However, interest in vertical farming and plant-based meat is waning.
Contrary to the pessimistic trend in technology, European businesses focused on sustainable food raised a record amount of money in 2017.
According to new research from Dealroom and FoodLabs, a Berlin-based foodtech investor, the industry attracted $1.9 billion in 2022. This encompasses everything from precision fermentation to crop analytics. That amount is 20% more than the total for 2021.
The challenge that sustainable food businesses are attempting to solve is significant. Over half of the greenhouse gas emissions attributed to the global food system—which make up 30% of all emissions—come from animal farming.
Investor interest in foodtech is higher than that of agritech.
By year ($m), venture capital investments made in European foodtech and agritech firms
Agriculture continues to be underfunded.
In comparison to companies focused on farming and agriculture (agritech), companies focused on food items themselves (foodtech) had a substantially stronger year in 2022.
Funding for foodtech startups increased by 30%, but only by 5% for agritech startups.
Despite the fact that, in 2021, the food system’s largest source of greenhouse gas emissions—7.1 billion tonnes—will come from agricultural agriculture. Investors claim that this industry still lacks innovation and funding.
Tomer Strikovsky, investment manager at ETF Partners, spoke to Sifted at climate tech conference HackSummit on Thursday. “It’s a huge market opportunity, but we haven’t seen many exits in this space in recent years and farming businesses are tight on margins as it is, so spending on yield generating software and capex investment is not top of mind for them,” he said. But the businesses that manage to do so will be highly intriguing.
The most venture capital funding in agritech has thus far gone to businesses in vertical farming, but funding peaked in 2021. Since then, the industry has been impacted by bankruptcies, layoffs, and growing dissatisfaction with the business model.
Support for vertical farming is dwindling
By year ($m), venture capital investment into European agritech subsectors
Slowly, VCs are starting to pay attention to sustainable fertilisers, sustainable aquaculture, and regenerative agriculture.
Increased crop yields and the restoration of deteriorated soil are promised by regenerative agriculture, which can subsequently be used to store carbon. Agreena, a Danish firm that uses regenerative farming methods to allow farmers to trade carbon credits, acquired €46 million in Series B funding in March of this year. Another firm encouraging farmers to switch to regenerative farming is Klim, based in Berlin.
The capacity of Earth to regenerate needs to be increased, according to Antony Yousefian, partner at early-stage agritech investor The First Thirty, which specialises in soil entrepreneurs. “Soil is the most undervalued asset in the world and is depleting quickly, so its value is rising; we need to invest in companies that regenerate it, which is agritech, not foodtech,” said one expert.
Demand for cell-based meat is increasing
Alternative proteins have long served as the industry’s mascot, but like vertical farming, the sector is currently experiencing some difficulties. Large listed alternative meat companies like Beyond Meat have experienced a drop in stock price (it is now reportedly raising $200 million) and sluggish growth, which has caused instability in the industry.
Since the beginning of the last seven years, 58% of the investment for alternative proteins has gone to plant-based foods, including Beyond.
Alternative proteins made from plants typically receive the most funding.
Venture capital investment by type into European firms developing alternative proteins from 2016 to 2022
That remained the case in 2017, however businesses developing cell-based proteins (where stem cells are duplicated in labs to create products that resemble meat) experienced a significant rise.
In Europe, cell-based meat has not yet been given the all-clear for human consumption. Despite this, Manuella Cunha Brito, an investor at the venture capital firm Trellis Road, stated at the HackSummit that she wasn’t shocked by the high levels of funding that European cell-based meat firms received in 2017.
VCs see potential in cell-based meat Alternative protein subsectors in Europe by year ($m) of venture capital investment
Positive signals from Israel and the US suggest that the market may arrive sooner, she believes. Earlier this year, America approved a chicken product made from cells. According to Cunha Brito, there is a belief that the regulatory environment will change over time.
She continues, however, that as the market expands, it will become harder for early-stage alternative protein innovators to stand out from the competition and attract investors.
This, along with the general slowdown in funding, is encouraging many foodtech startups to work together rather than compete. For instance, Kynda, a biotech business from Hamburg that creates bioreactors for biomass fermentation (a method of manufacturing employed by certain alt-protein startups), switched from generating its own alternative meats to creating the machinery its rivals require.
Investors anticipate additional mergers and acquisitions in the sector.
