integrated hardware and software system with a suite of decision and planning tools based on continuous monitoring of soil and crop conditions: soil sensors, weather forecasting, aerial imagery, topography maps, soil mapping and an AI engine for crop yield modelling; Greeneye Technology leverages AI and deep learning for their smart spraying sensors to be fitted onto existing agricultural machinery in order to optimise the pest control process; and a company like Small Robot has built autonomous robots that will seed and care for each individual plant, only feeding and spraying the plants that need it and giving them the perfect levels of nutrients and support, with no waste.
Small Robot Company autonomous farming robots
However, while accounting for 27% of the total number of AgriFoodtech companies, Agtech has only attracted about 13% of the overall capital invested in AgriFoodTech in 2021.
Vertical farming is the segment that has been growing the most over the past decade. Yet now investors started raising concerns about scalability and unit economics, which could also be seen when Aerofarms called off their SPAC deal last year. However I do believe this is only a bump in the road, and that more capital needs to be injected into this sector to untap its full potential.
Aerofarms aeroponic system
Aside from proteins, what else should we look into?
Perhaps a bit off radar compared to meat, fish and dairy, everyday products such as coffee or cocoa for example are also presenting challenges, in particular environmental ones. FAO estimates for example that in various countries in Asia/Pacific, high input coffee production is causing soil degradation, water table pollution, drawdown, and environmental contamination, while WWF estimates that 70% of illegal deforestation in Ivory Coast is related to cocoa farming.
FoodTech startups are starting to provide sustainable alternatives to these challenges. For example, Compound and Atomo are leveraging, respectively, fermentation technology and upcycled date seeds, to produce ‘beanless’ coffee (Atomo also just raised a $40M Series A). And the likes of QOA or WNWN make 100% cocoa-free chocolate via fermentation of other plants.
WNWN cocoa-free chocolate
Also according to the FAO, it is becoming common knowledge that the manufacturing of ultra-processed foods and sugary drinks is based on inexpensive commodity ingredients such as sugar, flours, and oils, often with multiple preservatives, colourings, and flavourings. These products are typically energy-dense and nutrient-poor, and offer excessive amounts of energy, fat, sugar, or sodium.
Here again, many FoodTech startups are developing healthier and more sustainable solutions. For example, Phytolon is leveraging fungi fermentation to create clean-label food colourants, and they just received an investment from nutrition giant DSM for their $14.5M Series A (did I mention fungi were awesome already?). The Supplant Company can leverage any fibers extracted from agricultural waste to turn them into natural sweeteners. Finally, Protera has developed a clean-label natural protein that extends shelf life by offering an anti-mold protection without impacting the taste and smell of products.
Supplant’s fiber based sugar
How do we address the food waste issue and build a more circular Food System?
As you might know already, the WWF estimates that about 40% of all food produced globally goes uneaten, when both farming and post-farming are taken into account. Supply-chain inefficiencies have created a global issue that has yet very different causes and realities from one region to the other. BCG recently released a great overview of the issue:
Recommended by LinkedIn
‘’In dollar terms, closing the gap on food loss and waste could be worth $700 billion, but the effects on human and planetary wellness are just as pronounced. Though often overlooked, the problem is as pressing as any that exists today. It’s no cliché to say that each of us can make a difference—and businesses are uniquely positioned to lead the way.’’
Again, FoodTech entrepreneurs are developing solutions at different stages of the supply chain. For example, Apeel Sciences (and quite a few others) are developing bio-coating solutions to extend the shelf-life of fruits and vegetables. And the likes of Ryp Labs are developing stickers creating a protective layer for the same purpose.
Ryp Labs’ Stix Fresh stickers prolonging shelf life
Too Good to Go saved and redistributed 142M meals to date, taken from unsold items at restaurants and retailers, while e-grocery company Imperfect Foods source surplus and imperfect products (unfit for retailers) directly from farmers, growers and food purveyors, in order to sell them directly to consumers via a subscription model. On the food services side, Winnow Solutions is using AI and image recognition technology to develop smart scales being used by chefs in commercial kitchens in order to understand the amount and type of food they waste and optimise their operations.
Finally, food waste upcycling also offers an ocean of opportunities across various sectors. For example, MOA FoodTech combines biotech and AI to transform waste and by-product of the agri-food industry into a nutritional protein ingredient, Mi Terro develops plastic-alternative biomaterials made from agricultural waste, Kaffe Bueno utilises coffee by-products, such as spent coffee grounds, as a platform to produce ingredients for Personal Care, Nutraceuticals and Functional Foods & Beverages, and the likes of Toast Ale turn surplus bread into (very good) beer.
