From Supply Chain to SuperFood

10th December 2018  

by Raffaella Bianchi, Analyst Intern at U-Start

“To save the Planet, let’s start by destroying the food chain. Evidently, what I just said is a provocation, but what I really mean is that to go forward and develop the food sector, it is necessary to rethink, review and reinvent the whole system”.

This is the message that Peter Kruger, CEO of Startupbootcamp, start-up accelerator focused on the FoodTech sector, wanted to pass on at the annual inauguration of the 2018 FoodTech DemoDay, the introduction day for the eight start-ups participating to the incubation program. Since several years ago the problem of environmental sustainability is strongly felt theme and it has been discussed under different perspectives, such as water scarcity, excessive soil exploitation caused by agricultural production, deforestation, an especially relevant in this period, the destruction of oceanic ecosystems, to which contributes the number of plastic waste and toxic material that harm maritime biodiversity.  The current scenario, combined with the innovative context that was developed in the past few years, has however shown some positive points and improvements due to the foundation of numerous start-ups that propose healthy and environmentally aware nutritional solutions, through which they are trying to re-discuss and correct the old habits. In the past few years, incidentally, we have witnessed a rise in the number of actors who offer classic products, but under an innovative light. The FoodTech sector will seemingly offer many possibilities and new ideas due to the huge technological advancements made.  


Innovation at the service of nutrition and health

Due to technological and scientific advancement, what we could label the old food system, that covered the entirety of the food chain, from production to distribution, is being completely revolutionized. There is an always greater practical application of the knowledge and technological tools, especially in the chemical, bio-tech and genetic field, for the resolution of common problems such as the improvement of food safety and of problems of nutritional scarcity. You can in fact add minerals, vitamins and other nutritional properties to foods to customize them according to specific needs to be meet, such as allergies, intolerances, deficiencies and diseases. At the same time, it is possible to keep the production controlled by increasing the storage time of the products and allowing the seasonal availability of many foods. When we talk about start-ups in the FoodTech sector, we consider all those companies that aim to improve and re-invent the food sector through the use of new technologies in all its different phases: from the preparation and creation of the ingredients (like ALOHA, a New York start-up that offers a series of natural products derived from plants, and SuperMeat, an Israeli company that recreates chicken meat in the laboratory), to the assembly and / or delivery of food products, which include not only companies that offer ready-made dishes (like Deliveroo and Foorban) but also those that offer meal-kits to prepare at home (such as Blue Apron). The boom in investments in the food technology sector began in 2014, due to the increasing shift to on-demand consumption coupled with the strong interest of investors in this market. As reported in graph 1, in 2014 there were 818 deals in the FoodTech sector, for a total amount of 5.1 billion dollars. The positive wave of interest for the sector was confirmed during the following year, in which investments recorded a significant increase of 67.4%, from 5.1 billion to 8.6 billion dollars, while the number of transactions increased by 52.9%, reaching a total of 1.251 deals. Some important funding rounds to remember are the $ 108 million series D round of Impossible Foods, an American start-up that produces "meat" derived from plant products, with UBS lead investor, and the late stage series H round led by the German-based Rocket Internet for Delivery Hero, a German delivery start-up company, which raised 496 million euros. After a slight decline of the total amount invested in 2016, 2017 reverses the situation, confirming the vivid interest from investors and the potential for development of the sector, with a total of 10.1 billion dollars invested (an increase of 29.4% compared to the previous year), and a total of 994 deals. The decrease of almost 17% of the number of deals compared to 2016 suggests that investments have gradually focused on the follow-on of companies that already have positive results and on a few promising new companies, indicating that after a few years the disruptive and promising business models are better defined and that the investors themselves are more experienced and make more targeted and weighted choices. Deliveroo had particular relevance, thanks to a $ 385 million round with which it reached a valuation of over 2 billion, and among whose investors we find Accel Partners, H14 and the U-Start Club; and the $ 17 million Series round of Memphis Meats, led by DFJ Venture Capital and with the participation of Bill Gates.

