Finistere Ventures released a new analysis which shows that food-tech investments reached $8.4Billion during the first three quarters in 2020. This is more than $7B in record time, with only one quarter remaining.
Ingrid Fund is Finistere Ventures’ investment manager. Ingrid shares what is driving consumer and investor interest in foodtech and breaks down where the bulk are going.
Convenience drives demand for delivery, hard tech
Fung stated that as cooking fatigue has set in and consumers are still stretched for time, “anything that makes your food easier to prepare and to get to you is going to attract a lot more investor interest.”
This includes delivery and meal kit services. Consumers are looking for ways to reduce cooking fatigue, make their own meals, and get ingredients and recipes without having to contact the coronavirus.
Fung believes these areas will remain important long after COVID-19 is gone and people are free from eating out. Because “we’ve been stuck here for so long, it’s going to stickiness to that trend to dine at home.”
She notes that they are still in the process of evolving and will continue to improve, which is fueling investor interest for hardware tech that simplifies food preparation and production.
Fung pointed out, for example, that Finistere Ventures recently invested into Tovala Meal Kits, a hard-tech-enabled meal delivery company. Tovala uses an “smart oven (on steroids)” to steam, bake, and cook meals. Each meal kit contains a QR Code that can be scanned by the oven in order to cook the food “to perfection” without any consumer effort.
Investors’ attention is drawn to processing and packaging solutions
As consumers order more food delivery, they become more aware of the packaging and environmental effects of their food. This will make it more difficult for restaurants and manufacturers not to choose sustainable packaging.
Fung explained that although consumers are striving to reduce food wastage, they find it harder to consume foods packaged in larger portions than those in their homes. Investors are therefore interested in smart packaging, which preserves food more effectively, Fung said.
Novel ingredient development
Fung states that investors are also investing in novel ingredients that can provide better or more sustainable solutions.
“We invested in Memphis Meats to produce cultured meat products. It is becoming very popular to eliminate the animal components from the protein we consume. Fung explained, “That includes anything from removing animals in the production of milk to replacing it entirely.”
She also stated that “we think there’s a lot of space for innovation in this space… but it’s quite a ways away from hitting the markets and being accessible to a wider consumer.”
These areas have potential, but there are also limitations that could make them less viable in the long-term. This is especially evident in the food kit industry, which has experienced a resurgence since the outbreak of the pandemic. But it still must fix fundamental flaws and other issues that have affected the business model ever since its debut in 2015.
Food tech funds are shifted to deals in the later stages
Fung observed that the flow of capital in both agtech- and foodtech is shifting towards larger deals in the future. However, Fung said that exits are slower than expected. This suggests that the sector is maturing and could slow down future investments.
Fung said that “within ag food, and in particular ag, we would have anticipated to see a lot less exits by now because traditional venture capitalists” Fung explained that the industry was experiencing a lot of consolidation from 2015 to 2017. This meant that trade sales were not as high as they had been. Additionally, there were fewer potential buyers who are more sensitive about balance sheets than before consolidation.
This has forced some companies to consider different exit strategies such as initial public offerings, which Fung believes are growing in popularity in the food and beverage industry.
Fung stated that storytelling is a key component of IPOs’ success. Companies need to tell a better story so consumers understand what they offer, and the business potential.
“I think that improved storytelling opens up a new realm of possibilities for these companies. Thus, instead of being able to only get a handful customers in the past, you can now toll produce and then sell your product to grocery stores as an interest drive for customers.” she explained.
“If you combine an interesting technology that provides a value proposition for the consumer and a smart public communications strategy, there’s a lot of positive results,” she said.
