Q&A: foodtech / alternative protein


As alternative protein is now in a valuation tailspin but also still topical to some investors, I thought I'd offer an AMA.  

  • I served on the investment committee of a foodtech accelerator. We invest globally. 
  • We have invested in over 50 companies in alternative protein over the past 3 years.
  • We invest in 5 subsectors: cellular agriculture (aka cultivated meat), precision fermentation, alternative dairy, some select plant based analogues, novel ingredients (algae, insect, etc.). 
  • Some of what we've invested in some potentially world-changing technology, but there's also a fair amount of BS in our portfolio (being on the IC means you may not agree with every deal).

Future Potential

Tech disrupts the world and it will disrupt the food system as well. Animal agriculture is outdated technology thousands of years old and the food sector is vulnerable to disruption. Already many of the proteins (meat, egg proteins, milk proteins) that we're accustomed to getting from animals can be synthesized. The hurdles remain cost (which have already declined by 99% and continue to decline rapidly), regulation, consumer adoption, and scale-up. If these hurdles can be overcome then pure economics will put animal ag out of business within a few decades. 

Valuation Collapse

My feeling is that foodtech is going through the usual 2nd phase of the hype cycle - collapse / retrenchment. Markets over-estimate what can be done in 3-5 years and under-estimate what can be done in 10-20 years.  When new tech comes out it gets over-valued, over-invested, and then we see a crash, followed by an eventual adoption and the emergence of champion companies. When Beyond Meat was at 60x sales I was telling investors that the sector was ridiculously over-valued. The subsequent retrenchment we're now seeing is healthy and expected. The key to investing in over-hyped 'new new thing' sectors appears to be: be practical and invest in center-of-plate must-have tech at reasonable or distressed valuations, and survive long enough to see adoption. 

Investment Thesis

  • precision fermentation is preferred as it is scalable, economically viable, technologically defensible, is well understood by regulators
  • cultivated meat is an unknown with a binary potential outcome; either it goes big or 
  • the most promising subsector as it is well understood by regulators, has a sharp J-curve, and scale-up is also well understood
  • I don't think the opportunities in plant-based meat will be very good. Plant-based meat usually has little technological differentiation and doesn't usually taste like meat, but will likely be the low-cost leader for meat substitutes

Comments (4)

  • Analyst 3+ in CorpDev

Thanks for doing this - this sector doesn't have much coverage on WSO and I'd love to hear your thoughts on a few topics in particular as I also work in the alternative protein space in an operational role.

  1. As an investor, what are some of the biggest mistakes vis-à-vis commercialization you've seen your portfolio companies make? How would/have you suggested to solve them? 
  2. It's difficult to envision a glidepath to positive gross margin for cultured meat products anytime soon due to astronomical COGS and scale-up challenges - how are investors viewing the viability of hybrid products in the future? E.g., products that blend small quantities of lab-grown cells into primarily plant-based products. 
  3. How do you foresee inorganic growth playing a role in the success of alt protein startups moving forward? It seems like everyday you're seeing smaller players partner with larger scale companies to co-develop or co-commercialize products (e.g., Bel and Perfect Day, Maple Leaf and The Better Meat Co)
  4. Broadly speaking, what are your thoughts on the alternative fat landscape? The deficiencies of using coconut oil as a fat replacement in meat analogues are well-documented - it appears like there's been an uptick in startups like Nourish Ingredients (precision fermentation) and Hoxton Farms (cultivated) popping up in recent years trying to tackle this issue.

Thank you again for taking the time to do this - very much looking forward to hearing your insight here.

D3soccerguy, what's your opinion? Comment below:

From a cost perspective, what is the timeline modeled/discussed to be competitive with current meat products?

Also, as the tech matures do you see the industry becoming commoditized and low margin like the current an industry? Or do you see the industry staying higher margin compared to current products? (Talking cultured alt protein)

donut666, what's your opinion? Comment below:

Thanks for this! FoodTech is one of our core interest areas in our portfolio. Would love to connect over PM if you're interested.

On the precision fermentation, what are the technical and non-technical barriers to scaling and increased adoption? Super interested in the space but I haven't seen great arguments for how it will reach price-parity (or something close to it) within the timeframe of a fund (~10 years). On the flipside, it seems like it'll be easier to build capacity compared to cultivated due to existing infrastructure and the ability to retrofit bioreactors, etc.   

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ExpatVC, what's your opinion? Comment below:

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