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BioCommunique Article

Hear how the demands of consumers with healthier and more sustainable food habits are being met by some of the most innovative companies in the FoodTech space.

Webinar Recap: The Future of Food and How Changing Tastes are Altering the Entrepreneurial Landscape

  • 2020-07-27T19:00:00.000+0000
  • California
  • Author: Harry Chang

Earlier this month, Biocom hosted a webinar focused on the food tech industry and its investment climate titled “The Future of Food: How Changing Tastes are Altering the Entrepreneurial Landscape.”

Discussing the revolutionary changes in the food science industries which are impacting the ways consumers as well as CEOs and investors are directing their resources were Priti Youssef Choksi, Norwest Ventures; James Joaquin, Obvious Ventures; Jay Karandikar, New Crop Capital; and Aylon Steinhart, Eclipse Foods. The panel was moderated by Slone Partners President Tara Kochis-Stach and James Huie, a corporate and securities partner at Wilson Sonsini Goodrich & Rosati.

Here’s what we learned.

The State of Food Science

During a brief but rich state of the union surrounding the investment opportunities and the future of food, Nate Crosser with The Good Food Institute shed light on the fact that alternative proteins are a highly transformative sector, but one that remains in its infancy as an industry. Alternative proteins have the ability to disrupt an animal agriculture industry that presents numerous harms, including its production of 14.5% of all greenhouse gas emissions, as well as its position as the number one user of freshwater on the planet.

Within the alternative protein landscape, three main subsectors have the ability to significantly disrupt those ills. Plant-based proteins, which represent the most mature subsector, already account for $5B in plant-based meat sales in 2019 US retail. Important to note, however, is that even this most mature subsector is still very young, only existing in earnest for the last five years.

Cultivated proteins, like cultured meat or cell-based meat, offer a form of cellular agriculture that uses cell isolation and proliferation to produce the same animal meats we’re accustomed to, but with the potential to reduce climate change emissions by 75% and reduce contamination risks. While cultivated proteins have seen competitive landscape booms—startups in existence have doubled every year since 2015—the subsector is only recently shedding its early-stage vertical nature and growing into a true B2B market.

Protein fermentation, which uses microbes as a production platform, offers a more traditional, precision-based biomass fermentation process to create taste and texture similar to meat. Each plant-based, cultivated, and fermentation proteins are often blended to create food alternatives consumers enjoy.

The Investment Landscape

FoodTech has seen rapid investment growth in alternative proteins. In the first half of 2020 alone, the industry has already surpassed its total 2019 investment, but much more is needed.

To add context, over $2.65B was invested in cannabis in 2019, 2.5 times more than alternative proteins, per Pitchbook. But again, while the industry is rapidly growing, we’re at the very beginning of this wave of food, which has the long-term potential to replace meats the way cars replaced horses in the 20th century.

When it comes to investment strategies, panelists offered insights into what they look for in startup companies. Priti, who gained experience at legacy tech companies Google and Facebook, believes in leadership and failure. She noted that unique market and consumer insights helped leadership at each company gain an edge despite not necessarily being "first to market."

James J. uses his vision to help understand the industry, noting emerging microproduct mycelium as an element that can deliver protein and B12 vitamins through food. He, in turn, is on the lookout for mushrooms to surge in 2021 to use mycelium to deliver sustenance, and psilocybin for mental health benefits. Functional beverages, as he called them, can be a vehicle for using familiar drinks like coffee and tea to deliver stealth benefits from plants.

Jay noted the benefits of looking at the ocean environment more as a broad part of the industry, where modern fishing is not targeted and strips the health of entire swaths of ocean like dolphins and reefs. The industry offers investment opportunity via companies that curb unethical labor practices and help disrupt these maladies, especially in the developing world, where plant-based products can help sway populations toward sustainable diets and lifestyles.

Company Flavor

When it comes to predicting specific company outlooks, insights start with the consumer. Aylon noted that his dairy-free dairy company, Eclipse, is driven by how people make their food purchasing decisions. People make their buying decisions based on taste, price, and convenience. He determines success on how well they can hit that trifecta and create a taste to make their product indistinguishable from its dairy counterparts.

