Despite the downturn in investments in alternative proteins in 2022, investors are still excited about the sector, but only for ideas that represent new thinking and have a strong point of difference.
Over the past decade, the alternative proteins sector attracted US$14.2 billion globally in private capital, with investments nearly doubling on average each year. The industry in the Asia Pacific attracted US$562 million in 2022. Yet far more capital will be required to keep new protein industries progressing, scaling, and getting to market.
Start-ups have understandably been concerned about the significant drop in investment between 2021 and 2022. According to alternative protein investors Better Bite, funders contributed US$5 billion in 2021 (a peak in the short lifespan of alternative proteins) but just US$2.9 billion in 2022. Better Bite’s Simon Newstead told Food Frontier’s AltProteins23 conference that the numbers are looking less severe in the Asia Pacific region due to a handful of large deals in Australia and New Zealand. Nonetheless, investors are being more discerning and spending less. During the conference’s session on investment, CSIRO’s Anna Tao (from the organisation’s Company Creation initiative) reported that there hasn’t been a decline in the number of deals happening, but the size of those deals has reduced. In the week of AltProteins 23 precision fermentation company Eden Brew announced it had raised $25 million, with some of the funds coming from Victorian government-funded, independent body Breakthrough Victoria.
There are a number of reasons for the slowdown, one of them being an easing of what Gabrielle Munzer from Main Sequence calls the ‘hype bubble’ seen in the category over the last few years which can happen with new and interesting technologies and industries. This hype has eased as the industry matures. The current slower economy and the easing in plant-based meat sales are also contributing to the reduction in investments.
What will attract funders back?
Investors are looking for difference, products that are better than the early entrants into the market and that exceed customer expectations, and that are developed by a team that has not only technical skills but also market ‘know-how’.
It also helps if products can demonstrate that they are contributing to sustainability. Gabrielle says sustainability is a key focus for Main Sequence; they are also attracted to alternative protein companies who understand consumers well. She says, “In alt proteins you have to be a great food company and a great tech company, it’s not enough to be good at one. To move consumers away from animal versions, both are absolutely needed.” She told the conference, companies working in precision fermentation are more interesting to Main Sequence than plant-based meat, especially those looking at what it takes to make a great tasting product for consumers. Identifying opportunities that help companies scale is also attractive, even if that’s infrastructure—something not normally interesting to investors.
Main Sequence has invested in precision fermentation company Cauldron, which Gabrielle acknowledges might seem an unnatural investment because the business is heavy in capital expenditure. She says, “Investors will need to lean into uncomfortable territory [such as capex]. We think a new category of investment needs to be developed around climate infrastructure requiring investors with vision. A space that is part climate tech, part infrastructure.”
The emerging frontier for new investment is undoubtedly cellular agriculture. Innovation in this field is rapidly advancing, especially as governments worldwide contemplate its approval for use in the food industry. Cultivated meat falls under the cellular agriculture banner and to date Singapore and the US have both approved its sale, while Australia is currently reviewing an application for a cultivated meat product.
Anna says she’s excited about the potential of cultivated meat, in particular companies that specialise in components that feed into the sector’s B2B supply chain. She says companies in the sector shouldn’t have to try to do everything. The current breadth of Australian and New Zealand cellular agricultural companies serving B2B components includes Nourish Ingredients, Opo Bio, Heuros, and Cauldron.
Stay tuned for Food Frontier’s 2023 State of the Industry report which will provide information about current investments and trends, available in early 2024.