On the most recent episode of our Agri Matters podcast, our Senior Director of Corporate Development, Xin Yi Lim (XYL) spoke to 3 leading agri-food tech VCs — AgFunder, Big Idea Ventures and Bits x Bites — to get their take on the health of the agri-food tech investment landscape as well as the emerging trends they’re seeing in the wake of COVID-19.
First up, some background on our speakers:
John Friedman (JF)
John is Director, Asia at AgFunder, and is also investment director at Grow, the global agrifood tech accelerator backed by AgFunder and supported by Enterprise Singapore.
AgFunder was founded in 2013 and based in Silicon Valley, and is one of the most active agri-foodtech venture capitalists (VC) in the world. Apart from the VC, AgFunder also operates a media channel on industry news, AgFunderNews and the Grow accelerator.
Andrew Ive (AI)
Andrew is the Founder and Managing General Partner at Big Idea Ventures. Focused on supporting entrepreneurs to solve the world’s biggest challenges, Andrew launched and grew businesses at Procter & Gamble before setting up Big Idea Ventures.Operating out of both New York and Singapore, Big Idea Ventures is a VC and an accelerator and their first fund, the New Protein fund, is focused on plant-based foods and cell-based foods.
Joseph Zhou (JZ)
Joseph is managing partner at Bits x Bites, and is responsible for investment, portfolio management, and operations.Bits and Bytes is China’s pioneer agri-food tech VC and is based in Shanghai. It was established in 2016 and started investing in 2017. Their investment portfolio spans life sciences, data sciences, IoT, and patented food processing technologies. They invest in early stage companies all the way up to Series B.
XYL: So this episode, we want to take a pulse check of the agri-food tech investment space and how it’s been impacted by the COVID-19 pandemic. John, could you give us an overview of how investments in the agri-food tech space have been trending in the past few years and whether COVID-19 has impacted this growth trajectory?
JF: I’m glad you asked this question, because I think there’s a lot of investor education that needs to take place around the sector of agri-food tech. Agri-tech has historically received a tiny fraction of interest in capital. I think back in 2015, the percentage of total VC money flowing into agri tech was like 5% or less. I’m happy to report that, you know, AgFunder spends a lot of time analyzing deals looking at investment flows across the space and each year we put out an annual investment report. So as of the latest report, which summarized 2019 investments, we can see that the absolute quantum of money going into agri-food tech has multiplied five times over the past five years. So there’s clearly a shift and increasing interest in participation in this space.
There’s no surprise, I guess, just to reflect on some of the numbers, that 2019's investment number was a slight dip from the previous year. I think it was approximately 5% lower compared to the 2018 amount of money that went into agri-food tech. But that’s sort of up against the backdrop of, I believe it was like 16% pullback across venture capital as a whole in 2019 versus the year before. So you know, when you compare it that way, then clearly agri-food tech seems to be a little bit more resilient in terms of investor participation, and the same can be said about the first half of 2020 obviously, you know, no one in venture capital has has been immune to the impacts of COVID. I recall seeing some data from Pitchbook recently, which put a number on early stage fundraising efforts — this is the first time since 2012 that the median valuation for Series A fundraising has decreased.
Agri-food tech, no doubt, has seen a decrease in capital in terms of just investment money flowing into it. But that’s not to say that the interest isn’t there. I think it’s more of a reflection of the balance of power shifting in favour of the venture capitalists and the investors who are perhaps being a bit more prudent on the companies which they want to invest in.
But I think what COVID has done, one of the silver linings of this crisis, is it’s really shone a light on the fragilities of the food system and how much we’ve taken it for granted for a number of years.
XYL: Thanks for that overview, John. Now I’ll turn to Joseph now to drill down specifically to the Greater China market. Could you give us an overview on how investments in the Chinese agri-food tech space have been growing in the past few years and whether COVID-19 has had an impact?
