Momentum is strong and growing for investments in the Agriculture Technology (AgTech) sector. Last year saw a record $1.5 billion deployed, up 50% from 2016, in more than 160 deals, according to Pitchbook. And this year is on pace to exceed 2017: year-to-date through June, AgTech companies raised $856 million in venture capital investments across 127 deals, says Pitchbook.
Corporate venture capital activity has shown particular growth, with more than 30 corporate venture funds now active.
Large food corporations are searching for innovation through M&A activity, venture funds, incubators and joint ventures to meet strong consumer demand for healthy foods, as well as growing concerns around food safety. All of this is taking center stage for investors, according to recent CleanTechIQ panel discussions and forums.
Numerous big food and agricultural companies have launched new venture funds in recent years, including Kellogg (eighteen94 capital), Campbell Soup (Acre Venture Partners), Tyson Foods (Tyson Ventures) ), General Mills (301 Inc.), Danone (Danone Manifesto Ventures) and Hain Celestial (Cultivate Ventures).
In March, Kraft Heinz launched an incubator, called Springboard, for “disruptive” food and beverage startups. Last December, Cargill partnered with TechStars and Ecolab to launch the Techstars Farm to Fork Accelerator, with a focus on “food security and food safety.” And Nestle recently backed a new Paris-based food-tech venture capital fund called Five Season Ventures, which announced its first close of $74 million in March.
Recent CleanTechIQ Panel Discussion Takeaways
CleanTechIQ hosted numerous Food & Ag and AgTech executives at a pair of recent forums for panel discussions around the development of sustainable food systems and what’s driving sector innovation and investment activity. Here’s some of what these experts had to say.
Food safety concerns are driving new areas of AgTech innovation, says Victor Friedberg, co-founder of S2G Ventures and founder and chairman of FoodShot Global.
Consumers are demanding better verification of their food in order to combat food fraud, he says. This includes verifying their food’s origin, the attributes (like “organic”) being put on labels, and the food’s nutritional content.
Blockchain technology will help all this, Friedberg says: “In the future, you are going to be able to trace the molecule from origination to your mouth.”
Among S2G’s investments is Ataraxis Biosciences, which is doing “low cost, real time testing of antibiotics in meat,” he says. Other areas of interest for S2G include healthy food brands, food logistics and biopesticides, he adds.
IBM is one firm using blockchain technology for improved food traceability and food safety, says Oliver Meeker, the firm’s platform market development leader. IBM is working with Walmart, Tyson Foods, Driscoll’s and JD.com to enhance transparency and trust in the food system, which consumer are demanding, he says.
The technology will really shine when there is a food recall, he says. In such a case, thanks to blockchain, the time needed to detect the source of the food can fall from as many as seven days to just two seconds, Meeker says. This will help to remove “enormous costs from an inefficient system,” he says, but more importantly, it can save lives.
As for Cargill, one major area of the company’s focus is new technologies associated with animal feed, says Bill Aimutis, the company’s global director of external innovation. He believes that innovation in better animal feed is taking the place of antibiotics and growth hormones. These new feed products improve the animal’s microbiome. Also, “they look much better on the label,” he says.
Cargill is also paying more attention to food safety and traceability, which Aimutis says is being driven by 2011’s Food Safety and Modernization Act.
“It’s not a matter of knowing if there’s a pathogen present or not,” he says. “It’s about knowing how it got there. We need to trace it back to the plant or to that live animal to understand the supply chain.”
Other recent food safety and traceability investments by big corporates include:
- GV, formerly Google Ventures, participated in Clear Labs’ $13 million Series B funding in 2016. Clear Labs is a genomic data platform built for food safety testing.
- Tyson Ventures invested in FoodLogicIQ’s $19.5 million Series C round in March. The company provides traceability, food safety compliance and supply chain transparency software solutions.
- Campbell Soup’s Acre Venture Partners took part in ImpactVision’s $1.4 million seed round last year. ImpactVision develops food safety and quality software that uses hyperspectral technology.
S2G’s Friedberg believes that new healthy food brands that are being launched will be the catalyst for a lot of Food & Agriculture companies to invest in innovation regarding their supply chains.
“Their supply chains need to be more efficient, reliable and nutrient dense to allow those brands to achieve scale,” he says. Large Food & Ag companies are key to developing infrastructure that enables these new food brands to scale.
“Getting those emerging food brands to grow and scale is where all the investment opportunity is,” Friedberg says. That means investing in the supply chain.
Important aspects that emerging food brands must portray include authenticity, traceability, and nutritional density, he says. These aspects are very important to consumers, and food companies are now connecting with these consumers through their product labels.
However, innovation will not come just from startups. Large corporations and agribusinesses will be key to the industry’s goal of creating a healthier food system, he says.
“I personally don’t believe the food industry is going to be disrupted the way San Francisco venture capital thinks about it,” says Friedberg.
Cargill’s Key Production Challenges – Seeking Innovation
Cargill’s Aimutis says that consumers are increasingly willing to pay a premium for food products that have “healthy labels” such as organic or non-GMO. But those labels come with greater challenges for large food businesses, he says.
“Our first challenge is testing to confirm the food product is labeled properly,” he says.
