Food tech venture capital investment fell for an eighth straight quarter in the third quarter of 2023, with 205 deals valued at $2 billion, according to new PitchBook report.
This is down 13.9% from the previous quarter, when there were 268 investments worth $2.2 billion. And a drop of over 71% year over year. PitchBook considers “food technology” to be areas including alternative proteins, industrial foods, discovery and review, e-commerce, food manufacturing, and restaurant and retail technology.
“It’s a little disappointing to see deal activity continue to slip,” report author Alex Frederick, senior emerging technology analyst at PitchBook, told TechCrunch. “However, it is still an evolving market.”
He considers one of the bright spots of the third quarter to be the Instacart IPO, saying there was excitement around it, especially since it went well. However, Frederick also said he doesn’t see many other tech startups racing to exit just yet.
“The IPO window remains closed, which will continue to drive business activity,” he added.
What investors are saying
Climate technology, overall, has remained “remarkably resilient” over the past two years, Meir Rabkin, founder and CEO of climate technology venture firm Blue Vision Capital, said in an interview. He notes that resilience is about the company’s valuation — the contraction felt in other sectors has not been as widespread in climate tech.
Speaking about investing in food technology, Rabkin said it’s “a bit of a difficult space” for a number of reasons, including capital costs being relatively high in this sector and R&D can take a long time.
“Having said that, there’s a lot of disruption and innovation that needs to go on there,” Rabkin said. “It’s an extremely exciting space to be in.”
But capital constraints aren’t all bad, said Cristina Rohr, managing director of food and agriculture investments at impact investment firm S2G Ventures.
He found that when the availability of capital decreased, company business models became more resilient as founders came up with more capital-efficient ways. They are also looking at different kinds of collaboration, for example, possibly licensing their models.
Rohr is not surprised by the decline in venture capital in food technology because companies are focused on scalability and achieving positive economic units.
“We are in an environment that is subject to commodity pricing and supply chain costs,” Rohr said. “With all that, to be scalable, you have to have cost parity with existing technologies or products. As these large rounds come together, investors are looking at the technical milestones coupled with the ability to achieve those milestones in a way that has positive financials for the unit.”
Plants don’t grow that fast
Meanwhile, in the protein alternative sector, $724.2 million was invested in 46 deals in the third quarter. VC funding in plant-based foods “declined significantly from its peak in Q3 2021,” although deal activity is doing better, with new growth for the second consecutive quarter, according to the report.
Despite the increase in plant-based investment deals, PitchBook’s Frederick described the industry as “competitive” when it comes to meat alternatives, citing a shrinking share of grocery shelves for these products.
Reasons for this include a challenge in getting new customers to try these premium products, mainly because of price and taste perception and that these products are processed foods, Frederick said.
“It’s hard to get and stay on the shelf,” he said. “It’s very important for these companies to deliver. Consumer packaged goods, as a whole, are really struggling right now with price inflation. Consumers are turning to low-cost alternatives, yet plant-based beef companies are selling at a 2% premium to conventional meat.”
Notable offerings in the third quarter among protein alternatives include Meati’s Raised Series C to $200 millionMeatable’s $35 million round and Enough raising €40 million.
As seen on TechCrunch
The new capital injection puts Farmless on the path to the first alternative protein products
I wrote a funding update on Farmless, a company we covered earlier this year. The Dutch startup works on alternative protein sources through fermentation technology and has raised another €4.8 million in seed funding. It will be applied to Farmless’ goal of discovering a microorganism that can ferment different food applications.
What else am I reading?
Sweet offer: The Canadian Food Innovation Network has awarded Crush Dynamics nearly $2 million to develop and test a new ingredient that will improve food quality and reduce sugar and sodium content in foods. learn more.
Sustainable Supply Chain: The Clean Food Group now has £1m from the UK Government to fund a project to promote new low-emission food production systems. read more.
Support for cultured meat: Big Idea Ventures, a protein alternative investor, launched Nexture Bio, a startup developing scaffolding technology used to create a 3D meat alternative product that more closely resembles whole cuts of meat. Take the scoop.
ICYMI: The alternative seafood industry has a new advocate, the association Future Ocean Foods founded by Marissa Bronfman. It includes 36 companies in 14 countries representing cultivation, plant-based and fermentation technologies. read more.
The next time you’re in New York: Head over to Eleven Madison Park to try The EVERY Company’s egg protein just added to the menu. Check it out.
If you have a juicy tip or guide on what’s happening in the business and food tech world, you can contact Christine Hall at chall.techcrunch@gmail.com or Signal at 832-862-1051. Requests for anonymity will be honored.