JZ: Yeah, so since we started tracking investments in the space in 2017, the deal number has grown, the total value of investments reached $3.6 billion in 2019. And we are definitely on a growth trajectory but very downstream-focused. So to break it down, out of the $3.6 billion, $3 billion were invested in the downstream sector, and only $0.5 billion were allocated in upstream. However, we don’t think that the downstream innovation could be sustained without the upstream and midstream technology innovations. So Bits and Bytes decided to focus on the upstream and midstream sector and to invest in those disruptive technologies to improve the ecosystem and value chain.
In terms of COVID-19 impact, I see the downstream sector being much more impacted. As the consumers are staying at home, a lot of the innovative brands or innovations have somehow disappeared in the markets, and so have the investors. We have known of quite a few downstream-focused VCs who have stopped deploying capital. However, there are some exceptions, for example, the delivery businesses and also the Direct-to-Consumer (D2C)businesses. So most of the capital, even with very few liquidity, is still going after D2C or delivery business. In terms of valuation and deal flow, I think we definitely see that globally, the deals have been cut to one third of the total deal amount. And the valuation is also around one third of what the startups were previously trying to raise. However, I do see that from our own portfolio counts that we are observing deal flow ramping up at least for the first quarter, it’s 42% up QoQ to last year. So I guess this is a signal that more start-ups or more funding are allocating to the upstream and midstream sector in the agri-food supply chain.
XYL: And Andrew, I want to ask you specifically about the alternative protein investment market. Nielsen recently put out some data showing plant-based meat sales skyrocketed as Americans stocked up on food supplies amid COVID-19 lockdowns. Plant-based meat dollar sales grew 265 percent over the eight-week period ending April 18, 2020, which is six times faster than conventional meat sales. How big do you think the alternative protein market is and post-COVID are we seeing growing appetite from consumers and investors alike for alternative protein?
AI: So we’ve seen different estimates. So I would say about a year ago, the estimates were in the kind of $3 billion range. And others had put it in the $5 billion range. And growth of the category was, as you say, phenomenal. So those numbers, whichever of those numbers is entirely accurate, you know, we’re going to see a doubling and tripling of that very, very quickly. So yes, people, because of COVID, have been very much jumping towards the plant-based foods, but they already were. In fairness, we were seeing a significant growth of consumption and consumer interest in plant-based foods, across meat, across dairy. And obviously seafood as well. In the US, in Europe, and increasingly, in you know, Singapore, Shanghai, Beijing and other places throughout Asia.
So, a couple of data points - Crunchbase released a report suggesting that in Q1 this year, so Q1 2020, January through March, more investors put money into plant-based and cell-based companies in that one quarter versus the entire 2019.
So the investor community has made up their mind about plant-based and cell-based as a significant opportunity for both returns and impact and consumer interest So, the jury is back, they’ve made their decision. In terms of what’s the impact of COVID on fundraising, I’m seeing a lot more interest from government-related investments because they see this plant-based and cell-based categories as significant for food security and food safety. I’ve seen more interest from foundations and organisations that are involved not just in the investment, but also the impact side. And we’ve also had some investors, the family offices and so on who have come forward, even more interested than before, because they see that the food system is more fragile than they anticipated. And also understand that the animal protein food system and the plant-based opportunity that’s coming through, it needs, you know, it’s a big opportunity for returns and investment.
XYL: Well that’s fascinating, and I’d be curious to hear about the trend in Greater China from Joseph, because I think one thing that’s been pretty eye catching, at least in the last few months is that we’ve seen a recent wave of major F&B players, like Starbucks, there’s KFC. They’re all rolling out alternative protein menu items in China and I think Nestle recently announced that it would open its first plant-based meat factory in Asia in Tianjin. So do you think consumers in Greater China are now becoming more interested in alternative protein?
JZ: Yeah, so protein alternatives 2.0 leads the demands in food tech innovation. During economic uncertainty, consumers demand value in all their purchases. They reject products that don’t deliver on price, nutrition and taste. To date, food brands have competed on distribution and marketing, few products have nutrition and taste innovation to show. Protein alternative products offer a perfect case study. Consumers are promised products that taste identical to the animal-based originals, simply healthier. Most products on the market don’t deliver on either.