Another issue is that, as demand grows for local food, where volumes are not as great, food producers have to find more efficient ways to manufacture them. “I am constantly looking for new and more efficient ways to manufacture and process new products,” Aimutis says.
Innovative methods that can help include applying the Internet of Things technology to manufacturing processes, and using “greener and gentler” extraction methods in food processing, he says.
Big Ag Shows Big Interest in Alternative Proteins
With the global population expected to exceed 9 billion people by 2050, alternative sources of protein will be crucial to feeding all those people in a more sustainable way, experts say. Meat-based proteins are resource-intensive and create harmful planetary impacts such as greenhouse gas emissions, heavy water consumption and habitat destruction.
To that end, big agricultural companies are showing increasing interest in startups that are developing alternative sources of protein, according to panelists.
Cargill, for instance, has been on the alternative protein trend for three years, Aimutis says.
Last year, the company invested in Memphis Meats, a startup that develops cultured meat. Other investors in the $17 million Series A round included DFJ, Bill Gates, New Crop Capital and Virgin Group. Tyson New Ventures invested an undisclosed amount in Memphis Meats in January of this year.
Also earlier this year, Cargill invested $37.5 million in Puris Foods, the largest producer of pea protein, as part of its Series D round.
S2G invested in the seed round of plant-based yogurt company Lavva. It also invested in the 2016 Series B round of Ripple Foods, a non-dairy, pea protein-based milk and ice cream producer. In January of this year, Ripple raised $65 million in Series C funding from investors including Goldman Sachs, Khosla Ventures, Google Ventures, Euclidean Capital and S2G. Ripple has raised $110 million in total funding to date.
According to panelists, pea protein has big potential as a key input in the development of protein alternatives to animal-based products. “Pea protein is becoming the new commodity protein,” says Aimutis.
However, the key problem in developing alternatives to meat-based protein production is the limited supply chains of inputs including soy, pea and quinoa. “These nascent industries need to be built out for the industry to become protein-agnostic,” says S2G’s Freidberg.
Other alternative protein investments by corporates:
- Tyson Foods invested in plant-based burger maker Beyond Meat in 2017, increasing its stake in the company to 5%.
- In 2018, Tyson invested in the seed rounds of two Israeli lab-based “clean meat” startups: SuperMeat in January and Future Meat Technologies in May.
- General Mills invested in Beyond Meat’s Series F funding in 2016.
- Google’s GV invested in the 2014 Series C round of Impossible Foods, which manufactures plant-based animal protein substitutes. Its other investors include Temasek, Bill Gates and Khosla Ventures.
Will Food & Ag Industry Consolidation Dampen Innovation?
With growing consolidation in the Food & Ag industry — including, most recently, Dow and DuPont, and Bayer and Monsanto — there’s been some concern about whether this trend will constrain innovation needed to develop a more sustainable food system, since research and development budgets often get cut after a merger.
CleanTechIQ’s panelists say those concerns are overblown, however, and that food industry consolidation is actually creating more opportunity for startups and investors.
That’s because the trends outlined in this report, along with growing consumer demand for new products, are forcing large food companies to search externally for innovation, such as through acquisitions and partnerships, as well as to make a greater outreach to venture funds and accelerators.
Also, big corporations now see partnerships with startups as the best way to enter new markets, Aimutis says.
One example is Bayer Crop Science’s 2017 partnership with bioengineering startup Ginko Bioworks to jointly create a new type of bio-fertilizer, reducing the need for chemicals. The deal is noteworthy because, even though Bayer is known to have a strong R&D program, the company still chose to work with a startup to develop a new product in a space it wasn’t already in, says Aimutis.
The new company formed by the partnership, called Joyn Bio, raised $100 million in March from Bayer, Ginko Bioworks and hedge fund Viking Global Investors
New Healthy Food Brands in Demand
Consumer demand is sparking corporate interest in healthy food brands, experts say, with many corporates opting to buy healthy food startups to try to meet that demand.
“The whole reason why we are investing in pure branded [food] companies that don’t use additives, or that are local companies that are not using chemicals, is that we feel those large companies are going to have to acquire ” says Peter Grubstein, managing director and founder of NGEN Partners. He’s been proven right in at least one instance: NGEN invested in baked fruit and vegetable snacks maker Bare Snacks in 2013; PepsiCo acquired Bare Snacks in May of this year.
One major driver for big companies seeking to acquire small food brands is the failure rate of more than 90% of new product launches in the category known as “consumer packaged goods. ” Compared to the cost of a bringing a new product to market, an acquisition of a startup is often a cheaper option, says Cargill’s Aimutis.
Corporate food giants acquiring food startups include:
- Kellogg’s – RXBAR, Bright Greens and Kuli Kuli Foods
- Campbell Soup – Pacific Foods
- Dupont – FMC Health and Nutrition and Provivi
- Unilever – Milkbasket, Sun Basket, Tazo Tea, Mãe Terra, Pukka Herbs, Sir Kensington’s
- PepsiCo – KeVita and Bare Foods
- General Mills – Purely Elizabeth
- Nestle – Terrafertil, Atrium Innovations, Chameleon Cold-Brew and Sweet Earth Foods