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Daily news and analysis about the food tech revolution

Pitchbook

Pitchbook: Food Tech Funding Dropped Almost 60% in 2023

The food tech sector navigated rough waters in 2023, as venture capital funding experienced a significant downturn for the second consecutive year. According to Pitchbook’s Q4 2023 report, food tech funding saw a steep drop of 59% in annual VC deal values, plummeting to $9.2 billion from $22.5 billion in 2022. This contraction is in step with an overall deceleration in venture investing due to a combination of macroeconomic challenges and sector-specific headwinds.

Alex Frederick, the report’s author, spoke with The Spoon about some of the factors driving the decline.

“We’re seeing high-interest rates and a closed IPO window continuing to constrain VC activity,” Frederick explains. “Additionally, annual food price inflation, although slowing to 2.2% this year, has cumulatively pushed food prices to record highs for consumers. This presents a significant challenge for innovative startup CPG products attempting to enter the market at a premium.”

According to Frederick, the deceleration is particularly pronounced in specific subsectors of food tech. “The whole e-commerce space, including online grocery and restaurant delivery, is down 67% in terms of dollars in just one year, and 87% since the peak in 2021,” Frederick said. “This major deceleration is largely due to an investor shift from growth to profitability and positive unit economics.”

Investment in technology for restaurants and retail has also faced a sharp decline, dropping 71-72% over the past year and 85% over the past two years. Similarly, the alternative protein space, once the darling of food tech, has seen a deceleration, with investors increasingly focusing on companies that can demonstrate a path to profitability.

I asked Frederick about picks and shovels type of investments, and he said while the numbers don’t necessarily show up in the aggregate funding, he is seeing some increased activity by companies who are building out inputs and production for alternative proteins, including a focus on alternatives to growth serum and building fermentation bioreactor infrastructure.

“There’s just more attention, a growth of stakeholders, and a focus on building out all of the inputs and infrastructure they would need to grow that industry.”

You can see my full interview with Alex below and can download an excerpt of the report on the Pitchbook website.

The Spoon Talks With Pitchbook About Q4 2023 Food Tech Investment Landscape

Food Tech Funding Drops 21.5% in Q2, But Alt-Protein Proves Resilient With Only 9% Decline

According to a new report from Pitchbook, total food tech venture funding declined by over one-fifth in total deal value in the second quarter of 2022, dropping from $6.9 billion in Q1 2022 to $5.6 billion in Q2 2022.

The drop in deal value corresponds with a decrease in the total number of deals, which declined in the second quarter by 23%, going from 359 funding deals in Q1 2022 to 275 deals completed in Q2 2022.

Q2’s decline marks the fourth straight quarter in which food tech funding has dropped. Total investment is down 45% ($4.5 billion) from the sector’s high water mark of $10.1 billion reached in the first quarter of 2021.

Food tech isn’t alone in its pullback. The sector’s quarter-over-quarter decline in funding is just slightly less in relative terms than the overall venture capital market, which dropped 23% from the previous quarter. At $5.6 billion in total funding in Q2 2022, food tech represented about 5.2% of total venture capital in the quarter, compared to 7.6% of total funding in the first quarter of 2021 when food tech funding had reached its high point.

As usual, the total funding for the sector was dominated by a handful of mega-rounds, including Wonder’s $350 million series B. Other big rounds include Upside’s $400 million series C and Gopuff’s $1.5 billion, which Pitchbook says closed on May 18 (though word of the forthcoming round leaked late last year).

Gopuff’s funding comes at a time when many investors and industry watchers are reevaluating the business model for the ultra-fast grocery business, a sector responsible for many of the mega-rounds that pumped up the food tech sector’s total deal value over the past year and a half. Gopuff, like many of its peers, announced layoffs over the past few months and that they would shut down a good chunk of its distribution network. Essentially everyone in the ultra-fast-grocery is attempting to slash costs as they look to extend runways as they recognize they’ve seen their last big funding round for a while.

So will food tech investment continue to decline? My guess is yes, at least in the near term, in large part due to recessionary fears, the continued tightening of monetary policy in the US, and broader geopolitical uncertainty. The absence of future investment into ultra-fast grocery may also lead to near-term drops compared to previous quarters over the next year, but the good news is that as the inflated valuations from the ultra-fast grocery recede into the rearview mirror, overall declines quarter over quarter should decelerate.

