Opinion: Darwin, mega trends and tech drive food and beverage venture investing – FoodBev.com

Mark Lynch, Oghma Partners

Mark Lynch, Oghma Partners

Tag Lynch, partner at Oghma Partners, discusses the food and beverage investment landscape plus the subsegments garnering healthy interest from crowdfunding sites, angel investor networks and early-stage venture capital firms.  

A review of early-stage investing in the food and beverage industry over the period 2012-2022 shows a step change in activity through 2015 onwards as more companies came forward for expense. From 2018 onwards, there was a step up in the size of investment as, in part, businesses matured and the need for capital expanded along with this growth.

The overall period reflects a healthy start-up culture in the UK meals and drink industry, as well as a keen appetite from investors to back businesses plus brands within the sector. Some of the most notable investments, by size, have been a function of ‘mega trend’ and ‘tech’ businesses tapping traders for growth capital.

Looking forward, we see some of these trends continuing to drive funding, albeit a decline in the overall outlook for the economic environment is likely to reduce levels of activity and fundraising, as all of us move into 2023.

2012-2014 saw an average annual total associated with 60 foods and beverage companies receive early-stage funding from a variety of sources, including crowdfunding websites, angel trader networks plus early-stage investment capital firms.

From 2015 onwards this exercise stepped up to 150 p. a. and has remained at this level, or higher, until now. It is difficult to pinpoint the exact reasons for this change; however, we believe that it is linked in order to an increased hunger for risk on the part of investors, assisted by low returns elsewhere (ie. bank interest rates) and importantly the higher degree of accessibility of interesting opportunities.

Investing in innovation 

While a notable beneficiary of buyer interest has been Brewdog, in some senses, it really is an outlier amongst the particular larger (£50m+) fundraisers more than the last ten years within the regard that it has a traditional business model.

The other notable fundraisers associated with scale (which in total made up over 25% of all funds raised more than 2012-22), were, in our view, leveraging new business models.

Thus, with regard to example, Gousto (meal kits) and Butternut Box (pet food), which together raised over £360m are direct-to-consumer delivery companies. Along with companies like Simply Cook, Mindful Chef and Tails they are offering internet-ordered, ‘bespoke, ’ products delivered direct to the door of the consumer.

They broke from the traditional consumer model of shopping at the supermarket. They have leveraged the internet and using the tech stack, are able to present product variants to consumers based on historic choices plus desires surmised by the algorithms embedded in the ordering software. These businesses were born from the web and software changes associated with the final 20 years and wouldn’t have existed in their current form without these developments.

A new wave of investment opportunities 

While direct-to-consumer businesses have already been prevalent within terms associated with volume of fundraisers, being the particular second most popular by amount of deals within the period 2018-22, there has been a very strong bias of investment decision for one particular business. Gousto has been the whale from the sector, scooping up a total above £300m, over 70% of money raised; it is also probably the particular only unicorn in this group with an estimated valuation in excess of £1bn.

Technological developments have assisted  direct-to-consumer businesses and likewise have helped the agribusiness area, which was the fifth most active sector regarding fundraising (by volume of deals) in the second half of the particular period under review.

The particular notable company in this particular area, again taking up circa 90% of funds raised, is GrowUp a vertical farming business that has elevated over £100m from two funding rounds. GrowUp appeals to investors through its use of renewable technology, developments in vertical farming and the desire to produce food more efficiently plus closer to market.

The final company to mention demonstrates the particular leveraging associated with the meat-free trend. Our analysis shows that this segment of the food and drink space has been the third most active by volume and value of deals within the second 1 / 2 of the decade. Consumer concerns around healthful eating and animal welfare have driven consumer interest in this region. In the particular UK, Meatless Farm offers raised almost £100m through investors as it has taken part inside the meat-free land grab that we all have witnessed in recent times. We estimate that this sum represents almost one-third of all funds raised with this section.

An eye toward the future 

We can conclude that while a favourable investor environment has helped to raise funds in the industry for early investment, equally important offers been the emergence of a handful of leaders within the direct-to-consumer, agribusiness plus meat-free subsegments, which possess leveraged technologies and customer mega-trends.

The particular above theme continues with the latest iteration of this trend being Ivy Farm, a cultivated meat business that elevated £36m earlier this year. These businesses have got grabbed the large slice of the particular equity on offer and therefore probably have given themselves the best chance for success.

Darwinism, this would seem, holds true in the early-stage food and beverage purchase space while it does elsewhere in life.

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