Kaffe Bueno upcycled spent coffee grounds
How do we make animal farming more sustainable in the short term?
Don’t get me wrong, I truly believe the alternative protein transition is essential (if not the most essential requirement) in order to reduce the carbon footprint of our Food System. Yet, this isn’t going to happen immediately, especially as meat meat consumption continues to grow in many parts of the world. So, how do we make it more sustainable and efficient in the short term? Many entrepreneurs out there are working on it, from the likes of Mootral, which is developing feed supplements that allow to reduce the methane emissions of cattle, to Zelp, which leverages wearables for the exact same purpose. And companies like Better Origin created a technology to upcycle agricultural waste on the farm (inside shipping containers), in order to turn it into animal feed by using ‘blacksoldier flies’ insects for the bioconversion process, hence creating a truly carbon-negative animal feed.
Finally, regenerative farming advocates will also highlight the potential positive impact of cattle farming if done in a sustainable way. ‘Regenerative grazing’ is effectively a way of sequestering carbon dioxide. Companies like Nofence provide a ‘virtual fencing’ system by leveraging a combination of solar-powered sensors and GPS receivers to optimise the movements of the herds, avoid overgrazing and give plants and soil time to recover.
Better Origin on-farm insect farming units
Solutions are out there, but underfunded
Several of the above-mentioned companies are already scaling up fast, having raised significant amounts of capital while getting traction within the industry (e.g Apeel, Benson Hill). But if we look at the investment data at a sub-sector level, some of the above-mentioned areas like Ag biotech, Surplus & waste management and Precision farming are clearly underfunded in regards to their importance and potential.
This under investment in these sectors was also highlighted by Agfunder in their recent report on European AgriFoodTech investment:
‘’A number of the sectors that have the greatest climate impact potential actually lost funding last year. Capital for novel farming systems decreased 23% from 2020. Farm robotics and mechanisation investments fell 28%, bioenergy and biomaterials fell 21%, and farm management software and sensing fell 4%.’’
Finally, another ‘blind spot’ that Ross Baird also highlights in his book is geography, and the fact that most investments are directed towards only a handful of cities globally. When it comes to Foodtech, and looking at our data, three cities alone, namely San Francisco, New York and Singapore, account for over 20% of the total funding of the ecosystem to date, while representing only 6% of the total number of companies.
Getting over the geographical blind spot boils down to creating successful ecosystems. By involving governments, universities and research centres, private industry players, institutional investors, and creating an innovation-friendly environment, you can generate a virtuous circle that creates more companies, and more investment driven towards them. Singapore, Israel, or Food Valley in the Netherlands are great examples of this.
To sum it up, it is time for AgriFoodTech investors to broaden their investment focus by embracing a more holistic view of the sector looking at the full supply chain as well as at new geographies that more than deserve their attention. And to significantly increase investments in companies that are truly working on making our Food System more efficient and more resilient.
Is the ‘third wave’ coming ?
While we would need to wait a few more months to drive any definitive conclusions, given the current economic and geopolitical context, FoodTech investment in 2022 may not reach the same level as last year. FoodHack recently summed up very well the particular challenges and opportunities of the period we are going through at the moment.
The good news is: the AgriFoodTech investor landscape is changing fast, and improving. Over the past couple of years, we have seen a lot more specialist VCs emerging, not only with a true knowledge of the sector, but also with a very holistic approach when it comes to their investment thesis. This includes large players such as Anterra Capital with a recent $260m close, or Synthesis Capital with an impressive $300M for their first fund, or yet micro-funds such as Trellis Road, proposing a unique approach to investment.
Nofence-app lets you keep an eye on your animals location in real-time
Being sub sector agnostic and having deep expertise about the overall sector is surely one way to address the FoodTech investment blind posts and get over the hype. It is also essential TO KEEP RAISING AWARENESS about the sector, about the challenges that our Food System is facing, and about the great entrepreneurs out there that are addressing them every day.
And this is exactly the mission we had in mind when creating our FoodTech 500 ranking 3 years ago: ‘’shining a spotlight on the leading global innovators across the AgriFoodTech ecosystem, from farm to fork. These entrepreneurs and the companies they have founded are creating impactful solutions to better our global food system.’’
Looking forward to seeing together what the Third wave will be made of.
Do you want to learn more about the FoodTech sector? Access our Food Data Navigator HERE to discover all the companies mentioned in this article and gather trends and insights, or get in touch HERE for a tailored consultancy.
Disclaimer: all the companies quoted in this article are pure examples chosen to illustrate the technologies being mentioned
Thanks for sharing!