Finistere Ventures has just released an analysis showing that food-tech investment reached $8.4Billion in the first three months of 2020. This surpasses the record-breaking $7Billion set in the previous year. Only one quarter remains.
Ingrid Fund, Finistere Ventures Investment Director, discusses what drives investor and consumer interest in food tech. This week’s news article explains where the majority of funds are going.
Convenience drives demand for delivery, hard tech
Fung pointed out that consumers are suffering from cooking fatigue and are looking for ways to make it more convenient to cook and prepare their food. This will drive investor interest.
Meal kits and delivery are two of the most popular options. They offer consumers the opportunity to save time and avoid the risk of contracting the coronavirus.
Fung believes that these areas are important even after COVID-19’s threat is over and people can eat at home again.
However, they are likely to evolve and continue becoming more sophisticated. This is what fuels investor interest in hardware technology that simplifies food production.
Fung noted that Finistere Ventures had recently invested in Tovala’s hard-tech-enabled meal kit company Tovala. The company uses a “smart oven with steroids” to bake, steam and fry meals. Each meal kit is equipped with a QR code, which can be scanned by an oven to cook food “to perfection,” she explained.
Food tech investors love packaging and processing solutions
More consumers are ordering food delivered and becoming more conscious of the environmental impact. This awareness will lead to increased demand for sustainable packaging from restaurants and manufacturers.
Fung explained that while consumers want to reduce food waste, they also struggle to eat products made for smaller households. Fung explained that investors are attracted to smart packaging that preserves food better.
Novel ingredient development
Fung also notes that investors are investing substantial funds in novel ingredients to provide more sustainable and healthier solutions.
“We made an investment into Memphis Meats which makes cultured meat products. There is much interest in eliminating the animal component of the proteins we eat. Fung explained that it includes everything, from removing animals from milk production to replacing them all.
She stated that, while she believes there is plenty of innovation in the area, it is still a long way from reaching the market and being easily accessible to the wider consumer.
Although each area holds great promise, there are limitations that could prevent them from being sustainable beyond the pandemic. This is evident most clearly in the area of meal kits. Although it has seen a revival during the pandemic, the fundamental flaws within the business model have been a major problem since 2015.
Funds move to the late stages of deals
Fung said that capital flows in ag-tech and food-tech are shifting to larger deals, looking forward. She also said that exits have been slower then expected which indicates a level in maturation and possibly a slowdown in future investments.
Fung explained that she expected to see more exits as traditional venture investors in the ag and food sectors. Fung explained that there was a lot less trade sales in 2015-2017 due to industry consolidation. After consolidation, however, potential acquirers were much more sensitive to their balance sheets.
This has led some companies to seek out other exit strategies, such as initial public offerings. Fung claims that these are becoming more popular in the food sector.
Fung explained that companies must improve their storytelling to make it clearer to their customers what they offer and how they can help them.
“I believe [improved storytelling] opens up new possibilities for these businesses. This means that instead of having a small number of customers before, it’s possible to manufacture your product and put it on the shelves of grocery stores as an interest-driver for customers.
She added that “if you mix a really fascinating technology that offers a good value proposition to the consumer with an extremely smart public communications strategy there are really positive outcomes that can result from that.”
