Foodtech Nears Boom: Sifting Gold from Hype

Foodtech at a Tipping Point: Opportunities Amid the Noise

Foodtech is at a crucial tipping point, and with tipping points come opportunities. However, the real potential of this space has gotten muddled, and it’s a good time to cut through the noise. A fair amount of hype and non-expert takes have painted a picture of a new, entirely high-risk sector defined solely by alternative proteins. None of that is quite right, and reality is in fact rosier – particularly for forward-thinking investors.

Let’s rewind for a moment. Food is a $9 trillion industry that quite literally touches every one of us, every day. Innovation in the sector has been ongoing for decades, helping give rise to multi-billion-dollar CPGs and specialty ingredient players. Alongside that has been growth in dealmaking, with nearly all major private equity houses investing without high capex or particularly high risk. Then, in the past 5-10 years, came an upheaval – and a world of possibility. Advanced tech from information technology (sensors, satellite data, and robotics) and biotech (Crispr, precision fermentation, and cell culture) entered the game, turning foodtech into what it is today: a serious, scalable VC play. AI will take it further, faster.

Add to that a global shift in consumer behavior, with growing demand for health-conscious, sustainable food options, as well as growing urgency to address food security and climate change, which by now has resulted in governments spending billions to mitigate these existential risks. Now the time has come to make the leap forward. Many worthy foodtech companies have already done their core R&D and jumped through the regulatory hoops. The next 1-3 years are a crucial timeframe to move out of the lab, and into the real world. And with the right approach, that doesn’t require high risk or high capital, even in today’s inflationary environment.

Exit strategies

The upside for investors is substantial, and it’s not centered around IPOs. Instead, M&As and exits via trade sales to strategics are the more likely path, thanks to the massive global food industry. Food corporates spend just 0.4% of their revenue on R&D, compared to software at 18% and pharma at 12%. In absolute numbers, the top ten food and food ingredient companies spend just $4-5 billion a year on R&D, and an average of $22 billion a year on M&A. Corporates and their big-name brands aren’t built for risk or, frankly, for ground-up innovation. But they can’t afford not to innovate either. Their preferred path is to let someone else do the trial and error, scale, and buy them out. And that equals significant ROI potential.

Debunking the myths

When we talk about scaling up foodtech, the big barrier to cross is high capital expenditure. Scaling can often require boosting production volumes of ingredients and enabling technologies, which in turn demands equipment and sometimes entire greenfield facilities, along with the supply chains and specialized labor to operate them. While the last few years of branding hype have skewed the conversation, not all foodtech requires sky-high capex.

Foodtech ≠ alternative proteins

This sector goes far beyond alternative proteins, though reading about it you might not be able to tell. Bulk, animal-free proteins often demand hundreds of millions in capex; but there’s a wide range even within that space itself – areas of high impact potential that require far less capex and risk. Take alternative dairy: its production is better established and is based on key ingredients far less expensive to replace (dairy is almost 90% water). The global plant-based milk market is expected to surpass $123 billion by 2030. For added perspective, in the Western world alternative dairy makes up some 16% of the market, compared to just 0.5% for alternative meats. The focus of innovation now needs to shift towards better taste and sustainability, like what Austria’s Kern Tec is doing with their plant-based milk derived from fruit seeds. Processing these readily available sources requires significantly less capital investment than the high upfront costs associated with novel feedstocks, which can range from specialized processing equipment to lengthy regulatory approvals.

Reasons to look beyond just alternative proteins go farther. We have a mounting dietary fiber gap, we waste one third of our food across the supply chain, and we urgently must create more resilient production systems for food ingredients. All these areas have different business models, unit economics and Capex requirements – while sizably contributing to better food systems.

Foodtech is also about saving food

When looking for relatively low risk and high scaling potential, we should also be thinking not just about what new proteins and food to produce – but at how to save what we already make. One of the biggest (and most expensive) problems in the food system is the massive amount of food waste across the supply chain. 1.3

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