Investors step up bets on plant-based food as inflection point seen in consumer interest, production costs

Investors step up bets on plant-based food as inflection point seen in consumer interest, production costs

Staff Writer
Staff Writer
Pinduoduo Content Team
March 3, 2021

Investors are stepping up their bets on plant-based food startups as technology reduces production costs and consumers show increasing interest in alternatives to meat.

According to data from AgFunder, investment in innovative food startups – the category includes those working on plant-based protein and cultured meat - doubled to $2.3 billion last year, while the number of deals rose 60% to 362.

Venture capital is searching for the next Beyond Meat, whose stock price rose almost 6 times after it went public in 2019. According to Barclays, the market for meat alternatives could be worth $140 billion within the next decade, or about 10% of the $1.4 trillion global meat industry.

Rising rates of obesity and chronic diseases linked to unhealthy lifestyles and diets are expected to drive demand for plant-based food. Repeated bouts of avian and swine flu will probably turn some health-conscious consumers off animal flesh.

Read more: China moves to set standards for plant-based meat industry

Last year’s top deals were made by some of alternative protein’s very first-movers, such as Impossible Foods, and the size of these deals is indicative of the maturity of this industry today, according to the report.

Impossible Foods raised $500 million at the very start of the coronavirus pandemic when uncertainty was high, which indicates the “strength of investor conviction in this category,” the report said.

Impossible Foods is competing with Beyond Meat to scale up their business by working with restaurant chains. The company has tied up with Burger King and White Castle, while Beyond Meat said last week it has signed multi-year supply deals with McDonald’s Corp and Taco Bell owner Yum! Brands Inc.  

Sizeable raises by Memphis Meats and Mosa Meat are also pushing cultured meats and proteins closer to the market. Numerous such companies have recently held high-profile tastings and reported production costs in the low-double and high-single digits — a major accomplishment in a field reporting per-unit costs in the hundreds and thousands of dollars just a few years ago.

Read more: Mushroom waste is being turned into burgers and fertiliser

Bill Gates-backed Memphis Meats, a lab-grown meat startup, ranked after Impossible Foods with $161 million in a funding round led by Japan's SoftBank Group, Singapore's Temasek Holdings and Norwest Venture Partners.

Mosa Meat raised $64 million, led by a Zurich-based vegan-focused venture capital firm Blue Horizon Ventures, which recently closed a 183 million-euro ($222 million) fund that will invest in startups in alternative proteins to smart packaging.

To be sure, plant-based meat and alternative proteins aren’t necessarily new technologies. For a long time, plant-based startups were not attractive to venture capitalists given their niche status.

But as the industry starts to get on the fast track, more companies are preparing for IPOs, offering exit opportunities and potentially lucrative returns for investors. Venture funds are backing a wide variety of startups as it’s unclear which protein will catch on most with consumers.

Read more: A look at high-tech tools fighting food fraud

The next to watch may be Swedish oat-milk maker Oatly AB, which counts Oprah Winfrey and rapper Jay-Z among its prominent backers. The company last month submitted plans for an initial public offering to regulators. The company, which sells its Oatly brand of products in more than 20 countries across Europe and Asia, could be valued at more than $5 billion, Reuters reported.

Venture bets in the space are still risky as the crop of startups mature and competition intensifies. There’s also the increasing presence of major food companies that now have teams dedicated to plant-based food. Companies like Tyson, Smithfield, Unilever, Perdue, Hormel and Nestlé have rolled out their own meat alternatives, filling supermarket shelves with plant-based burgers, meatballs and chicken nuggets.

More broadly, plant-based food will have to scale up production to be able to compete with animal-based industries on price, taste and availability. Animal products are much cheaper to produce than plant-based alternatives at present, as they benefit from economies of scale and government subsidies.

For the industry’s staunchest backers, the success of plant-based meat companies isn’t a matter of if, but when.

Read more: Plant-based protein challengers in China need to invest in technology to stand out, Bits x Bites founder says

While it may not be possible to popularize synthetic meat in poorer countries, plant-based or lab-grown meat could completely replace animal-based meat in rich countries in the long run, said Bill Gates in an interview with MIT Technology Review in February.

“I do think all rich countries should move to 100% synthetic beef,” said Gates, who was promoting his new book on climate change. “You can get used to the taste difference, and the claim is they’re going to make it taste even better over time.”

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