While scrutinizing potential investment companies, James J. looks for innovation on all fronts. Rather than looking for companies with narrow focuses, the potential to build a platform can connect innovation—even from a small company—with a company’s consumer promise. For example, the ability to go from cheese to yogurt to milk can go a long way in driving venture returns. The key is to expand your brand in a way that makes sense to your consumer.

On Leaders

All panelists agreed: the food tech space produces founders that are passionate like no other. Their passions are often grounded in personal backgrounds. Priti noted this is all the more reason to look for leaders who are willing to hire above themselves, to build a company of giants rather than dwarves; to bring in people willing to play nice with each other, safety organizations and regulators to use their passion to push the industry as a whole forward.

Said James J.: “We care a lot about purpose, and we see that a lot in the food space. The food-climate nexus, what we eat is so tied to the climate mission. We saw it with Beyond Meats and Miyokos.” James looks for a strong moral-ethical compass. Where Silicon Valley began with a “move fast and break things” approach, it did, in fact, break a lot of things. “You can’t break those things in food,” he said. “You have to think about your food stack and ethical responsibility.“

Jay also noted he looks for how an entrepreneur reacts to feedback. “You have to respond, but can’t go so far to one extreme that you’re hammering one thing,” he said. “You also can’t be a leaf in the wind reacting to every piece of feedback.”

Aylon urges companies he helps grow to check and be aware of four boxes: founder risk, product/technology risk, market risk, and operation risk.

Coronavirus’ Industry Impact

Like every industry, coronavirus has significantly impacted flow. Said Priti, COVID-19 has forced the industry to double down on food safety and be super conscious about supply chains—where does our food come from? However, their investment hasn’t really changed. “Moving fast without having to meet in person was already a practical strategy for us,” she said. “Things might take a bit longer, but the work needs to be done, and from that standpoint its been business as usual.”

James J. noted potential market shifts, where an economic tightening might result in them looking more at brands that can be affordable to the consumer. CPG, consumer-package goods, has at many companies been reworked to CWG, consumer-wellness goods, post-COVID. Wellness and the immune system are areas they’re doubling down on.

To quote Vladimir Lenin, James J. said “’There are decades where nothing happens and then there are weeks where decades happen.’ Telehealth, grocery delivery, the food category, have seen massive lifts in the past months. The plant-forward movement of people who want to eat less animal products has been given a boost by COVID.”

At his fund, Jay sees that COVID-19 has highlighted some weaknesses in the meat production system, especially to consumers, where the ‘just-in-time’ strategy of the meat supply chain has shown to be a weakness, and could afford be more resilient.

COVID-19 has also driven consumers to retail. On the challenges side, companies that had food-service oriented strategies have had to reorient themselves to use other sales channels. On the opportunity side, some customers are willing to buy more food online, which has opened up the opportunity for some plant-based companies to sell direct-to-consumers and collect information on their consumers to improve their operation.

At Eclipse, Aylon has seen similar results. “We were fully in foodservice and things were going really well; we were in Google and launching nationwide and COVID hit and revenues all but disappeared,” he said. “We saw we were overexposed to one channel and through channel exploration we found something incredible. We’re now available in one location at retail as a test and it’s going really well. We also launched through DoorDash and UberEats in San Francisco. We now have nationwide shipping, the DTC model in a way strengthens our brand as a food company.”

The answers reinforced the fact that business models that excite are those that are multi-channel and nimble brands. If brands have the ability to go from retail to digital, from food to beverage, and even explore the subscription model, they’re better served to weather changing circumstances in an industry with the ability to itself change how we see food forever.

Biocom FoodTech Committee

Biocom recently formed a FoodTech Committee to serve our members in this new and emerging space, opening up discussions on best practices, regulatory/compliance, sustainability practices, and other related topics. For more information on the committee and how to join, please contact Cheryl Zuckerman.