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The present and future of food tech investment opportunityThere is no bigger industry on our planet than food and agriculture, with aconsistent, loyal customer base of 7 billion. In fact, the World Bankestimates that food and agriculture comprise about 10% of the global GDP,meaning that, food and agriculture would be valued at about $8 trillionglobally based on the projected global GDP of $88 trillion for 2019.On the food front, a record $1.71 trillion was spent on food and beverages in2018 at grocery stores and other retailers and away-from-home meals and snacksin the United States alone. During the same year, 9.7% of Americans’disposable personal income was spent on food — 5% at home and 4.7% away fromhome — a percentage that has remained steady amidst economic changes over thepast 20 years.However, despite a stalwart customer base, the food industry is facingunprecedented challenges in production, demand and regulations stemming fromconsumer trends. Consumer demands and focus have changed in recent years. Anincreasing focus by consumers on sustainability, health and freshness hasplaced significant pressure on the food industry to innovate.## Innovation imperativeIn recent years, agtech innovators have created exciting new ways to harnessthe power of technology to enhance the world’s food supply. Agtech innovationsare protecting crops and maximizing outputs — enabling structural changes inthe agriculture system that could achieve important sustainability goals oflowering greenhouse gasses, reducing water use, ending deforestation andpotentially even sequestering carbon back into soil.But this is just the beginning. As everyone needs to eat (multiple times aday!), there remains a huge opportunity for investments in innovative food andbeverage technology, or food tech, that better the health of our foodecosystem through novel ingredients and improved diets via better fooddistribution, preservation and access.The opportunity to use technology to improve food is massive and extends toimproving food usage and decreasing waste — a key to minimizing theenvironmental impacts of a growing human population. Cognizant of this hugeopportunity, venture capitalists are closely tracking this space. According toPitchBook, funding for food tech has skyrocketed from about $60 million in2008 to more than $1 billion in 2015. And unique investments from VCs andprivate equity funds have doubled from 223 in 2015 to 459 in 2017, accordingto CB Insights. In examining total investments made, along with exit activity,food tech has now surpassed agtech on both fronts. This is still relativelysmall, given the food tech sector’s large potential customer base globally ofmore than 7 billion people (and growing).## Key drivers of food tech investmentsConsumers are getting pickier about what they eat. They are juggling hecticwork and personal lives, and demand convenience when it comes to their meals.But this convenience cannot come at the expense of quality. Now more thanever, people want to know what’s in their food, where it came from and how itsproduction and sourcing impacts the environment.> An increasing focus by consumers on sustainability, health and freshness has> placed significant pressure on the food industry to innovate.In years past, consumer packaged goods (CPG) incumbents rushed to deliver onthese heightened demands — promising convenient, superior-quality food. Butfalling margins on commodity ingredients, coupled with industry consolidation,have discouraged these efforts, and many have refocused their attention —leaving the door open for a new wave of hungry (pun intended) innovators andstartups.Today’s consumers are not only looking for convenience and consistency, butare also seeking nutritious food that can be accessed with ease, limits wastecreation and aligns with their personal brands. In reality, it has never beenmore difficult to be a food company. Consumer demands have expanded to includeethical mantras but have not given way to requirements of convenience.However, spending trends show that consumers are ready and willing to pay apremium for food tech innovations that can meet their ever-increasing needs ofconvenience, health and low environmental impact. The opportunity for foodinnovators to capitalize on these market demands is growing!## Food tech presentToday, grocery ordering and delivery represents the largest food techcategory, while meal ordering comprises the greatest number of privately held,venture-backed startups in food tech globally. Last year was an exceptionalyear for food tech, with a record-breaking $16.9 billion in funding recorded.According to Crunchbase, the three biggest deals of the year included $1billion for Swiggy, India’s leading online restaurant marketplace; $600million for Instacart, a U.S. grocery delivery service; and $590 million foriFood, a Brazil-based restaurant marketplace.While consumers still have an appetite (again with the puns!) for groceryordering and delivery plays, investors are becoming increasingly cautious inthe wake of meal kit service Blue Apron’s high-profile failure (among others),which emphasized challenges like scalability, the inability to patent food andspoilage and contamination concerns across the supply chain. These misstepshave led many investors to turn their attention to new food tech frontiers.