Yes, global investment in protein alternatives continue to grow by investment dollars, the first quarter of 2020 has already surpassed the 2019 full year total with $824 million invested in 2019 and $930 million already invested in Q1 2020. Bear in mind that there’s a mega-deal, which is Impossible Foods who raised $500 million in March. But Beyond Meat, along with the Hong Kong born startups, now has a head start in China market and Impossible Foods is also eager to get a piece. So as plant protein heats up, those large incumbents like KFC and the emerging brands, like Starfield, are going to have to outperform quickly to win market share. Who will deliver products that taste like animal based originals, and out-compete them in their nutritional profile? All without ingredients that turn off consumers? Ingredient tech and processing innovation will be vital. And it’s not just plant-based, there is an opportunity through tissue-fat innovations that effectively help consumers better manage chronic health concerns, like hypertension, or gut health, or simply help cut down on sugar and salt.
XYL: That’s really interesting because I do see that in your portfolio, you do have some investments, for instance, in Alchemy Food Tech that lowers the GI for things like rice. So you effectively can maintain the same taste of a staple that all consumers in China and greater Asia regularly consume, while also making it more healthy. I think when you look at the upstream space, since you mentioned that historically, this has been an area that has not seen as much investment as the downstream, what do you think are some of the trends that are emerging from the pandemic that are here to stay?
JZ: Yeah, we see consumers paying much more attention to their health benefits. Or to be even more precise, it’s the scientific-backed merits on to the food that they are purchasing or eating. So that’s definitely a very positive news. We see more consumers care about immunity, and to some extent, they know that what is good for my friend, doesn’t mean it’s good for myself. So we see the concept of personalized nutrition coming up, and people do care more about immunity. They care about what they eat on a daily basis, and they’re also looking for the nutraceuticals based on their personal needs. That is something we don’t see very often in the past few years.
XYL: Could you maybe expand a little for members of our audience who are not as familiar with that concept? Are there particular products or examples that you can give? What is personalized nutrition and how does a consumer get access to it?
JZ: So as simple as for probiotics, there are a good amount of choices in the markets, but consumers are starting to be aware that this probiotic might not really work well on my body. It doesn’t mean that it’s ineffective. On the other hand, they’re looking for the probiotics, the very specific strand, that could function very well in his body or her body, meaning that would benefit to the consumers’ gut. That has the gut health concept. Or it could be for hypertension. Right now people are under huge stress and there are some functional beverages with GABA ingredient which could promote a better sleeping quality that are also well-accepted by consumers. Or there could be products like for oral health, some functional beverage could provide much cleaner oral health.
XYL: Thanks for sharing Joseph. Same question to you John, what are some of the bigger trends that you’re seeing in agri-food tech?
JF: You know, a couple years ago, it was all about delivery platforms, you know, massive fundraising efforts in China and India and obviously, the developed markets too. 2019 no doubt was the year of alternative protein.
But, you know, also, in addition to that, I think food safety, traceability, again as a result of some of the more recent crises, not just COVID and debates around you know, where it stemmed from, but we’ve got multiple accounts over the last several years of animal related diseases, whether it’s African swine flu, or you know, avian flu, etc, infecting the food supply and you know, potentially causing concerns on the consumer end. So food safety, food traceability. Clearly a need for improvement in supply chain and cold chain solutions is all going to be necessary if we’re going to increase our ability to feed a rising population base and do so efficiently and sustainably over the next decade.
XYL: Great, on the point about food safety and traceability that’s something that we at Pinduoduo are also pretty interested in, so we’re also sponsoring some research to see if there are ways to actually lower the costs of food testing. So maybe if we just pivot a bit to talk about the active players in the agri tech space, who do you see as playing a leading role or fairly active role investing in agri-food tech startups and are there other new players that you see entering the space, whether it’s because of COVID or accelerated by COVID, or just that they have been active, but people maybe weren’t so aware. So something that comes to my mind would be for instance, your partnership with the Singapore government, as well as the UNDP on a series of different kind of agri-tech accelerator programmes.
JF: I can try to tackle that in a couple different ways. Clearly, from a governmental standpoint, the need to address and improve sort of food security and food resilience is more critical than ever. And again, this COVID experience has really emphasized that.
