Food and agriculture tech investor Arama Kukutai stands on a vertical farm built by Plenty in South San Francisco.
Courtesy Finistere Ventures
Food and agriculture startups received a record $ 22.3 billion in funding last year – double what those segments did in 2019, according to a comprehensive new study by Finistere Ventures and Pitchbook.
The Covid pandemic has driven rather than slowed investment in these industries, according to Arama Kukutai, a partner at Finistere Ventures, which has invested solely in food and agriculture since it was founded in 2005.
With people stuck at home due to health and travel restrictions, the demand for e-commerce for groceries such as meal sets and deliveries soared.
“2020 was the first year since 1994 in which the restaurant’s share of food consumption has fallen compared to that at home,” says the Finistere study.
In response to these changing trends, funds for food technology have been poured into related services.
Food tech companies raised around $ 17.3 billion in 631 deals for the year. Sixty-eight percent of that went to e-commerce and delivery companies. Meal kits raised $ 6.2 billion and e-commerce companies raised $ 5.3 billion in the food tech category. The biggest deal last year was a $ 800 million financing round for the Chinese group grocery buying app, Xingsheng Youxuan.
The world also saw how a crisis could disrupt normal food production, processing, and distribution. Farmers had to dispose of milk and products that could not be shipped or stored and, conversely, stationary food had empty shelves after buyers hoarded supplies.
Kukutai said there has been increased interest in growing food in controlled environments such as vertical farms, where yields are predictable. These indoor farms are often built closer to the urban centers where much of the produce they grow is consumed.
Agtech companies raised around $ 5 billion in 416 deals in 2020. The top ten agrotechnology deals spanned four rounds for indoor farming businesses, from $ 140 million for Plenty to $ 203 million for Revol Greens.
Venture capitalists have not always been drawn to “farm food”. Historically, funds viewed these companies as capital-intensive and were unlikely to generate high returns, though these were rare exceptions, such as Trinity Ventures’ investment in Starbucks years before the 1992 IPO.
Ethan Brown, Founder, President and CEO of Beyond Meat.
Adam Jeffery | CNBC
In 2011, just $ 3 million in venture finance went to agro technology companies in just under 42 transactions and $ 1 million in risk finance to food technology companies in 22 transactions.
But that era is over.
Historic deals that followed Starbucks drew more and more venture investors into these sectors. For example, Monsanto acquired weather data company Climate Corp. in 2013. for over $ 1 billion, and more recently Beyond Meat debuted in the public market. Since going public in 2019, the plant-based meat company’s stake has increased by more than 180%.
Finistere was an early backer of Plenty, and other startups in their portfolio are now working on making meat in a laboratory from cultured cells (Memphis Meats), monitoring the health of beehives in an apiary without disturbing bees (Apis) With the help of drones equipped with sensors and data analysis (Taranis), farmers can help early to identify threats to their crops.
Starbucks will now serve Oatlys oat milk.
CNBC asked Finistere partner Arama Kukutai what trends in food and agriculture technologies are expected to increase or decrease in 2021.
He worked in agriculture for decades before becoming an investor and grew up in New Zealand, where water pollution and cattle emissions are a growing problem. He said 2020 could have been the year we hit Peak Cow.
The investor expects risk funding for alternative proteins and non-dairy milk to remain strong through 2021. “Dairy products and meat are still fundamental,” he noted. “But the way we produce them has a huge impact on the environment.”
Alternative protein startups raised 2.6 times their money in 2019 and funded $ 3.1 billion in 2020, compared to $ 858.7 million the previous year.
Similarly, plant-based milks are becoming increasingly popular as millennial and younger consumers buy less traditional dairy products (along with beef, poultry, and pork) for environmental and health reasons.
Strong consumer demand should help keep investor interest and capital lockups high, and lead to attractive mergers and acquisitions for emerging brands, Kukutai said.
Swedish vegan food manufacturer Oatly recently applied for an IPO. The company’s oat milk is used as a dairy alternative by Starbucks, and former Starbucks CEO Howard Schultz was an early investor.
Finistere and Pitchbooks 2020 Agrifood Tech Investment Review also note that new types of alternative proteins are in the works that will be made from cells cultured in a laboratory rather than proteins from plants or cultured insects.
In contrast, the investor expects funding to slow for many (but not all) meal set, e-commerce, and delivery businesses in the later half of 2021. His own fund has supported players in the field, including Good Eggs and Farmer’s Fridge.
Online ordering habits will persist even after the pandemic after people get used to them, Kukutai said. However, many companies in this subsector managed to pull funds forward in 2020 to meet the skyrocketing demand. You should be able to get through the next year of operation without increasing any more.
Instead, he expects possible IPOs, SPACs or even M&A deals in 2021.
One of the largest vertical indoor farms in the country is about to launch in Las Vegas and will eventually span more than 200,000 square feet. It will be able to provide fresh produce such as salad to casinos and other customers.
In agriculture, Kukutai predicts that a renewed focus on climate change and carbon emissions will affect what investors fund over the next year.
In the largest Ag-Tech venture last year, Indigo raised approximately $ 500 million for technologies and services that help farmers get carbon through regenerative farming practices and then sell carbon credits.
New climate-related reporting requirements and pressure from “ESGs” – funds that evaluate companies based on environmental, social and governance criteria, not just financial data and growth potential – are forcing all types of companies to carefully measure their carbon footprint and theirs Reduce impact where they can and buy carbon offsets to otherwise comply.
While this has different meanings for different businesses, agriculture is about carefully monitoring and controlling what you grow and what environment it grows in, the investor said.
In 2021, food manufacturers will be able to deploy more targeted technologies on-site, such as: B. Irrigation systems that can see what is needed at the plant level and in the root system, as well as data from satellites, drones, and other acquisition platforms to help them predict, plan and protect what they are growing.
With the use of on-site internet-connected devices, they are also building large libraries of data to provide more accurate predictions about everything from yield to weather. All technologies give farmers better control over their crops and business.
Kukutai stated, “If you can control the environment, you can do a lot to make better tasting foods. For safety reasons, you can also protect plants from pathogens and insects that invade them. That means less fertilizer and others.” Inputs to treat them, which also means you are also preventing the nitrogen from flowing out. The more focused and controlled you can be, the more virtuous you can be. “
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