KANSAS CITY — Startups in the AgriFoodTech space raised $26.1 billion in funding in 2020, up 15.5% from 2019, according to AgFunder, a San Francisco-based venture capital firm. That number could increase to more than $30 billion as new 2020 deals come to light, representing 34.5% growth over 2019.
The influx of funds is a sign of investors and innovators looking for solutions to longstanding food production and supply chain issues, said Louisa Burwood-Taylor, head of media and research at AgFunder.
“With COVID, the supply chain was actually pretty resilient, but it definitely exposed issues in the food system,” she said. “There was a call to action and an urgency there.”
Sustainability was a key investment theme with alternative protein companies leading in deal volume. Top deals included Impossible Foods’ $500 million and $200 million rounds and NotCo’s $85 million round. Sizeable investments in plant-based food companies, including Good Catch, v2 Foods, Kate Farms and Alpha Foods also ranked among the top 20 largest innovative food deals, according to AgFunder.
Investments in other forms of alternative protein also increased. Raises by Memphis Meats and Mosa Meats helped inch cultured meats closer to the market, while investments in Meati Foods and Protein Brewery helped push fungi-based meat alternatives closer to the mainstream.
“With COVID, the supply chain was actually pretty resilient, but it definitely exposed issues in the food system.” — Louisa Burwood-Taylor, AgFunder
The sustainability theme carried into the online grocery sector, with Imperfect Foods raising $72 million and Misfits Market raising $85 million in 2020. Both companies aim to reduce food waste by sourcing imperfect produce and surplus food.
Investments in startups focused on localized production also increased. Indoor farming startups saw record fundraising, with Bright Farms, Gotham Greens, Infarm, and Plenty Ag raising a combined $497 million in 2020.
“A large area that was exposed was supply chain logistics which, coupled with panicked stock piling by consumers, led to empty shelves for retailers,” said Jackie Tubbs, intelligence analyst at CB Insights, a market research firm. “Localized production, and more specifically, investments in the vertical farming space is one way the industry is working to diversify supply chains. By bringing produce cultivation closer to large urban markets and increasing the frequency of harvests, suppliers can be less dependent on traditional supply chains and seasonality.”
Investment upstream — in startups closer to the farm and away from the consumer — surpassed downstream investment for the first time in seven years. Investors continued to support downstream categories such as e-commerce but became more comfortable with upstream food production categories, many of which have COVID-19 related appeal.
“Before, downstream dominated because it’s much easier to get a handle on,” Ms. Burwood-Taylor said. “You had investors that had been investing in consumer industries for years and years. Upstream is more complicated. I think we’re seeing a combination of COVID exposing some of the areas that need upgrading and innovation, but also just increasing understanding and comfort with the space.”
Investors largely turned their attention toward innovative ingredients companies. Geltor raised $91 million to support its designer proteins platform. Nature’s Fynd, a startup producing nutritional fungi protein, raised a combined $134 million across two funding rounds. Mushroom fermentation company MycoTechnology raised $39 million, and pea protein producer Puris Proteins raised $25 million.
Perfect Day secured the largest investment in the upstream food production category. The company, which offers animal-free dairy proteins, raised $160 million in Series C funding.
“Perfect Day has seen large rounds of late-stage funding and received USDA approval for their fermented whey protein in 2020,” Ms. Tubbs said. “The startup has partnered with a handful of ice cream companies to produce dairy-free products.”
Early- and late-stage deals
Much of the increase in funding was due to significant growth in late-stage deals, with investors doubling down on their existing portfolios.
The median deal size for late-stage rounds increased 17% across the wider AgriFoodTech landscape, which encompasses all aspects of the end-to-end food ecosystem from biotechnology and farm management to ingredients and consumer packaged goods, according to AgFunder.
Impossible Foods’ $500 million round in March 2020 is a case in point. The fact that the company managed to secure the funding at the very start of the pandemic points to the strength of investor conviction in the category, Ms. Burwood-Taylor said. It also indicates how the breadth of capital available to food technology startups has evolved, she added.
“I like to think about some of these late-stage deals as the first wave of food tech companies,” she said. “The pandemic kind of happened overnight, so investors still had a lot of money to invest, and they doubled down on some of these mature players.”
Third-party delivery platforms inked some of the largest late-stage deals, with DoorDash raising $400 million and Instacart raising a combined $425 million across two rounds. Apeel Sciences, which aims to reduce food waste through edible produce coatings, raised $250 million.
Early-stage investment activity also increased, with 10% more dollars invested, 15% more deals closed and a 10% increase in median deal size at the Seed and Series A stages.
“This bucked a retreat in early-stage investing in the wider venture capital market,” Ms. Burwood-Taylor said.
Notable seed deals included Atomo Coffee’s $9 million round. The startup develops bean-free coffee made from upcycled plant materials. Climax Foods, which uses machine learning to simplify the formulation process for plant-based foods, raised $7.5 million in seed funding. Top Series A deals included baby food maker ByHeart’s $70 million round and UK-based vegan meat maker The Meatless Farms’ $31 million round.
“The first wave of companies kind of tested things out, so now the second wave can take advantage of those learnings and accelerate faster,” Ms. Burwood-Taylor said. “I think we are going to see the second wave companies get to the same position as the first wave companies in a shorter timeframe.”