Food tech: Is the biggest opportunity hiding in plain sight?

According to a recent Pitchbook report, the typical size of food-tech investment deals reached record highs last year, with the overall average deal size hitting US$2.5 million, up 7.8% from the previous year. This surge is an encouraging sign for the food-tech sector, indicating robust interest and investment. However, not all stages of growth enjoyed this increase. Both early and late stages experienced declines, each for different reasons, which paints a more complex picture of the industry’s financial landscape.

As the industry navigates a challenging macroeconomic environment and multiple black swan events, generalist investors have become more cautious about investing in
new technologies and early-stage ventures. This cautious approach, while understandable given the economic uncertainties, is slowing down innovation precisely when it is needed the most. In the seed and early stages of the food-tech category, investments are still occurring. The companies being formed today are critical for the next wave of sustainable food products.

Having been a food innovation investor for many years, I have seen a significant shift in the types of companies that attract investment. Initially, the focus was primarily
on consumer product companies offering novel food items directly to consumers. Over time, there has been a notable rise in B2B companies, particularly those highly specialized and often involve deep-tech solutions. These companies are not just producing food but are working on providing specific technological solutions aimed at sustainability, scaling production, reducing costs, and enhancing the taste and texture of food products. From CDMOs to hardware and software that optimize bioprocesses, we are developing innovations that will enable sustainable products to achieve price and taste parity.

Now is not the time to walk away in fear; it’s time to see and invest in opportunities which, arguably, have never been at such a good price

The potential behind these new technologies is immense, and the opportunity they represent is clear to industry insiders. How often do new categories appear in any industry? In the food industry, we’re seeing new ways of creating proteins, fats, and other ingredients. Protein production centers have grown over the past 100 years, but with the development of new protein production technologies, there is no guarantee those production centers will continue to be dominant. Should they fear the new protein future? Only if they decide to fight against the new technologies and treat them as threats rather than opportunities.

The new technologies also present opportunities for those countries that are not historically dominant in protein production. Countries with food security issues –whether due to land or resource shortages – now have a chance to become dominant in new protein if they seize these opportunities faster and more aggressively than their competitors and neighbors.

Returning to those young innovators, how can they succeed when the investment community is tightening their investment budgets? It is crucial for them to understand how they are bringing uniqueness to the category: innovation that will make an impact on the industry – a true big idea! Take that big idea to larger players; gain partners willing to work with you. Secure Letters of Intent (LOIs) to demonstrate market interest and demand. These steps not only enhance the credibility of your company but also make them more attractive to potential investors.

We expect late-stage and venture-growth valuations will continue to decline in 2024 until the exit environment improves, which will likely require a combination of market consolidation as those unable to raise funds join together or are acquired by larger players. We continue to anticipate product innovation and an environment that will benefit investors that truly understand the category, the evolution of the technologies, and who – armed with this knowledge – make investments at healthy valuations.

Food is a trillion-dollar industry, strategic to us all. Innovation is rampant; changes are here and continuing to arrive, shaking the foundations of an industry. Now is not the time to walk away in fear; it’s time to see and invest in opportunities which, arguably, have never been at such a good price. How? Gain deep expertise and keep an open mind.

As Warren Buffett said in his 1987 letter to shareholders, “If you’ve been in the [poker] game 30 minutes and you don’t know who the patsy is, you’re the patsy.” Don’t be the patsy; food tech could be the biggest opportunity of your lifetime. If any of the above is interesting to you, reach out.

Andrew D. Ive is the Founder/Managing General Partner, at Big Idea Ventures. He is an advisory board member for Tufts Nutrition Council, is a Friedman School Entrepreneurship advisor, Harvard Business School graduate, Procter & Gamble brand management trained, and has spent a number of years as an entrepreneur growing companies. This article is republished from the Q3 2024 edition of Protein Production Technology International, the industry's leading resource for alternative proteins. To subscribe to all future editions, please click here