Finistere Ventures recently released an analysis that shows that investment in food technology reached $8.4 Billion in the first three quarters 2020. This is more than the $7 billion record set last year. There’s still one quarter to go.
Ingrid Fund, Finistere Ventures’ investment director, shares the reasons that investors and consumers are interested in food-tech. She also breaks down the areas where most of the funds are going, from novel ingredients to innovative packaging and last-mile delivery solutions to innovative processing.
Convenience drives demand for delivery, hard tech
Fung observed that cooking fatigue is a growing problem and that many people are still short on time. “Anything that makes it easier for you to prepare your food and get it to your table will attract a lot of future food investment interest.”
These include meal delivery and meal kits.
Fung believes these areas will be vital long after COVID-19 has passed and people can eat out again safely. “We’ve been stuck in this way so long, there’s going be some stickiness on that trend of eating at home.”
She also noted that they will likely evolve and become more sophisticated. This is driving investor interest in hardware tech to simplify food production and preparation.
Fung pointed out that Finistere Ventures invested recently in Tovala, a hard-tech enabled meal kits company. Tovala uses a smart oven on steroids to steam, bake, and air fry the meals that are delivered by Finistere Ventures. She explained that each meal kit includes a QR code which is used by the oven to cook the food “to perfection” with little consumer effort.
Investors are attracted to packaging and processing solutions
Consumers are becoming more aware of how food packaging affects the environment and the impact it has on the environment as they order food delivery. This will put pressure on restaurants and manufacturers to use more sustainable packaging.
Fung stated that consumers are also trying to reduce food waste. However, many people live in smaller homes than in previous generations and are finding it difficult to consume the products designed for larger households. She explained that smart packaging is important for food preservation and investors are keen to invest in it.
Novel ingredient development
Fung says that investors are also investing significant amounts in novel ingredients that provide healthier and more sustainable solutions.
“We have made an investment in Memphis Meats, which produces cultured meat products. There is a lot of interest to remove the animal component from the proteins we eat. Fung stated that this includes everything from eliminating animals from dairy production to replacing all meat.
She said that although “we believe there is a lot to be innovative in this space… it is still quite a way off from hitting market and being available to the wider consumer.”
Each of these areas holds promise but they have limitations that could limit their viability long-term beyond the pandemic. This is most evident in the space of meal kits, which saw a resurgence after the pandemic. However, it still needs to address fundamental flaws that have impacted the business model from 2015 to 2016.
Late stage deals are more attractive to funds
Fung pointed out that the capital flow in both agtech and food tech combined is shifting towards larger deals at later stages. Fung also noted that exits were slower than expected, which suggests a level of maturity and potential slowdown in future investments in this space.
Fung stated that traditional venture investors would have expected to see more exits in ag, food and ag. She explained that in 2015 to 2017, there was a lot consolidation in the industry. As a result, we didn’t see the trade sales we were expecting. Then, when consolidation ended, we found fewer potential acquirers, who are much more sensitive about their balance sheet than before.
Some companies are now looking for other exit strategies. Fung said initial public offerings are increasingly popular in the food industry.
Fung stated that companies need to improve their storytelling in order for average consumers to understand their offerings and business potential. This is an important part of IPO success.
“I believe that [improved storytelling] opens up a whole new world for these companies. She explained that, unlike before, when you might only have a few customers, there is now an option to toll-manufacture and then place your product on grocery shelves as an interest driver to customers.
She said that “if you combine a really innovative technology with a great value proposition for consumers with a smart public communication strategy, there can be really positive results.”
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