Graph 1: Total invested and number of deals in the FoodTech industry from 2014 to 2017

Source: AgFunder Agrifood Tech Investing Report 2017


Up and down

Since FoodTech is a very wide sector, it is possible to recognize two macro-trends within it: Upstream and Downstream. The first category includes all those start-ups that offer finished products or raw materials developed in the laboratory thanks to technological tools; vice versa, with the latter we mean all those start-ups that offer a service downstream to the consumer and that are therefore focused on the renewal of the distribution chain. This clarification is useful to understand more deeply how investments are moving within the sector. In particular, from graph 2 it is clear that the investments that fall in the Upstream category have seen a constant increase in the amount collected. In fact, it goes from 2.5 billion dollars in 2014 to 4.2 billion in 2017.

Graph 2: Total invested and number of deals in start-ups Upstream and Downstream from 2014 to 2017

Source: AgFunder Agrifood Tech Investing Report 2017

The high and constant growth of investments confirms the strong interest in the practical application of scientific technologies in the sector, contrary to the Downstream category which shows a more fluctuating trend of total amount invested, although increasing over the years (It went from $ 2.59 billion in 2014 to $ 5.90 billion in 2017). This shows that there is more room for growth and interest in the first channel than the second, where various competitors offer services that are very similar to each other and difficult to scale over the long term, and investors are more focused only on certain specific companies.

By focusing on the type of rounds recorded during the last year, it can be seen in graph 3 that for both macro-categories the deal number is particularly high at the seed stage and then decreases exponentially until the series D, with a subsequent recovery for the following stages (late). The number of deals at the Upstream level remains always slightly higher than in the Downstream one, probably because the start-ups belonging to the first category need more funds for research and development in the laboratory, especially during their first phases. Moreover, for investors it is more profitable to invest in this type of start-ups in the first years of life to obtain a high profit in case of exit, because thanks to the endogenous value of the product the company's valuation generally sees a rapid growth over time. This increased need for financing is not only reflected in the number of deals made, but also in the total amount collected. In fact, investments are mostly concentrated at the early stage level. The decrease in the amount invested in the last phases is an indication that, once the technology suitable for production has been developed, start-ups need fewer sources of funding as the product is now ready to be launched on the market and the company becomes able to bear expenses more easily. Conversely, downstream investments are growing strongly in the most advanced series. In this case, when the start-up business becomes more defined and secure, investors are more likely to invest a greater total amount than in the early stages in which the products offered by the various competitors are very similar. In these phases, start-ups aim to diversify and innovate the range of products offered and focus their attention especially on valuation-growth.

Graph 3: Total invested and number of deals per round typology in start-ups Upstream and Downstream during 2017

Source: AgFunder Agrifood Tech Investing Report 2017


Plant-based meat and 3D pasta: success-cases

PRotera: Founded in 2015 by the four founders Ariel Alvarez, France Navarrete, Juan Carlos Duarte and Leonardo Álvarez, Protera is a US based company in San Francisco that produces proteins and enzymatic solutions for companies operating in the food industry. The goal is the production of proteins and enzymes able to reduce saturated fat levels in foods while maintaining aroma, taste and sensitivity. The production of proteins and enzymes takes place through the platform created by Protera, called Molecular Affinity Dynamics Interface (Madi), based on the use of Artificial Intelligence (AI). Currently Madi allows the conversion of saturated fats into unsaturated fats in most vegetable oils and works at a speed 15 times higher than that of competitor technologies, allowing results to be obtained in just two minutes. Madi is also very versatile: thanks to the use of artificial intelligence it quickly adapts to various functions and can be applied to different types of industries, such as pharmaceuticals and chemicals. Protera participated in the acceleration program organized by IndieBio and, with a total collection of $ 500.000, it has among its investors SOSV and Hi-Food, a corporate member of the U-Start Club.

