In the third quarter of 2023, venture capital investment in the food tech sector continued its decline, marking the eighth consecutive quarter of decreased funding, according to a report by PitchBook. The report reveals that there were 205 deals amounting to $2 billion in investments during this period. This represents a 13.9% decrease from the previous quarter, which saw 268 deals worth $2.2 billion. Furthermore, the year-on-year decline is over 71%. PitchBook defines “foodtech” as encompassing various sectors, including alternative protein, bioengineered foods, e-commerce, and restaurant and retail tech.
Key Takeaway
Venture capital investment in the food tech sector has declined for the eighth consecutive quarter, with a decrease in deal activity and funding. Challenges in the market include high capital expenditures, lengthy R&D processes, and difficulties in getting consumers to adopt premium plant-based products. However, despite the current downturn, the food tech sector still holds promise for disruption and innovation.
Challenges in the Market
The report’s author, Alex Frederick, a senior analyst at PitchBook, expressed disappointment at the continued slide in deal activity. However, he also noted that the food tech market is still in its early stages of development. Despite the slowdown, one of the positive highlights of the third quarter was the successful initial public offering (IPO) of Instacart, which generated much excitement. However, Frederick mentioned that there hasn’t been a significant rush of other tech startups seeking to exit through IPOs. The closed IPO window is expected to pose ongoing challenges to venture activity in the sector.
Insights from Investors
Meir Rabkin, founder and managing partner of climate tech venture firm Blue Vision Capital, commented on the resilience of the climate tech sector in the face of recent market challenges. In contrast, Rabkin described the food tech space as more difficult due to relatively high capital expenditures and lengthy R&D processes. However, he also acknowledged the space’s potential for disruption and innovation.
Cristina Rohr, managing director of food and agriculture investments at impact investment firm S2G Ventures, noted that capital constraints can lead to more resilient business models. Founders are forced to think in more capital-efficient ways and consider alternative forms of collaboration, such as licensing their models. Rohr also discussed the focus on scalability and achieving positive unit economics among food tech companies, emphasizing the need to be cost-competitive with incumbent technologies and products.
Decline in Plant-Based Investment
In the alternative protein sector specifically, the report highlights a decline in investment in plant-based foods. In the third quarter, $724.2 million was invested across 46 deals, which is significantly lower than the peak seen in the same period of 2021. Despite this, deal activity within the plant-based sector is showing signs of improvement for the second consecutive quarter.
PitchBook’s Frederick attributed the struggles in the plant-based sector to challenges in getting new customers to try premium products. Factors such as price, taste perception, and the perception of processed foods hinder consumer adoption. In addition, the competition for retail shelf space is intense, and it is crucial for companies to deliver value. Despite these challenges, plant-based beef companies maintain a 2% price premium over conventional meat, indicating an opportunity for growth and market positioning.
