Q&A: foodtech / alternative protein

AMA:

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 Animal agriculture is outdated technology thousands of years old and the food sector is vulnerable to disruption.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