One particular sector I am keeping an eye on is the alternative protein segment, which has held up better than the overall food tech space. According to the Good Food Institute, alt-protein funding declined only 9% quarter over quarter, a much smaller decline than both the broader food tech industry and the overall venture market. Alt-protein has seen its share of late stage high-value deals (like Upside, Impossible, Eat Just, etc), something which looks to have continued into the most recent quarter. It’s also seen continued investment across all three major sub-segments (plant-based, precision fermentation, and cultivated/cell-based), which may have contributed to its relative resilience. If any of the three might be susceptible to potential pullback, it’s plant-based meat, a market that is proving to be both crowded and, in some cases, one in which some brands struggle to bring back repeat customers.

Long-term, I expect investors in future food to continue to be bullish, especially as we start to see government money start to enter the alt-protein market. Globally, governments are beginning to view future food as an important part of national security strategy, and while the US is lagging a bit in that regard – food was not a major part of the recent climate change-centric Inflation Reduction bill that just passed – we are beginning to see state governments start to invest in the space. While the alt-protein space has lacked the same type of government taxpayer support as that of alternative energy, a moderate amount of future growth in government support should catalyze future private investment in the space.

PitchBook: More than $10B Invested in Grocery Startups This Year

We’ve been saying that investment in grocery startups is downright frothy this year, and now PitchBook has put a number to all this VC activity. CNBC reports that venture-backed grocery startups have raised $10 billion so far in 2021, according to PitchBook’s data, vaulting past the $7 billion raised in the sector last year.

Part of the reason for the big jump is the mega-rounds that some grocery startups around the world raised during the first half of this year:

And that doesn’t even count all the other, smaller fundraises that have happened for companies like Food Rocket and Fridge No More.

The pandemic certainly had a hand in driving all this frothiness. Lockdowns, social distancing and general fears around catching COVID-19 pushed record amounts of people into online grocery shopping in 2020. Additionally, there are a wave of startups like Gorillas, and Gopuff and Fridge No More that are creating an entirely new type of on-demand, speedy delivery model. These companies operate dark stores in neighborhoods with a small delivery radius, promising grocery delivery in as few as 10 minutes. This is a new concept for most shoppers, and the allure of tapping a few buttons on your phone and food arriving minutes later could upend the way we buy groceries.

CNBC adds that all of this massive funding is disproportionate to the opportunity in the online grocery category. As such, there could be a wave of consolidation coming soon. This is true whenever money floods a particular sector, and it is especially worth considering given the fluctuating state of the pandemic.

Questions around how much consumers will stick with online grocery shopping once the pandemic recedes remains unclear. Vaccines have helped abate the virus, but they are rolling out at different paces around the world, and viral variants threaten to bring resurgences in case numbers. Brick Meets Click reported that online grocery shopping dropped to $7 billion in sales this past May, down 16 percent year-over-year. But that $7 billion figure is still 3.5 times higher than pre-pandemic online grocery sales.

But none of what might happen can change what’s already been done. That $10 billion has been invested, now we’ll just see which companies can bring bring returns.

PitchBook: Food Tech Companies Raised $4B in Q4 2020

Food Tech remained an attractive target for venture capital during the last quarter of 2020. According to data from PitchBook released last week, food tech companies raised a total of $4 billion during the quarter.

According to PitchBook, the pandemic spurred much of the continued investment in the food tech space as consumers adopted new behaviors around online grocery shopping as well as restaurant takeout and home delivery.

The strong finish to the year in food tech investment is not that surprising, given previous financial tracking. Last November, a report from Finestere Ventures, using PitchBook’s data, found that $8.37 billion had been invested in food tech companies throughout the first three quarters of 2020.

Other findings from PitchBook’s Q4 report include:

  • Lab-grown meat companies raised more than $383 million in 2020
  • Funding for cultivated agriculture companies hit a record $1.6 billion in 2020. Investment in that space is expected to accelerate this year.
  • Increasing consumer demand for plant-based meat and dairy is expected to create annual growth rates in that sector of around 20 percent and revenues of around $3.3 billion in the U.S.
  • Retailers have responded to the surge in online grocery with investments in technology that will, in turn, spur further e-commerce adoption.

