Food-Tech Investors' Shifting Focus on Alternative Ingredients

As the gale of change sweeps across the food-tech landscape, investors are increasingly betting on the allure of alternative ingredients. This shift represents an intriguing shift in the industry’s narrative, with companies such as Bonumose, Oobli, and Amai Protein leading the charge.

Bonumose, a trailblazer in the enzymatic tagatose space, has recently secured a whopping $41 million in late-stage funding. Meanwhile, Oobli, with its innovative sweet proteins, has raised an impressive $18 million in a series B1 round. Not to be outdone, Amai Protein has set the investment world abuzz by raising a staggering $100 million in a series A round. These notable transactions are emblematic of a burgeoning trend that sees investors’ appetite whetting for pioneering solutions in food technology, particularly in the domains of alternative sweeteners and proteins.

Yet, this trend is not restricted to the big-ticket ventures. Smaller, but equally consequential deals are also part of this narrative. BlueTree Technologies, with its beverage sugar reduction technology, has raised $2.3 million in a series A round, and Ambrosia Bio, known for its exploration in rare sugars, secured a $300,000 seed raise.

This industry-wide pivot towards alternative ingredients marks a peculiar inflection point in the food-tech investment landscape. The sector is transitioning from a phase of rapid expansion to a period characterized by strategic focus and a predilection for proven technologies and scalable models. According to Alex Frederick, a senior research analyst for ag-tech and food-tech at Pitchbook, venture capital investments in alternative ingredients have been on a steady decline since the outbreak of the pandemic.

In 2021, the investment space peaked with 292 deals worth $4.9 billion. However, since then, the number of investments began a gradual decline, with 250 deals valued at $3 billion in 2022, plummeting to 194 deals worth $1.2 billion in 2023, and further to 153 deals valued at $1.4 billion.

Frederick attributes this decline to a “challenging exit environment.” Investors who placed large bets on the alternative ingredient segment before the pandemic are now grappling with the challenge of selling their stakes at their expected valuations or taking their companies public due to market volatility. Simultaneously, high-interest rates are adversely affecting M&A deals, which traditionally stabilized deal flow and freed up financing for future arrangements.

This challenging climate has caused dissatisfaction among non-traditional investors like hedge funds and other late-stage investors, who previously ventured into the food-tech segment. Frederick noted a stark 54% decrease in VC investors playing in alternative food-tech, and a 67% decrease in traditional investors.

This trend signifies a pivotal moment in the food-tech sector. As the industry navigates this “VC winter,” the focus is shifting towards more sustainable and proven technologies. The reorientation towards alternative ingredients is not just a testament to the industry’s resilience but also a statement on its readiness to innovate and adapt to changing circumstances. Despite the challenges, the sector remains ripe with opportunities for those willing to take a calculated risk on alternative ingredients. The story of food-tech is still being written, but it’s clear that alternative ingredients will play a starring role in its next chapter.