Food and beverage are hot again.
After a sluggish 2016, a strong first quarter of 2017 suggests investment in the food and beverage sector could be set for a comeback on an annualized basis according to CB Insights. This would be a reversal from the past couple years, which has seen food and beverage sector investment decelerate since hitting a peak of $787 million in the final quarter of 2014.
Not only did last quarter reverse the trend in total annual investment, but also saw an increase in the average funding amount, which has also been on the decline for the past several years, falling from an average of $7.6 million per deal in 2014 to $2.7 million in 2016. The average deal value in Q1 2017 was $6.7 million, more than double the 2016 average.
But Q1 2017 was an extraordinary quarter. A single private equity deal by Food Union, a Latvia-based conglomerate of food and beverage brands, accounted for nearly half ($225 million) of the total investment for the quarter. Backing this deal out of the quarter’s total results in a figure much more on par with past quarters ($289M Q1 2017, $265M Q4 2016, $322M Q3 2016). It’s tough to say whether we’re seeing a true reversal in the decline in investment or just an anomaly resulting from a single high value deal.
Who’s backing food and beverage deals?
While deal value has been on the decline the last few years, the volume of deals has risen steadily since 2012. With the growing activity in food and beverage, several new investment firms have emerged, like CAVU Ventures, New Crop Capital, PowerPlant Ventures and S2G Ventures, that focus solely on this space.
And these funds are growing fast. AccelFoods, one of the early leaders focused on the food and beverage sector, nearly doubled the value of its fund recently, growing from a $20 million fund to a $35 million fund.
Large corporations in this space are also getting the fray, creating incubator and funding branches to foster growth in innovative start-ups. Company-affiliated funds include Kelloggs’ 1894 Capital, General Mill’s 301 Inc., and Campbell’s Soup’s Acre Venture Partners.
What are they investing in?
Since 2013 spices and condiments as a product category have attracted the most funding and acquisition deals. Notable in this sector was the acquisition of Justin’s by Hormel Foods in 2016 for $286 million after raising $48 million.
From a funding perspective, beverages account for half of the top ten most well-funded start-ups since 2013. Cold-pressed juice start-up Suja takes the top spot with $196 million disclosed funding from investors including Coca-Cola, Boulder Brands Investment Group, and Leonardo DiCaprio.
Looking forward, venture capital is seeking out market disruptors for investment. One of the leading categories currently attracting deals is plant-based protein, which has the potential to significantly alter the beef and dairy industry. CB Insights has earmarked plant-based protein as a significant investment category based on the high level of activity in this space amongst what they term “smart money” investors, those with a strong past performance and exit history. Examples of alternative protein are varied and include molecularly engineered meatless hamburgers from Impossible Foods ($183 million raise from Google Ventures, Khosla Ventures, and Bill Gates), dairy-free milk made from peas from Ripple ($43 million raise), and cricket-based snack bars from Exo ($5.3 million raise).
While it’s unlikely that bug based protein is going to overtake the livestock industry anytime soon, the fact that these types of companies are getting funding demonstrates the broad thinking and growth in deal activity in food and beverage. As early indicators show, 2017 is shaping up to be a very interesting year in the investment community, particularly for food and beverage companies.