The ebbs and flows of an emerging technology are fundamentally dictated by the demand-supply loop, and the alternative proteins sector is no exception.

The Gartner Hype Cycle was developed to help inform investment decisions at key stages of the maturity life cycle, separating hype from the ‘real drivers of a technology’s commercial promise’. After the dizzying heights of early investment rounds celebrated across the alternative protein sector, the market now looks toward a steadier path for long-term growth.

As clarity emerges around which technologies, partnerships and rising stars have the greatest long-term potential to impact the food system, active investors speaking at Future Food-Tech Alternative Proteins in Chicago on June 17-18 share a positive outlook and actionable insights.

CLEAR CURRENT CAPITAL, LEWIS & CLARK AGRIFOOD, PEAKBRIDGE and LEVER VC share their take on the state of the investment landscape for alternative proteins right now, in a preview of their panel debate at the summit next month: ‘Boosting Investor Confidence: Adapting Innovative Financing Models to Overcome the Trough of Disillusionment’.

 

 

As the industry matures and a robust pipeline of new entrants join the market, what new strategies and approaches are required for future success?

Nick Cooney, LEVER VC

Nick CooneyManaging PartnerLEVER VC shares that in order to succeed, companies need to come back to the basics, and “focus on building a great product that is differentiated from the competition and appeals to a large segment of the population. Ideally this is in a sizeable category with the potential for considerable expansion.” Nick goes onto emphasize the importance of refining the operational aspects of the business to make sure the unit economics are attractive and sustainable at scale: “Companies far too often overlook the importance of building out a strong core.”

Suhas NarayanaswamyPrincipal, LEWIS & CLARK AGRIFOOD names the factor for success as capital efficiency, advising companies of three key strategies: “1) Collaborate Early: Form strategic partnerships and leverage existing infrastructure for faster, cheaper commercialization.

2) Focus on Validation: Prioritize data-driven decisions and rapid customer feedback.

3) Differentiate & Be Capital Smart: Build a strong value proposition, optimize unit economics, and leverage non-dilutive capital sources.” Suhas goes on to say: “Leap-of-faith investing is dead. Future success hinges on demonstrating value early to attract investors, talent, and customers.”

Steve MolinoPrincipalCLEAR CURRENT CAPITAL details the need for successful new entrants to understand the immediate need to find product market fit with whatever they are bringing to market and push hard on commercial traction: “The days of getting through Series A, B, or C+ as a pre-revenue food-tech company primarily focused on R&D are in the past. Even if you can’t generate strong traction in the early rounds, new entrants are thinking about commercialization from day 1 and strategizing demand generation and traction instead of purely building out IP. If you’re self-funded, then you can do what you want, but if you are reliant on outside funding to continue operations, an early focus on the fundamentals of the business are imperative.”

Nadav BergerFounding General Partner, PEAKBRIDGE remains hopeful, believing we’re entering a new era of food-tech: “The hype we all witnessed in the early days is coming up against reality, and investors now have a better understanding that Food and Food-Tech is different than other classical tech plays. As this industry is nascent, it takes longer and costs more. There are rarely quick wins and exits due to the fact that you need to scale those innovations – and often it requires Capex and Opex.” Nadav finishes with: “Future success will require patient money and relatively low Capex investments. Investing in plant-based meat makes a lot of sense; but as we’ve all learned, for it to work, it must taste great and be affordable.”

How can early-stage innovators remain commercially competitive and attract new dilutive and non-dilutive revenue sources, as investors seek to diversify their portfolio?

Nadav Berger, PEAKBRIDGE

Nadav BergerFounding General Partner, PEAKBRIDGE illustrates the importance of mapping out industry bottlenecks: Early-stage innovators need to better understand the value chain of the food industry and map out the pain points. Then, they should plan on how to get to those solutions either by partnering with those who invested in the infrastructure or Capex already, or by seeking out solutions that don’t demand heavy investment and brutal dilutions. Solving some of the pain points and inefficiencies through AI solutions is a great example of that.”

Nick CooneyManaging PartnerLEVER VC echoes the sentiment: “For founders developing tech-driven solutions for the alternative protein ecosystem, it is essential to tackle significant challenges in the industry with novel approaches, methodologies and technologies that drive tangible step changes, whether this be in the economics or overall value to customers. Companies working within existing frameworks to deliver incremental shifts will struggle to stand out and attract funding.”

Steve MolinoPrincipalCLEAR CURRENT CAPITAL begins by noting the difficulty of commercial competitiveness at the early stages, due to the lack of scale: “It’s more about proving how commercial competitiveness is achievable over time, laying out the steps it will take to get there, and de-risking those steps by not expecting the answer to always be ‘raise more money’. Building partnerships with different key players across the supply chain can de-risk the business, while also opening up new sources (possibly cheaper sources) of capital/resources.”