These are all trends that we’ve been watching closely here at The Spoon. Cultured meat in particular has already seen a flurry of activity already in Q1 of this year. CellulaREvolution, Future Meat and Mirai Foods have all raised funding over the past month and a half. With Singapore having become the first country to approve the sale of cultured meat, expect more regulatory dominoes to fall and more investment in the space.

Report: $8.37B Invested in Food Tech During First Three Quarters of 2020

Venture capital flowed into both ag tech and food tech investments during the first three quarters of this year, according to a new report out today from Finestere Ventures.

Created in collaboration with PitchBook, the report found that AgriFood tech startups raised a total of $11.6 billion as of the end of Q3 2020. AgTech investment totaled $3.07 billion during that time (up from $2.7 billion invested in all of 2019), and food tech investment totaled $8.37 billion through Q3 (up from $7 billion in all of 2019). Finestere said that the majority of capital invested in both sectors went to later stage deals, illustrating market maturation.

Like everything else in 2020, the COVID-19 pandemic was a big influence on where investments flowed. Finistere said in its report that indoor farming was a big beneficiary of funding as demand for fresh produce increased along with insecurities around food supply chains. On the food tech side, the pandemic spurred investment in startups in e-commerce delivery and meal kits.

Finestere’s analysis correlates with the more general back-of-the-envelope-style tracking we at The Spoon have been doing around food tech investment. Just between May and June we tracked more than $699 million in funding announcements from food and ag tech companies. More recently, we reported on nearly $1 billion in food tech funding just in the month of October.

“With more than $46B of venture capital flowing into ag and food advances over the past decade, AgriFood tech has become a focus of tremendous investor interest. As COVID shone a light on some of our food and agricultural production system fragilities that need strengthening, capital flowed in to support the trend to dine at home,” Arama Kukutai, co-founder and partner, Finistere Ventures said in the press announcement. “While substantial progress has been made, there is still a long way to go. The investment trend we are seeing is long overdue in a massive sector that has been under-invested, and there is a lot of room for further growth. Building a sustainable ag and food ecosystem is absolutely critical, and it will take a lot of time and more capital.”

Juicero, Sprig and Teforia Among 2017’s Notable Startup Failures

PitchBook, the financial data and software company, released its 2017 Startup Graveyard list today, highlighting eleven companies that raised more than $1 billion combined in VC funding, and all of whom shut down this year.

Of the eleven notable startup failures, three were in the food tech space: Juicero, Sprig and Teforia. Together, these companies had raised $197 million and had a valuation just shy of $700 million. That they all met an untimely demise should serve as a cautionary ghost story for any company looking to get into, or get more funding for, a high-end drink device or meal delivery service.

Juicero, creator of the connected (and expensive) juice machine, raised $121 million in funding and had a very Icarus-like valuation of $459 million. That is, until word got out that you could squeeze the juice packets with your hands, decimating the company and any value it had created.

And just last week Teforia, the maker of the $1,000 tea infuser, reached a bitter end after raising $17 million (for a tea maker) and reaching a $35 million valuation.

Then there was Sprig, which waded into the competitive world of on-demand food delivery. The service raised $59 million and hit a valuation as high as $169 before shutting down in May, with the company noting the challenges of scaling meal production and delivery.

While the food tech startups on the list raised their fair share of VC funding, its not like the sector was that egregious. Juicero, Sprig and Teforia almost seem frugal compared with Jawbone, which raised a whopping $542 million and was worth $1.5 billion at one point before crashing and burning.

Nor should this list be interpreted that food tech is dead or on life support. Far from it. There are a number of successes to celebrate this year such as InstantPot, Anova and PicoBrew. And the meal kit companies… well, to be honest, there will probably be more hardships to endure as the space matures, and its likely only a company like Amazon has the level of infrastructure needed to truly make it work.

Food tech has a lot of promise (everyone eats and drinks), and its share of pitfalls. Earlier this week, Mike Wolf here at The Spoon wrote a great piece examining why some smart kitchen companies fail while others succeed. Two of his takeaways were that products should offer consumers new capabilities that would otherwise be too difficult or time consuming without it, and a product should be either affordable or provide immense value.

If you can fulfill those criteria, it’s less likely anyone will dance on your company’s grave.