From science to CPG: How money makes the food tech startup world go round

People in white coats and hairnets look at computers that monitor Upside Foods' meat cultivation facility, with bioreactors and many metal tubes, through a window in front of them.
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This is the second installment in a five-part series about the challenges food tech companies face in scaling up. The first story can be found here.

Food tech is born in the realm of scientific possibility and ideas.

But money quickly becomes necessary for companies to grow. And it’s not just a couple million dollars. For food tech companies to scale, they often need to create high-tech equipment, the likes of which have never been built before.

Many of the biggest fundraising rounds in the food space in the last couple of years have been to help companies that don’t even have products to scale up. The largest recipient in this category so far has been cultured meat maker Upside Foods, which closed a $400 million Series C round this spring. Future Meat Technologies, which also makes cultured meat, closed a $347 million Series B round late last year, and Eat Just’s cultured Good Meat division — the only cultured meat company approved to produce a consumer product — got a total of $267 million in funding last year. 

There’s been big money in the fermentation space as well in the recent past. Last year, Perfect Day, which makes dairy proteins through precision fermentation, and Nature’s Fynd, which makes protein from a fungus discovered in a geothermal spring in Yellowstone National Park, each closed $350 million funding rounds. 

The funding pouring into the space shows the way its perception has changed in the recent past.

“Every investor now views alternative proteins as mainstream,” Morgan LeConey, head of food and beverage for financial adviser Nomura Greentech, said at a Future Food-Tech session in June.

Even so, making the funding part work is one of the biggest potential pitfalls to scaling up, said Laine Clark, innovation and entrepreneurship manager at the Good Food Institute, a nonprofit that supports and promotes the alternative protein sector. For them, it is similar to challenges faced by startups in any sector. They need to have enough money to operate, enough financial runway to get to the next step, and they also need to be doing more than just fundraising. 

But the nature of what food tech companies do makes this a challenge. In spaces like cultivated meat and precision fermentation, capital expenditures to design and build manufacturing systems can be astronomical. And as the economy tightens, investor dollars aren’t quite as freely flowing. 

Regardless of the macroeconomic situation, there is still funding available. Clark said some investors are taking more time now to ensure that an alternative protein investment isn’t too risky.

“The companies that are going out for money now maybe are needing to come to the table with a bit more,” Clark said. “Maybe they have to come to the table with a lifecycle analysis in hand, which maybe that wasn’t asked before. Maybe just a little more scrutiny and a little more proof of this is going to be something that we can scale and get to market in a reasonable amount of time, and we have got the taste profile correct.”

People in white coats and hairnets look at computers that monitor Upside Foods' meat cultivation facility, with bioreactors and many metal tubes, through a window in front of them.

Upside Foods employees monitor the bioreactors at the EPIC facility in Emeryville, California.

Courtesy of Upside Foods

Avoiding the ‘Valley of Death of a lot of startups’

Mark Warner, an expert on scaling up and CEO of Liberation Labs, said finances are a particularly difficult barrier to get over as food tech companies work to expand. 

There are not many existing facilities that can be used for tech-enabled food production, Warner said. In slides from a 2020 presentation given through GFI, he estimated that it costs between $25 million and $50 million to build a demonstration scale facility — which is necessary to prove the technology and processes, as well as to figure out how to make a larger capacity of products in a bigger bioreactor.

But at this scale, Warner said, there is no way to make enough product to sell and be profitable. Products made through fermentation can get on the market as long as they receive generally recognized as safe status from the FDA. But in the case of products like cultivated meat, the vast majority of companies cannot sell anything anywhere because there is no government regulatory approval for them.

“When you look at the whole Valley of Death of a lot of startups, a lot of it comes around that middle demonstration scale, because it’s where the cost is the highest, but generally you don’t get a lot of revenue off of that,” Warner said. 

The larger commercial scale plant is where a company can start to sell enough product to make money. But there are challenges with getting this done as well. These plants take years to design and construct, not to mention huge sums of money — $150 million to $400 million, by Warner’s 2020 estimate. Having the people to make this plant work — from highly trained scientists to design and fine tune the equipment, to specialists who understand how the processes work, to engineers that can ensure everything operates correctly, to employees who can produce the product — also takes money in the form of salaries.

Food tech companies accumulate millions as they scale up

Investments, in millions, for 10 fermentation and cultivated meat companies.

So essentially, there’s a lot of cash involved before a food tech company can even get close to earning anything. And then, Warner said, quite a bit of time before they break even. Ordinary CPG companies making their own products out of familiar ingredients can start selling on the market more quickly. Companies using tech to make ingredients have a much longer road to travel. In the best-case scenarios, even after a product with the tech-enabled ingredient is developed, it can take 12 to 18 months to get it produced and on shelves. 