And obviously, Singapore has put out this “30 by 30” agenda to increase our domestic production to be able to match 30% of our nutritional needs by the year 2030. And that’s up from approximately 10% today. So from the government and the public sector, Singapore’s clearly not the only one. We’ve had fantastic case studies around the world — think of Israel or the Netherlands, where countries and governments have identified both their sort of national needs as well as their strategic and geographic opportunities to develop these industries and agri-food ecosystems for their own national agenda, but then also to be able to export that knowledge around the world. And that’s something which Singapore here in Southeast Asia is obviously trying to do. And obviously I know PDD is doing some fantastic work up in China around these initiatives as well. So, absolutely, government plays a huge role in driving the agenda and setting the narratives.
The sort of non-governmental organisations such as UNDP, whom we’ve partnered with recently on their Cultiv@te program, I think, obviously, their agenda is slightly different. It’s about empowering the farmers in emerging markets, to improve their livelihoods and sort of transfer that technology advancement that has been developed in other parts of the world and apply that to nations where agriculture is such a core industry. And you know, such a large percentage of the population rely on it for their livelihoods. So, this was a really exciting project for us to work on with with the UNDP Global Centre which brought on board 13 of its country offices around the world from, you know, as close to home as Indonesia or Philippines spanning all the way across to you know, Ecuador, Djibouti, Nigeria, etc. And each of these countries articulated challenge statements that was unique to their agricultural industry, and one which they hope the application of technology and innovative solutions would be able to improve. So, this was really neat. You know, we received over 500 applications from around the world to participate in this Cultiv@te challenge, and ultimately that list has now been shortlisted to the final 30 odd finalists who will be working very closely on the ground. You know, once conditions allow and these teams can travel again, they’ll be working very closely with the country officers to actually apply their technology in their solution to the local setting and see where they can make positive impact.
XYL: And I’ve had a look at the portfolio companies that Big Idea Ventures invests in. You’ve got startups that make cheese from fermented cauliflower, plant-based meat from jackfruit and cell-grown foie gras. What are the 2 or 3 key things you look out for when evaluating startups and what do you think investors should be focusing more on going forward?
AI: Yes, absolutely. Great question. Everything always starts with the team. Every time you make an investment in a company, or you’re working with a company, having a great founding team, having a great vision of what they’re trying to accomplish is central to any decision making. So team is always very, very important. The second thing and this is really about our mission statement, we’re called Big Idea Ventures because we are looking for big ideas, ideas that will impact the world and the global opportunities that we see, not just the US or Singapore or any one particular particular country or region. So we look for companies that have great products and a vision for how they can take that product and that innovation into the global marketplace. So we want to see our companies bringing their product into North America, into Asia, into Southeast Asia, into South America, into Europe. We do believe that there are a lot of innovations and foodstuffs which should appeal to humans around the world. And that’s what we’re looking for companies and innovations and teams that want to have that global impact. You know, we are about solving the world’s biggest challenges by backing the world’s best entrepreneurs, the way we have that big impact is by making sure that these ideas are big and humongous, and will be picked up and popular amongst consumers and customers around the world. That’s really what we’re looking for.
XYL: So for these startups that you deal with, are you seeing them making changes in their strategy or roadmap as a result of COVID?
AI: I am and and absolutely they are. So the first thing that we worked with the companies on and I know that they were very focused on themselves was their employees. So making sure that everyone in the companies that we invested in and have anything to do with all of the employees are safe and sound and doing the right thing to keep safe and healthy. So the first step in that process was physical health and making sure that people were safe.
The second thing, and this relates to being in lockdown in many places around the world for the last few months is mental health. It’s tough being a start-up founder and a start-up founding team, and now being locked down and wanting to get out there and drive their business forward and having to find new ways of doing that is stressful.
The third thing is some of the business models were focused on for exmaple, restaurants or universities, providing plant-based milks for example with Uproot to universities. They (Uproot) want to bring a range of great tasting plant-based milks from oat to pea, to coconut, to soy to students throughout the US and ultimately further afield. Obviously universities have been closed down. We do start to see that those universities are coming back online. If those universities push that back for whatever reason, then Uproot has already come forward with a new execution and a new strategy to bring their plant-based milks to new consumers.
