VC In Foodtech: Where Did The Money Go?

During our Masterclasses over the past 8 months, we’ve often discussed the massive decrease in the number of venture capital deals executed in the CPG space. This document focuses on VC activity in Foodtech, which may be directionally analogous for the entire CPG space. 

The Foodtech industry is where food and technology meet, and its job is to improve every step of the food journey, from the farm to your plate. This industry received less money from investors in the first three months of 2023 than any time since 2017.

As a reference and your clarity, here are some examples of companies that are considered “Foodtech”:

What is happening in the Foodtech industry?

The money situation: In the first three months of 2023, the foodtech industry only got $2.3 billion from 197 different deals. This is the smallest amount of money the industry has received since 2017.

Big money moves: Even though there was less money going around, some companies still scored big. YFood, a company that makes meal replacement drinks, got $230.3 million in a big funding round. Meati, which makes protein from mushrooms, also got $172 million to build a new manufacturing place they're calling a "ranch" and to make more of their product.

Where the money's going: People are really interested in certain areas of foodtech. They're spending a lot of money on things like fermented protein, which is a way of making protein using bacteria or yeast (this saw an 83.6% increase in money compared to last quarter). They're also investing in kitchen technology and robots, which saw a huge 99.8% increase in funding. And, there's steady interest in "functional foods," which are foods that have health benefits beyond just basic nutrition.

Check out the trend line in the value of VC deals over last most recent five quarters.  I was like the cash spigot suddenly started to shut in Q3-2022, and closed a little more in Q1-2023. 

In the graph below you can see how Q4-2021 was the peak of VC investing in the space–and it’s been a downward trend every since. 

You can also see that angel and seed investing is growing as a percentage of total investment which is heartening for emerging brands/companies.

For your reference, below are some “seed” stage deals closed during the first quarter of 2023. 

What does all this mean? 

At Vdriven, we believe that VC investing in our space will continue to struggle through 2023–and will likely worsen in quarters 3 and 4 of this year.  One of the key metrics that we’ve been following is inflation vs the Federal Reserve interest rate.  As we can see below underlying interest rates are still below inflation, yet the trajectories are likely to lead to interest rates exceeding inflation by the end of the year.  We believe that this will lead to more slowing factors on the economy that will impact investing through the 2nd quarter of 2024.  

Note that deals with VC’s are still possible, we just need to have very compelling performance to get their attention. 

In the meantime, we continue to recommend caution, strong financial stewardshp, and cash conversation to get us through the coming months.