And, of course, this is for a product that has received clearance from the FDA. For cultivated meat, dairy or plant products, the regulatory pathway is largely unknown. Many companies in this space have been working with federal regulators for years, but there are no timelines as to when products can actually go on the market.


“When you look at the whole Valley of Death of a lot of startups, a lot of it comes around that middle demonstration scale, because it’s where the cost is the highest, but generally you don’t get a lot of revenue off of that.”

Mark Warner

Former consultant and CEO, Liberation Labs


Warner said it is really important for companies to know the time breakdown and share that with investors. While some investors are becoming much more savvy to the food tech space and how it works, others don’t really know the space. If a company keeps telling investors they’re likely to break even in a couple of years, the investor may come to expect that — even if the timeline is not realistic.

Companies in this sector also tend to have misconceptions of when they will be profitable, said GFI’s Clark. Some of them think that as soon as they scale and are able to sell a significant amount of product, they can turn a profit, Clark said. This can be a dangerous impediment to proper budgeting — many startups could find themselves shutting down if they run out of money, so they need to understand how to create a realistic timeline.

“Typically they’re gonna have to get to first commercialization before they can really start to realize any kind of revenue, and certainly any kind of profitability,” Clark said. “So not planning financially for that period of time when you’re moving from R&D into manufacturing, making sure that you have all your certifications that you need, making sure you’re cleared, that’s a pretty long process. That could be three and a half to four years for certain companies within the sector.”

Prepping investors for picks and shovels

As the economy has slowed down, funding remains available and companies are still able to close large funding rounds. 

“There’s plenty of money for the ventures that have a well-laid-out path and can point to some reasonable probability of success,” said Warner.

Today’s food tech startups, which are using new variations on equipment and technology to do things never done before, are “proving out a path” for those that will come in the future. A unique problem that today’s food tech startups face is the mentality that venture capital investors don’t spend money on assets and infrastructure until absolutely necessary. 

“I think many [investors] are finally realizing that we’re there,” Warner said.

However, GFI’s Clark said, the need for funds can strain a startup company. While startups are agile by nature, they also need to concentrate on their operations and potential breakthroughs. Sometimes, when founders are working overtime to woo investors, it can hinder what the company can accomplish on the science and development end, she said.

Funders play a role in what companies are able to do, but Warner said there are a variety of different capital arms looking for different types of technologies or different developmental stages.

Food tech companies face an additional challenge when working on scale, though. Clark said they still need to show they can handle aspects like taste, appearance, convenience and nutrition, but there’s the whole science aspect as well. Unless the investor is a specialist in areas like cultivated meat or fermentation, it’s unlikely they’re going to know the details of the sector and how the technology they would be funding actually works.

“It’s still pretty miraculous work, and then this is serious advancement that would have been unimaginable not that long ago,” Clark said. “So I think there’s this educational component, and you run the risk of if an investor doesn’t understand what they’re investing in, they’re less likely to invest. It seems risky.”

With more scrutiny on funding, though, Clark said the alternative protein sector is maturing to be where the rest of the food business is. Yes, these are proteins made in a new way, but the expectations for the rest of the food sector — products need to taste good, the eating experience needs to be convenient, pricing needs to make sense, manufacturing and distribution need to be available — are also present.


“It’s still pretty miraculous work, and then this is serious advancement that would have been unimaginable not that long ago. So I think there’s this educational component, and you run the risk of if an investor doesn’t understand what they’re investing in, they’re less likely to invest.”

Laine Clark

Innovation and entrepreneurship manager, Good Food Institute


Clark said she hopes food tech can follow a similar scale-up pattern to the renewable energy sector. There has been both large amounts of money invested there, as well as massive adoption rates from both individual consumers and larger governments and utilities.

“It gives us great hope to see that it’s been done before at massive scale with massive numbers,” Clark said. “And again, we’re not there yet, but look where we were in 2012 to now. It’s pretty staggering.”

Nowadays, funders are also learning more about how this space works and are less inclined to look for a company to reach a mass market and profitability in a couple of years, Warner said. It’s becoming understood that it may take five or six years for companies to reach that sort of capacity and significantly lower their costs. But, he said, it is reasonable for investors in some companies to expect to see a product and some cash flow in the next couple years.

“At some point, some of these investors are going to have to start getting paid back or they’re gonna quit putting money in,” Warner said. “It sounds almost comical to say it, but there’s been a very large amount of money that’s come into the space with not enough return.”

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About the Author

Jervie David Montejar
A food lover who wants to try every delicious dishes around him and spread the news to everyone to try it as well. Finding the latest trends about food and restaurants around Cebu and the rest of the world :) "Life is uncertain. Eat dessert first." -Ernestine Ulmer
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