Suhas NarayanaswamyPrincipalLEWIS & CLARK AGRIFOOD shows the other side of this, sharing that Early-stage innovators can stay ahead and attract funding, firstly with realistic funding plans: “Demonstrate a well-defined path to revenue with clear milestones for each funding round. Investors are wary of inflated projections and seek realistic timelines.” Suhas’ next point is on demonstrating learnings from the generation before: “Showcase how your company addresses the challenges faced by similar early ventures (Gen 1). This builds confidence in your ability to navigate complexities.”

In order to maximize capital efficiency, Suhas recommends non-dilutive strategies: “Pursue grants, subsidized debt, and strategic partnerships alongside equity to extend runway and reduce dilution. While the process might be lengthy, these sources are crucial.”

 

As the alternative protein sector continues to evolve, what trends in financing models are emerging, and how can emerging food brands consider unit economics in their financial operations?

Steve Molino, CLEAR CURRENT CAPITAL

The biggest trend Steve Molino is seeing at CLEAR CURRENT CAPITAL is the focus on de-risking the R&D as much as possible before going out to raise from institutional VCs: “This is being done through a combination of bootstrapping, identifying non-dilutive grant funding opportunities, and raising smaller checks from friends and family and angel investors. This has resulted in companies going to raise their first institutional rounds at pre-seed or seed with less of the cap table sold to outside investors and the business being closer to revenue generation.”

Suhas NarayanaswamyPrincipal, LEWIS & CLARK AGRIFOOD shares that unit economics depends on price, COGS and scale: “For companies to get a good price they have to show unique value and work with the brand partners to help achieve that value. On COGS, it has become evident that some technologies have a long uncertain path to cost reduction at a unit level and need to do a lot more work to improve the technology enough before scaling. On capital projects, offtake agreements can lower the cost of capital for builds but creating those are not easy as it transfers a lot of the risk to the buyer. An external black swan event can accelerate the timeline for positive Unit Economics.”

PEAKBRIDGE’s Nadav Berger is supportive of the industry’s evolution: “There are too many brands doing the same and on a local basis.” Nadav is a big believer of companies working together to complement each other, “out of the understanding that the route to market should go via collaboration with established brands and the P.L. of retailers. Start-ups should focus on the technology and find the right partners to take it to market.”

In a sector that relies heavily on purpose driven investing, in what way can brands focus on a path to profitability through that ensure a reasonable exit environment for later stage investors?

Suhas Narayanaswamy, LEWIS & CALRK AGRIFOOD

Suhas NarayanaswamyPrincipal, LEWIS & CLARK AGRIFOOD questions the impact of climate change on consumer behaviour alone, but notes it could help when combined with another factor: “Consumers are probably not willing to pay up for climate reasons alone, however nutrition with climate as a package can unlock dollars from the consumer.”

At PEAKBRIDGE, the belief is that impact goes side-by-side with returns and profitability, tells Nadav Berger: “However, I’d give some key advice to the brave entrepreneurs in this space: From day one the culture should be about choosing the right, substantial problems to solve. Big problems, big solutions. Aim to build self-sustained companies, which is about top line sales and profitability. Manage your resources. Share, consolidate, partner, and focus on one geography. All of those elements can set companies on the right path to profitability, and later-stage investment.”

Steve Molino, CLEAR CURRENT CAPITAL states that whether a company is raising from ‘purpose driven’ investors or generalists, it shouldn’t change how they focus on building the business: “The days of easy money are gone, so every decision around the business should optimize for sustainable growth. This means being focused and intentional about how much is being spent on every facet of the business, failing fast and pivoting away from what doesn’t work, and pushing harder on what does. In reality, this is how companies should always be operating, but an era of easy and cheap cash made it seem like focusing on IP and tech R&D would automatically lead to success. So, if a company wants to “focus on a path to profitability and ensure a reasonable exit,” then nothing will be better for that than thinking, from Day 1, about building a business that solves a real problem that customers are willing to pay for, and at prices that lead to positive unit economics long-term. The idea is simple, but the execution is hard.”

 

It’s clear that while attitudes remain positive with a hopeful outlook for the future of alt proteins, investors and technology providers alike need to focus on unit economics and diversify their portfolios to move forward and ensure long-term growth.

The conversation will continue in Chicago this June 17-18 at Future Food-Tech Alternative Proteins, register before May 9 to save $300 on your ticket: www.futurefoodtechprotein.com/register