Impactalpha, April 1 – One thing missing from the new “Questlove cheesesteak” at Citizens Bank Park in Philadelphia: steak, at least the kind that comes from animals.
Hip-hop artist and Philly native Questlove turned to Impossible Meat 2.0 for his version of the signature Philadelphia sandwich. Impossible Foods, which has offered plant-engineered hamburgers, is rolling out its first steak-like product.
What signals mainstream arrival of food innovation more than opening day at the ballpark?
As the huge carbon footprint of modern beef production becomes clear, the roster of companies with credible, sustainable alternatives have raised large rounds of venture capital. Health-conscious consumers have made local, organically-grown, and natural the fastest growing categories in the U.S. Big food and agriculture companies, initially slow to the market shift, are moving to catch up.
“Capital markets have woken up to the food and agriculture opportunity,” says Walter Robb, who left as co-CEO of Whole Foods two years ago. “This is nothing short of a revolution in the food industry.”
Robb shifted from sustainable food distributor to sustainable food investor after Amazon’s 2017 acquisition of Whole Foods. Robb has backed, with both time and capital, a handful of young companies tackling waste, and local, healthy food markets. Last year he became an executive-in-residence S2G Ventures (for seed-to–growth), one of last year’s most active food and agtech investors.
“We’re at an Inflection point for shaping what next generation of food and food options will be,” Robb told ImpactAlpha.
Innovation in food and ag has lagged that of other industries. It’s now accelerating. Venture capital investment in the sector was up last year by 40% to $17 billion. That’s a six-fold increase since 2012 for startups solving food waste, carbon emissions, labor shortages, health and sugar consumption, opaque supply chains and distribution inefficiencies, food safety and traceability, farm efficiency and profitability, and unsustainable meat production, according to AgFunder.
>> Join the conversation. ImpactAlpha’s Dennis Price will interview former Whole Foods co-CEO Walter Robb at an evening event hosted by the Social Innovation Initiative at the McCombs School of Business at the University of Texas at Austin this Wednesday, April 3. Register now.
The leading producers of plant-based foods and alternative proteins are raising ever-larger rounds. Impossible Foods alone has raised about $400 million in total venture capital since 2016. Among the company’s investors are Singapore-based Temasek, Bill Gates and Questlove.
Beyond Meat, an Impossible Foods competitor, filed for an initial public offering to raise $100 million last fall. The firm has developed a presence in supermarkets, including Whole Foods, and has raised more than $100 million from celebrities like Gates and Leonardo DiCaprio, McDonald’s former CEO, and mainstream meat companies like Tyson Foods. Obvious Ventures owns a 10% stake. S2G invested in 2014.
Billionaire syndicate Breakthrough Energy Ventures backed the $90 milllion Series A of alternative ingredients company Motif Ingredients, which will use biotechnology and fermentation to “engineer dozens of proteins derived from dairy, egg and meat.” The first investment from Craftory, a new $300 million London family office, was in Chilean startup NotCo, which uses artificial intelligence and human tasters to develop plant-based mayonnaise, milk, ice cream, meat and other products.
Innovation is being rewarded across the food value chain. In February, Equilibrium Capital invested more than $100 million to grow greenhouse food production in three large-scale greenhouse operations in California, Utah, and Minnesota (Equilibrium just closed a greenhouse food fund at $336 million).
Healthy fast-casual chain Sweetgreen raised $200 million in November. Also last year, Bain Capital’s Double Impact Fund backed two healthy, sustainable restaurant ventures in one week, Portland-based Sustainable Restaurant Group and vegan restaurant chain by CHLOE.
“We’re firm believers that Americans will eat healthier, more sustainable food in the future than they do today,” Warren Valdmanis told ImpactAlpha at the time. The Double Impact team, he said, “has spent significant time analyzing the potential of the sector in order to be [at the forefront] of what we believe will be an impactful trend.”
Last year, French food multinational Danone became the world’s largest company with the B Corp, a certification given by nonprofit B Lab for meeting standards of social and environmental performance. More than a dozen large food companies, such as Campbell Soup Company, Cargill and Land-O-Lakes, have launched corporate venture funds. Others, like Kraft Heintz, seem to have missed the trend altogether.
Financing local food
Tideline’s Amy Bell says investments in the food system have huge opportunities for outsized impact. They can have “a positive impact on health and nutrition, and the economic livelihoods of farmers, but also have an environmental impact,” she says. Reducing food waste and shifting to a plant-rich diet, for example, are two of the top five carbon-reducing solutions on the Project Drawdown list of solutions to reverse global warming.
Bell is an advisor to Austin-based angel investor network Foodshed Investors. The group has deployed about $2.5 million in deals to 26 companies, more than three-quarters through debt, in an effort to increase the supply of high quality, local food accessible to all. Foodshed Investors has backed The Cook’s Nook, for example, a culinary incubator for Austin-area artisans, mobile food vendors and meal services. It’s also financed Lick Honest Ice Creams, an Austin ice creamery that sources local and sustainable ingredients.
To meet local demand for healthy, local food – and increase access to it – there’s a need for more facilities that underpin local food production and distribution, says Bell. More retail stores, reimagined bodegas, mobile food stations, regional-sized processors and distributors.
Such local businesses need more debt capital. Foodshed Investors, for example, has provided traditional debt, as well as debt with revenue-linked royalties and a farmer-specific bridge loan, for most of its investments. The production side of the food value chain needs working capital, she says. “It’s a gap in the market.”
Other local food efforts in the U.S. include the Michigan Good Food Fund, a $30 million local fund backed by Capital Impact Partners, Fair Food Network, Michigan State University Center for Regional Food Systems, and the W.K. Kellogg Foundation. Since 2015 the fund has deployed about $11 million in more than two dozen Michigan food businesses that benefit underserved communities.
The federally backed Healthy Food Financing Initiative, managed by Reinvestment Fund, has leveraged more than $220 million in grants since 2010 into $1 billion in private financing to help more than 1000 food retailers expand into so-called food deserts.
Venture firm Village Capital ran a U.S. food and agriculture accelerator last year. Almost 90% of the more than 100 startups that applied were headquartered outside the venture capital corridors of New York, San Francisco and Boston.
Though “innovative food” such as alternative meats has notched some big deals recently, most venture-backable opportunities exist outside of the category, which attracted 3% of all food tech capital last year.
Robb, for example, has invested in and joined the board of Apeel Sciences, a California company that makes a plant-derived coating to extend the shelf-life of produce. He’s also backed and joined the board of Colorado-based FoodMaven, a marketplace for buyers and sellers of over-supplied or imperfect food, and invested in Austin-based Cece’s Veggie Co., a maker of healthy food kits.
S2G Ventures, where Robb is an executive-in-residence, topped AgFunder’s list of most active food and agtech investors last year. The Chicago venture firm, which raised a second fund of $185 million in 2017, backs “entrepreneurs whose products and services meet the shifting demands for healthy and sustainable food,” according to its website. In March, S2G joined the $5 million round of superfood company Kuli Kuli.
Also on the list of most active food and agtech investors is New York-based New Crop Capital, an early stage investor in companies developing alternatives to conventional animal agriculture. Mumbai impact venture fund Omnivore, the one non-U.S. firm on the list, backs early-stage Indian agriculture and food startups with the goal of boosting the profitability and sustainability of smallholder farmers (see, “Omnivore raises $46 million in second fund for Indian agriculture”).
“We’re at an incredible place of change,” says Robb. “The idea that food matters is going mainstream.”