Friday Letter: Feeding hope

Venture capital is a hopeful business. You have a bunch of dreamers who look at a problem and instead of walking away, they say, “What if we try this?” And if they fail at their first attempt, they come up with another plan. And another and another and so on.

Certainly, VCs need to have a certain amount of pragmatism to temper their optimism. After all, they need to produce meaningful returns for their LPs if they want to be able to raise another fund to tackle more problems. But at its heart, venture capital is a business of hope.

I find comfort in knowing that there are people launching new funds to find solutions for problems that affect all of humanity. People like Rosie Wardle, partner and co-founder of Synthesis Capital, a newly launched food technology investor based in London. Synthesis just closed on $300 million for its debut fund.

The new fund – believed to be the largest fund raised for foodtech – is anchored by CPT Capital, the VC arm of PE veteran Jeremy Coller’s family office. It also has a sizable investment from multifamily office Société Familiale d’Investissements.

Other LPs include the Children’s Investment Fund Foundation (CIFF), the Credit Suisse Climate Innovation Fund, DisruptAD, Dynamic Loop Capital, Heyi Holdings, Interogo Holding, The Nest, Nuveen, Sainsbury family trusts and WTT Investment Ltd.

“The current economic challenges are putting ever more pressure on our food supply chains and are only serving to reiterate the need to transform our food system,” Wardle told me over email. “The current food supply chain is reliant on intensive livestock production and on long, complex and opaque supply chains that are no longer fit-for-purpose to feed the world. We believe technology is central to solving these challenges, and that’s what we’re investing in at Synthesis.”

Synthesis has debuted at a time when investors are pulling back from foodtech deals. VCs invested $6.9 billion across 359 deals in Q1, a 41 percent decline in dollar amount and 13 percent decline in deal count compared to the fourth quarter, PitchBook reported.

Wardle isn’t worried. “Over the next few months, there will be an inevitable slowing of deployment in the foodtech market given the broader market context. This is not specific to foodtech, but to venture capital and the private markets as a whole,” she said. “To some extent this was expected and necessary, given overinflation of valuations that we were seeing in some parts of the sector, with unprotectable plant-based brands being an acute example of this. The outlook for the sector in the medium term is incredibly strong, given the need for these technologies to help transform the food system.”

Despite the Q1 decline, foodtech investing has been on the upswing for several years and set a record last year. The amount of capital going into foodtech deals has grown year-over-year for the past three years and the number of foodtech deals has increased every year since 2016, according to PitchBook. Last year, VCs invested more than $40 billion in more than 1,500 foodtech deals, up from $21.1 billion invested in fewer than 1,200 deals in 2020, PitchBook said.

Foodtech front-runners

For its part, Synthesis plans to invest its debut fund in about 15 companies globally, with an average check size of $15 million. It has already invested in five companies: Upside Foods, which grows meat from animal cells; Perfect Day, a maker of animal-free milk; Redefine Meat, a maker of plant-based meat; Culture Biosciences, which offers cloud-based services for foodtech and other biotech companies to scale manufacturing; and Arkeon Biotechnologies, which converts captured carbon dioxide into plant-based food ingredients.

“The paradigm shift we are now witnessing lies with companies combining the best from food technology and modern biotechnology in new, innovative ways,” David Welch, Synthesis chief scientific officer and co-founder, said in a statement. “This convergence of synthetic biology, tissue engineering, 3D printing, food chemistry and other enabling technologies will allow us to transform plants, microorganisms and animal cells into nutritious, scalable, sustainable food that tastes great, is priced competitively and is accessible to all.”

Synthesis has momentum, since both Wardle and co-founder Costa Yiannoulis were previously investors at CPT Capital, one of the first investors in foodtech. “We were very early investors in Beyond Meat, Impossible Foods, Perfect Day – these companies that are now the front-runners in this space,” Yiannoulis told my colleague Snehal Shah at New Private Markets.

Why did Yiannoulis and Wardle spin out of CPT to start Synthesis? “We had been investing in the food tech sector since 2014,” Wardle said. “Given our experience and track record in the sector, we saw an opportunity to leverage additional capital and to partner with strategic investors able to leverage their own backgrounds, networks and expertise to support our portfolio companies.”

In other words, Wardle and her partners are hopeful and want to make a difference by helping to feed the world. We should all take comfort in that.