## Food tech futureThere are three key areas in which food tech innovations are beginning todeliver completely new and novel approaches along the value chain. These areasrepresent technological approaches addressing serious pain points within thefood industry, and we anticipate that these sectors will experiencesignificant growth and investment attention in the coming years.Consumer food techConsumer food tech is the segment within food technology investment thatfocuses on development of technologies primarily marketed toward the consumer.Be it plant-based meats, novel distribution systems or nutrition-based tech,this segment aims to assuage consumer-driven demands. Examples of consumerfood tech innovators include alternative protein/diary, nutrition and meal kitdistribution companies.As the organic food trend reached its peak and began to commoditize, anotherfood trend has risen to take its place. Plant-based, meatless, animal-free …regardless of the moniker given, it seems like everyone is getting into themeatless craze. News or ads trumpeting the arrival of “meatless meat” areunavoidable.Fast food giants Burger King (via Impossible Foods) and McDonald’s (via BeyondMeat) are now serving meatless burgers on their menus, attracting newcustomers that typically shop for food at Trader Joe’s or Whole Foods. MemphisMeats is another example, as is the retail giant Ikea, which is working on avegetarian version of its infamous Swedish meatballs.But it doesn’t end there. Other innovative companies are working on thecommercialization of alternative proteins such as Clara Foods (egg whites fromcell cultures), and Ripple Foods and Oatly that are focused on developingdairy and nut-free milk alternatives. UBS estimates that the market for plant-based proteins alone could expand from just under $5 billion at present tosome $85 billion over the next decade, at a roughly 28% growth rate year-over-year.Meanwhile, companies like Brightseed, Just and Renaissance Bioscience areblazing new trails on the biological and nutraceuticals front, seeking ways toproduce food and nutritional supplements in cleaner, smarter and moresustainable ways.Industrial food techWhile some companies focus on the food itself, many others are exploring howto process, package and distribute this new wave of sustainable, healthy andinnovative food. Industrial food tech is the sub-segment of food tech thatfocuses on addressing fundamental business model and B2B pain points withinthe food industry. The companies include innovators in novel processing andpackaging technology and new/functional ingredients that have improvednutritional, labeling or formulation characteristics.> Investments in food tech will continue to increase to help deliver on the> promise of healthier, more sustainable food systems.Food preservation technology companies like Apeel Sciences and HazelTechnologies are leading the way in reducing food waste, while improvingproduce quality during transportation. This is a massive issue ripe forinnovation, as pre-consumer food waste comprises 40% of all food wasted in theU.S. Improved food-waste profiles could enable an overall reduction inrequired arable land.Food processing/grading technologies will also be at the forefront of thissegment; for example, food inspection startup P&P Optica has receivedfinancing to develop their food quality and foreign object detectiontechnology. This hyperspectral tech has the potential to provide not onlyfood-safety improvements in automated foreign object detection, but also toenable meat quality grading to be standardized and improved over time.Coupled with a burgeoning sector in industrial ingredients like emulsifiers,sweeteners and firming agents, among other additives, this segment is growingquickly as large-scale food producers are facing consumer pressure to not onlyinnovate, but also to do so sustainably. Companies like Aromyx are working toquantify things like taste and smell to help enhance production processesacross a range of industries, from pharmaceuticals and chemicals toagriculture, food and beverages and consumer packaged goods.Supply chain & procurementThe Chipotle contamination crisis (and others like it) underscores theimportance of improving visibility into food supply chains. Safe Traces andother startups are helping to increasing food traceability by commercializingnew modes of tracking food provenance. Consumer awareness regarding food fraudand requirements for food traceability, as well as records of provenance, areincreasing. This has created a strong business case for innovation in the foodsupply chain to satisfy these demands. Changing consumer preferences forquality, convenience and gourmet products in food service has led to a rise inthe category of fast-casual restaurants and placed pressure on fast foodrestaurants to rethink their delivery models.Startups like Farmer’s Fridge (a Finistere portfolio company) and BingoBoxpackage chef-curated meals and snacks in conveniently placed vending machinesor unmanned, automated convenience stores. 6D Bytes uses AI and machinelearning to prepare healthy food, like smoothies, while Starship Electronicshas, in partnership with local stores and restaurants, introduced a fleet ofrobots that deliver food to people.Innovators in this segment are focused on traceability, sustainability,improving freshness and eliminating food waste. For example, Good Eggs andFarmdrop deliver fresh and sustainably sourced grocery food in reusablepackaging, while Full Harvest encourages the food supply chain to “shop ugly”by using imperfect or surplus produce that would have otherwise gone to waste.Technology will continue to play an increasingly critical role in how the foodwe eat is produced, how it is packaged, how it is delivered, how it tastes,feels and smells and how it is reused and repurposed. Investments in food techwill continue to increase to help deliver on the promise of healthier, moresustainable food systems for the world. After all, we are what we eat.