Dive Brief:

  • Investment in the food technology space for the first three quarters of 2020 is $8.37 billion, which outpaced the $7 billion raised during all of 2019, according to a new report from Finistere Ventures.
  • Late stage startups represented 78% of the capital deployed into the sector, with Impossible Foods, Memphis Meats, LiveKindly and Perfect Day representing some of the largest deals of 2020 to date.
  • Interest in the food space has been growing as the segment has transformed into a safe space for investors looking to see a return on their money. This trend accelerated in light of the pandemic, which marks the first time since 1994 that consumers are spending more money on food at home rather than dining out, according to data from the National Restaurant Association cited by Finistere.

Dive Insight:

Food tech is becoming a larger component of the overall agrifood technology space. According to the Finistere report, as of the end of Q3, agrifood tech startups raised $11.6 billion in funding, and food tech companies made up 72% of those investments. 

Euromonitor forecast food and nonalcoholic beverages to be the only sector of the economy that will post positive growth in 2020. The firm predicts the sector will grow at above 2%, which is slightly below what it posted in 2019. Even legacy companies that were in decline have seen upticks in their sales. Campbell Soup posted a 34.4% increase in its food and beverage segment sales between mid-March and mid-April, compared to last year. However, companies that are peddling trendy products that have really benefitted from a rising culture of consumers cooking and eating at home.

Premium brands and plant-based protein alternatives have seen a substantial increase in revenues as a result of the pandemic. Sales for super-premium and premium brands have increased 1.7% year over year at retailers for the 26 weeks ended Oct. 4, according to IRI data. And SPINS data found that all plant-based meat sales are up 148% compared to 2019 for the 16 weeks ending April 19. Sales within the meal kits sector have also almost doubled year-over-year after sinking earlier in 2020 as these options tap into consumer interest for easy-to-prepare meals with flavorful variety. 

Investors have followed these trends. The Finistere report displayed that meal kits and delivery as well as e-commerce companies captured 57% of the food tech VC in 2020. Investment in alternative proteins in Q1 2020 also topped records

While companies with trendy products are clearly taking the lion’s share of investor money this year, the market is also maturing, according to the report. Within the whole of the agrifood tech space, more money is flowing into alternative proteins, ingredient refinement and supply chain advances as companies develop from nascent startups into powerhouses that are developing a distribution ecosystem to cater to consumers. The growing maturity of the sector is revealed through the $46.4 billion that has been funneled into agrifood since 2010.

Private equity money can accelerate the growth of these food and beverage businesses that are generally resistant to economic downturns. However, with such fierce competition in the space, smaller brands have to fight to pull ahead of the pack and make a name for themselves. For that reason, many investors are looking for brands to grow to a point where they become an attractive acquisition target for larger CPGs looking to reinvigorate their portfolios.

Finistere Ventures Co-Founder Arama Kukutai said in a statement that he does not expect big valuations of these food and beverage companies to collapse anytime soon, but he does anticipate that 2021 will have more startups being “forced to prove both their ability to scale to profitability and deliver return on investment.”  

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