XYL: So I’m curious, I’m going to dig into that Uproot example that you gave. In this instance, where they are not able to sell their plant-based milks to the usual target audience, what are they doing and kind of what’s happening with that inventory? Or if you look further upstream is that potentially an advantage of more of a plant-based or manufacturing-driven protein industry versus say actual cow’s milk? Because you can’t just not milk the cow, right? So certain things still have to happen, so there’s wastage and that’s why you see all that footage of all that milk going to waste. So is it potentially more efficient and less wasteful with some of these plant-based technologies and products?
AI: So I think it would be easy for me just to say yes, but the reality is, this whole question is much more complex. So in terms of Uproot, the first part of the question, they moved forward with a more direct-to-consumer model. They’ve come up with a really great innovative packaging to be able to have more of a direct-to-consumer model in the short term. Whether they continue with that direct-to-consumer model when the universities open up is obviously up to the founding team, but I wouldn’t be surprised if they don’t do both because, frankly, now that they’ve needed to very quickly turn on a dime and change their business model in the short term, they put the pieces in place to execute on that and they already have the pieces in place to execute on the university model. So they may, for example, decide to continue with both channels.
In terms of whether or not there’s more flexibility around plant based foods than, dairy driven, for example, yes, there is, because you don’t need to make it, you can just wait until it’s an appropriate time. So you don’t tie up capital in inventory that’s sitting there, or potentially wasting or spoiling. I do believe, having kind of looked into what’s happening in the dairy space, that it’s not just about animals needing to be milked, and there not being the demand, the demand’s definitely there. What I think we’ve discovered with the COVID situation was that the supply chain between the farmers and the producers and the retailers was a little bit more fragile than we ever anticipated. We always sort of felt that everything was very predictable. You know, somebody made something within a certain period of time because of transportation, etc, that food product would be where it needed to be. When there are shocks to the system, I think we’ve discovered that that predictability is is is actually not there. It’s unpredictable.
One thing that’s an interesting distinction between the traditional meat industry, and the plant based meat industry (and this potentially has an impact on production and supply and so on) is — Traditional meat is a disassembly business, you are taking an item — a cow, a pig, a chicken and you’re disassembling it. And it’s a very sort of up close and personal process in one sense. Plant based meats is an assembly process, it’s the opposite, where you can use conveyor belts lines, you know, large mixing machinery, etc. all of the things that Buhler for example creates.
XYL: That’s a very succinct way of contrasting traditional and plant-based protein manufacturing. Joseph, could you comment on how your startups may have been impacted?
JZ: So we were also paying close attention to our startups, we think the one that has very strong patent protection, very strong technology and very good application of technology, they are actually being chased after by the institutional investors. We’ve even seen them get oversubscribed.
XYL: So Joseph when you were saying that you’re still seeing some startups that are highly sought after, are there any recent examples that come to mind? Your portfolio is sufficiently wide that you’re seeing a wide variety of deals in the market.
JZ: So for example, I think the deal was just announced last week, one of our portfolio (companies), Tropic Biosciences, which is a gene editing company working on tropical crops, for example, banana and coffee. They still completed their Series B fundraising led by Temasek. So I think that was definitely one of the good examples, the team has been showing us that they have very strong execution capabilities and they built very powerful discovery platforms and they were able to prove their technology through their partnership with industry conglomerates in their supply chain.
XYL: Wow that’s really fascinating because I would imagine for gene editing, that’s something that is typically quite long gestation, so it may be a while before you see it translating into financial returns. So it’s very impressive that for a company like Tropic, they’ve still been very successful in fundraising so clearly there’s still some investor appetite out there for big ideas in technology.
XYL: That’s it for this episode of Agri Matters. Please note that the views expressed by our guest do not represent those of PDD, nor does she own shares or receive support from the company. If you enjoyed this podcast, keep a look out for other episodes where we talk to subject experts and people close to the story. We’re available on Spotify, Stitcher, iTunes, Google — basically any platform where you listen to your podcasts.