Alt-Protein: Three Takeaways from GFI’s Investment Webinar

The Good Food Institute had not anticipated the recent turbulence in the stock market when it scheduled “The Business of Alt Protein: Investor Perspectives on Funding the Future of Food” webinar Tuesday. The roundtable discussion centered on how alternative protein founders can find new investment during a possible economic downturn and the best ways to strategize a food tech startup.

Speakers on the panel were Matt Spence, managing director of Guggenheim Partners; Mariliis Holm, co-founder and partner of Sustainable Food Ventures; and Christina Ulardic, partner at Astanor Ventures. Here are three takeaways from the conversation:

Early Stage Investing Is Sheltered, While Late Stage Funding Faces Headwinds

The general consensus from the panelists was that companies seeking pre-seed and seed stage funding rounds will still find plenty of investment opportunities in the present economic climate.

Ulardic pointed to a rising interest of impact investing that takes a “planetary perspective in co2 consumption, animal welfare and resource efficiency.” The increase in the quality and caliber of founders in the food tech space has also strengthened the alternative protein category.

“Seed stage investment might almost be anti-cyclical because you always have founders coming up with good ideas and the food system needs disruption very urgently,” she said.

However late stage investing could dry up for alternative protein companies. All the panelists on Tuesday agreed that there is an uncertain future for big VC investment, with Ulardic advising her portfolio companies to extend their company’s financial runway from 12 months to 24 months.

The tightening in the market is a bad sign for prospective investors. The best thing that entrepreneurs can do is prepare for when there are more advantageous economic conditions for big investment, Matt Spence said.

“Prepare your financial model, prepare your debt, prepare your data,” he said.

Who and When to Target is Important

The discussion’s moderator, GFI startup innovation specialist Audrey Gyr, pointed to a recent letter sent by Y Combinator (YC) warning founders about seeking investment in the current economic climate.

In the letter, YC warns that “if your plan is to raise money in the next 6-12 months, you might be raising at the peak of the downturn…we recommend you change your plan.”

Holm echoed this point saying that she has encouraged entrepreneurs to try and raise money in the next six months because “we don’t know how things are going to be six months from now.”

When there is turbulence in the stock market, investors look to diversify their portfolios. Spence commented that a growing number of sustainability-minded investors are moving large amounts of capital away from familiar categories like energy and durable goods and into climate change mitigation ventures.

Investors see “enormous opportunity” in the alternative protein sector, but it is founders’ responsibility to determine which types of investors to target and when, Spence said.

Strategic investors like Tyson, Cargill or ADM could provide a huge boost of capital for a food tech startup but there are drawbacks to these types of partnerships. Larger companies often invest in multiple similar food tech ventures and see opportunity in putting capital towards competing startups, Spence added. “Companies need to proceed carefully and think about the right time and what are the right terms of a partnership,” he said.

More Mainstream Adoption Needed to Drive Impact

Alternative protein companies not only need to be biotech ventures with marketable consumer brands, but they need to have resilient and reliable supply chains to support innovation – both of which require significant capital investment.

Additionally, the regulatory environment for this sector is still a moving target. Plant-based proteins have faced many obstacles in achieving regulatory approval in recent years and cell-cultured meat is still waiting to know how the industry will be federally managed. Yet, there remains plenty of opportunity for the alternative protein sector to grow.

Both Holm and Ulardic agreed that the industry is driven by more than just profitability, as it represents an opportunity to make a big difference in feeding a growing global population. Emerging markets in Africa and Asia pose a real opportunity to fuel innovation. The more that consumers adopt alternative proteins, the more investment will be made in the industry.

“If you look at where electric vehicles and batteries are now, everyone is realizing that this is something that we need to think about and be behind,” Spence said. “What I’m excited about is a much more wide-stream adoption among a broader group of consumers and investors who feel like this is a sector that they absolutely need to play in, given the returns as well as the important mission.”