By Binyamin Ali, Agri Investor
The alternative protein market wedged itself further into the minds of consumers and investors last year, following the breakout success enjoyed by Impossible Foods and Beyond Meat.
As the ABCDs of the perishable commodities world continued to take steps to gain exposure to the fledgling market, food and agtech venture capital investor AgFunder made its own play by launching one of the only funds in the market aimed exclusively at the space.
The firm launched its $20 million Alterative Protein Fund in October and is poised to make its first handful of investments in Q1.
AgFunder founding partner Rob Leclerc spoke to Agri Investor, an affiliate of Venture Capital Journal, about the venture capital fund’s strategy and why he believes the time is right for a dedicated alternative protein fund.
What is the rationale behind your $20 million Alternative Protein Fund?
If you look back at the technical innovation around animal products, we’ve always come up with new technologies that supersede their animal predecessors. The horse was replaced by the car, whales were replaced by petroleum and we don’t use carrier pigeons anymore. The idea is we’ve utilized the utility of animals.
But there doesn’t seem to be a deep allegiance to the source of those products. We just happen to have gotten them from animals. This begs the question, could food be next? That’s our underlying theory.
“We also expect to have come in one of the world’s largest commodity trading companies”
In many ways, the foods we eat are really a function of the supply chain, the availability of those products, the ability to produce those at scale. We are at a place where we can produce technologies that create not just viable substitutes, but products that are healthier, more satisfying, provide the nutritional needs and can be lower cost by decoupling the production of protein from flavor, and pushing the acquisition of that protein to plants or cellular agriculture.
If this is the case, you’ve got a $3 trillion animal products market. Markets don’t get much bigger than that.
We believe there’s a window of opportunity over the next five years where we can see massive transformations and massive pressure in the animal agriculture industry.
How close are you to your fundraising target?
We’ve closed about 15 percent [$3 million] of it. We’ve got another $15 million soft circled and then we have about another $30 million of indicated interest that we’ll be sorting through. We are thinking probably around spring or summer that we’d wrap this up.
What is the profile of investor that has made commitments and expressed interest?
We have individual investors and family offices. We also have quite a few investors come from the meat and dairy industry, whether they’re in aquaculture, pork or dairy. They recognize that this is a consumer driven trend. These are not technologies being forced on people. The consumer is choosing this. We also expect to have come in one of the world’s largest commodity trading companies. And then some individual impact investors would round that out.
What’s the percentage of interested parties coming from the meat and dairy industry?
I’d say around 30 percent. It’s a hedge. A lot of these companies and groups don’t have many places to pivot to. A lot of the experience of the executives is built in and around this industry, so you’re really exposed if, over the next decade, the consumer preferences start to shift away from your product.
If this industry is wildly successful, they’ve made investments that are oppositely correlated to what their industry is in. In one way that’s how they’re thinking about it. They certainly see that writing on the wall. They see how consumer trends are impacting their own businesses.
When will you begin deploying capital?
We’re looking at making our first small handful of initial investments right away. We’ve actually got a final meeting with a company to make an investment lined up.
We’ve got a pipeline of about five investments that we’re quite excited about.
Will this be your first foray into the alternative protein space?
We’ve made some unannounced investments in this space already. In some cases, particularly in the cellular agriculture side of things, it carries more R&D risk. We felt that in order to do this justice, we couldn’t just make a couple of investments. It’s such an enormous opportunity that we felt we needed to have a dedicated fund for this sector to make a sufficient number of investments.
“It’s really hard for anyone to move fast enough to get their hands around the market to create a single product that everybody loves worldwide”
Venture capital is a very finicky asset class because it as a high loss ratio and many companies fail. We could be right on the thesis but by investing in only a couple of companies, we could miss the two, three or four really big companies we needed to invest in because we didn’t invest enough.
So, in recognizing the fallibility of trying to pick this with precision, we felt we needed to take a portfolio approach.
Does a $20 million fund have the scale to achieve that?
Keeping it small is actually quite important because it’s a young industry. If you try to push too much capital in too early, you start to get into deployment problems. Mostly, companies sit at pre-seed series A and obviously there’s a couple of later stage companies. The mandate of the fund is stage agnostic. We want to invest in the best in class but most of the companies will be early stage and many probably haven’t even been started yet today.
How many alternative protein companies are actually out there for you to invest in?
We’ve mapped about 250 and we continue to discover more. There is certainly a surge in interest. What we’re trying to find is great products, sophisticated go-to-market strategies but also create a founder market feel – teams that really do have the ability to execute on this vision to become big and significant companies.
Is there a region where these start-ups are concentrated?
No, there are companies coming out of Asia, Latin America, Europe, the US, the most advanced are certainly coming out of the US but you do see these companies everywhere. This is such a large market and you see massive regional players.
We see companies internationally and our plan is to invest internationally. We’ve looked at companies in Japan, Israel, South America, Europe and obviously the US.