For the industry to scale, multiple sources of capital and differentiated risk profiles will be required

The nascent but growing smart protein industry – plant-based, fermentation and cultivated technologies – has been launched by venture capital over the past 10 years but will be hard-pressed to scale without alternative sources of capital. Unlike other venture sectors – particularly in areas of technology, DeFi, AI, etc, which have relatively low capex requirements – the smart protein industry is capex intensive once it goes beyond lab and pilot facilities and certainly when driving toward scale.

Our industry collectively raised close to US$6 billion in 2021 on top of approximately US$3 billion in 2020 – figures that are no doubt unlikely to be repeated in 2022. The lion’s share of those funds went to R&D, pilot facilities, and perhaps a commercial facility here and there. Τhis represents a far cry from commercial-scale production from almost all sectors, save that of the plant-based world where we have the likes of Impossible Burger, Beyond Meat, and Oatly already producing reasonable quantities of plant-based alternatives.

To produce vast amounts of alt proteins that would make any significant difference and contribution to our overall protein production with volume and scale, the industry will require hundreds of thousands of tons of capacity over the coming years which, in turn, will require billions of dollars in new infrastructure investments. Our industry is very specialized and requires unique technologies that aren’t readily available for mass production – extruders for plant based, food-grade bioreactors for fermentation and cultivated technologies. This all needs to be built from scratch. That’s not a role that is well suited for venture capital firms.

Our industry is very specialized and requires unique technologies that aren’t readily available for mass production … This all needs to be built from scratch. That’s not a role that is well suited for venture capital firms

Part of those infrastructure needs will come from the likes of the handful of co-manufacturing companies launching in the smart protein space (Liberation Labs, Planetary, Synonym, etc) and part will need to come from alternative sources of funding: real-estate funds, REITs, brownfield and greenfield construction with credit mitigators and/or offtake agreements, partnerships with the larger F&B players and commodity trading firms (Unilever, Nestlé, Cargill, ADM) – and increasingly what appears to be government-subsidized loans and grants for construction and production facilities, as well as bank lending facilities as commercial scale becomes evident.

The recent volatility in the capital markets and the global downturn in risk appetite for almost everything – equities, bonds, venture, and crypto – has not left the alternative protein space unscathed. Al contrario, venture in alt protein has fallen victim to the same old adage – ‘valuation’.

Investors that viewed Beyond Meat and Impossible as the new Teslas or Nvidias woke up to a new reality this year. Both are great companies and still going strong, but… food is food! The industry will find its footing again – starting with VC investments as launchpads but ending with industrial-style capital for scale and commercialization. The end-consumer appetite is there for alternative proteins.

For the industry to scale to relevance, though, multiple sources of capital and differentiated risk profiles beyond venture capital will be required to deliver the true impact we are all driving for – a cleaner healthier environment with lower GHG emissions and alternatives to our animal protein-centric diet at scale.

Brian Ruszczyk is the CEO & Co-Founder of Earth First Food Ventures, a platform that brings Ultra-High-Net-Worth families and accredited investors together for ESG/impact investing in food-tech, plant-based assets, and cell agriculture for a better planet, healthy consumers and lower carbon footprint. This article was republished from the October/November 2022 edition of Protein Production Technology International, the industry's leading resource for alternative proteins. To subscribe to read future editions hot off the digital press, please click here