Industry News

Investors see the potential in plant-based alternatives

Plant-based food startups have enjoyed several years of strong growth amid a rising tide in flexitarian eating styles as consumers look for more ways to leave animal products off their plates without having to give up their favorite foods. Those trends have spurred investment in the sector, with new records set last year.

Investors put $4.4 billion into plant-based protein ventures from 2010 through 2020, with $2.1 billion of it invested in 2020 alone, according to data from the Good Food Institute. The top investment last year was a $500 million investment in Impossible Foods’ Series F round. 

“Part of the reason so much money has flooded in was that the Beyond Meat IPO has drawn a lot of people to the space,” said Peter Bodenheimer, a veteran investor and former general partner at venture capital firm SOSV. “Then Covid showed how precarious supply chains are.”

The biggest single investment last year was a $500 million Series F round in Impossible Foods, which highlights a characteristic of some of the more recent investments in the plant-based arena. 

While startups with intriguing concepts are attracting investors, many of the bigger rounds are going into more established companies with proven products that need to continue scaling and invest in new product development, said Bodenheimer. 

One such company is Eat Just, the creator of plant-based JUST Egg. 

Eat Just recently announced major investment rounds including a $200 million March round led by the Qatar Investment Authority that will allow the company to continue scaling production, increase research and development and expand to new global markets.

That investment followed a decade spent developing the product and proving there was a market for it, founder and CEO Josh Tetrick said earlier this year. In the early days, courting investors meant convincing them that there was a problem with the way traditional eggs are produced and that the company could use plants to make an alternative that was equal in quality.

“It’s one thing to say that today, but it’s quite another when not a single egg from a plant has been sold. Pre JUST Egg, it does require a lot more of a leap. Even if you accepted that you  can build a brand around it, you’re still left with the question ‘Are people in Alabama going to buy it? Are people in New York going to buy it?’ It’s different when it’s already out there,” Tetrick said. 

The types of investors have also changed from the early days, he said. 

Major investors like QIA wouldn’t have been interested in the company when it was a startup, they’re seeking more established ventures with proven products. Meanwhile, other investors are seeking just the kind of innovative startups with the potential to be the next big thing. 

An investor for every startup?

Sacramento-based The Better Meat Co. launched in 2018 and in 2019 raised its pre-seed round of $1.6 million that year as it worked to perfect a plant-based product that can either be used to create blended meat products or vegan meat alternatives, says founder and CEO Paul Shapiro, a 30-year vegan, former lobbyist and author of the book “Clean Meat.”

The seed round of $8.25 million was set to close early last year, but the pandemic created delays and pushed back the round until last July, Shapiro said. 

The early months of the pandemic made investors hit the brakes for a bit, Shapiro and Bodenheimer both said.

Instead of focusing on new investments, they spent those weeks shoring up existing portfolio companies and helping them stay afloat. The pause was temporary and, fairly soon, evidence of growing demand led investors back to seeking new opportunities.

The success of both Beyond Meat and Impossible Foods brought many new players into the plant-based burger space and today investors seeking early-stage players are looking far beyond beef replacements, Bodenheimer said.

“Most of the money I’ve seen flowing in has been in alternative space,” he said. “Like chicken analogs, seafood in particular is a very big spot. They’re breaking into every part of the food system where there are animal proteins.”

Plant-based cheeses are an increasingly hot segment, he said, as are companies innovating to make meat out of fungi. 

Exit strategies

Some plant-based startups have proven that going public in high-profile IPOs can be profitable. Beyond Meat raised about $241 million in a 2019 IPO, which valued the company at $1.5 billion. The value of the Beyond Burger maker surged over the next three months to $13 billion and it has continued to be the example cited when evaluating the potential for profits in the plant-based food sector.

More recently, a plant-based dairy alternative made that list. Last month, Sweden-based Oatly went public in the US last month in an IPO that raised about $1.4 billion. 

IPOs like these make news, but the more likely exit strategy for plant-based startups is acquisition by a bigger player, Bodenheimer said. 

Nine out of 10 of the biggest meat companies in the US had acquired a plant-based brand or started their own by the end of 2019, according to Good Food Institute data. Going the acquisition route offers the big companies access to a brand that has proven itself in the market, investors see a return and the small brands get the resources they need to keep growing.

In 2017, global player Nestle acquired plant-based brand Sweet Earth, which had been making a name for itself with a line of frozen vegan and vegetarian meals. Today, the Sweet Earth line includes more than 75 plant-based meat alternatives, including the Mindful Chik’n line launched earlier this year, its first hot dog and a new version of the beef-like Awesome Burger. 

Investors and plant-based entrepreneurs agree there’s plenty of potential in the space with demand for meat and more sustainable alternatives forecast to continue growing. 

“There’s the recognition that there’s no possible way to produce the quantity of meat needed to satiate humanity’s demand for it in the future,” Shapiro said. “Where’s all that meat going to come from? We’re not going to be farming on the moon or Mars. We have one planet to farm and we’re already destroying it. We’re either going to have to eat less meat or produce meat without animals. Investors are seeing that.”

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