BluRhapsody: Not always innovation in the food sector means innovation of raw materials. An example is given by BluRhapsody, a start-up created by Barilla's VC fund, Blu1877, which has embarked on a path of technological innovation to produce pasta in 3D. BluRhapsody uses the groats deriving from the finest grains, with the possibility to customize the product with special flours. The start-up works the dough with artisanal method in small quantities that are finally compacted to be used as cartridges in the 3D printer, to maintain the right consistency and thus be able to create innovative forms inspired by nature and art, such as petals, snowflakes and amphorae. Thanks to technological innovation, it becomes possible to give vent to one's imagination, creating for the consumer a sensorial and emotional journey through the cooking of a simple and natural product.

Finless Foods: Due to the high level of waste of the fish caught and the pollution of the oceans and seas that negatively impact the marine ecosystem, Brian Wyrwas and Michael Selden founded in 2017 Finless Foods, a biotechnological start-up with the aim of recreating fish in the laboratory for human consumption in a sustainable and eco-friendly manner. Through the use of stem cells harvested from living fish, Finless's goal is to reproduce the meat of the fish: in particular, yellow fin tuna cells are used, directly in the laboratory, allowing in this way to offer an excellent product quality without the presence of mercury and with a high respect for the environment. Launched by IndieBio incubator, Finless Foods has raised a total of 3.5 million dollars from funds such as Draper Associates, SOSV and some members of the U-Start Club.

Memphis Meats: The goal of Memphis Meats, a start-up founded in San Francisco in 2015 from the idea of Nicholas Genovese and Uma Valeti, is to offer its consumers meat created in the laboratory that is not only tasty, but also attentive to the problems of industrial, environmental and ethical sustainability. The scientific process is similar to the one adopted by Finless Foods, thus using stem cells taken directly from live animals and fed in the laboratory. Memphis Meats can be considered the leading start-up of change and innovation in FoodTech thanks to the extraordinary progress achieved: in March 2017 the company introduced the first slice of artificially created chicken meat. In addition, it has been in the front line to push for regulation-approval of these products. In these three years of activity, Memphis Meats has raised a total of 20 million dollars from well-known funds in the world of VC such as IndieBio, New Crop Capital, Tyson Foods, Atomico and private investors such as Kyle Vogt and Bill Gates.


Towards a new food economy

With the planet's population expected to reach 9.6 billion by 2050, the food system as we know it today will hardly be able to sustain the quantity and quality of food currently offered without the help of modern technologies. These are in fact, based on data collected, gaining an increasing market share. Furthermore, using these new technologies would help to counteract the high food waste that the current system produces. In the United States, about 40% of all cultivated food is wasted and the country spends more than 218 billion dollars (equal to 1.3% of the national GDP) cultivating, transforming, transporting and disposing of that unconsumed food. Numbers in other parts of the world are often even higher. These inefficiencies in the food chain cause, over the world, over 2 trillion dollars a year of wasted food. For these reasons, the FoodTech sector could start a new food economy that, by offering new opportunities to a wider group of entrepreneurs and investors, would be reflected in greater competition even for small and medium-sized enterprises. In addition, the FoodTech sector has the advantage of always being very innovative and catchy, thanks to the creative, dynamic approach and the countless scientific applications to produce and market products with a highly positive impact on the environment and society. In fact, the potential opportunities offered by the use of scientific knowledge in the food sector are so vast that they can be considered infinite and vary from the creation of new forms of simple products, thus importing new aesthetic canons to traditional cuisine, to the creation or modification of common consumption. The latter case, in which the focus is not so much on the aesthetic aspect of the product or logistic of the production chain but on the nutritive properties of the product, can have highly positive results when global demand for food will rise in the future. Finally, food recreated in the lab will also have a huge positive impact on both environmental sustainability thanks to the saving of resources, such as the reduced consumption of water, diminished land exploitation and lower gas emission, and on the creation of new varieties and food types more resistant to weather adversities and with improved nutritional elements designed on the specific needs of consumers and that can help to reduce serious problems related to allergies, diseases and, more generally, hunger in the world.