The winners and losers of the food technology investment slowdown

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Venture capital investment in food technology globally has soared 40-fold in the past decade, reaching a new high of $26.9 billion in 2021, according to data compiled by innovation charity Nesta. But it also notes a sharp decline in venture capital investments in 2022, with venture financing for food-tech startups down more than 50% compared to 2021. This ties into the State of Venture report released in January by CB Insights, which found the global risk ecosystem saw a sharp decline in 2022, with funding down 35% compared to 2021.

A big potential loser will be people’s health, according to Nesta. For example, food technology funding has been dominated by one category. Food delivery and logistics attracted about 60% of venture capital investments in the period 2017-2021, equal to an average of about 11.2 billion a year.

This growth is concerning, as takeout and grocery delivery app platforms are the technologies most likely to increase obesity, he lamented. Instead he demanded that new technology, processes and ideas must be directed towards providing healthier food options if we are to reduce obesity and improve the health of nations.

But the situation, ironically, opens up opportunities for innovation. For example, patent applications related to calorie reduction have increased 165 percent over the past decade, outpacing global patent growth, Nesta revealed.

More specifically, he estimated that innovation in food patents that increase satiety grew by about 580%. This significantly outpaces the global trend of around 70% growth in patent applications between 2010 and 2020.

Complementing this patent breakthrough, his analysis also found encouraging signs regarding the flow of investment into startups using food science to create new ingredients and reformulated products for healthier eating. These startups range from those specializing in artificial sweeteners or fiber-fortified products to software platforms that enable various types of food reformulation. Investment in the area increased nearly 25-fold between 2017 and 2021.

Financing of personalized nutrition venture capital also grew by 552% to reach 500 million in 2021.

However, estimates of the overall annual investment amount of 70 million are small compared to most other types of food innovation, indicating that this is still an emerging trend in venture financing.

The Nestas report then included recommendations including giving food producers tax breaks and corporate rate reductions to incentivize and enable innovations that make food and food environments healthier. At the same time, funding must be made available for research that explores consumer concerns about such innovations, he added.

2022: the year of open innovation

Nestas’ report came as Eatable Adventures, one of the world’s leading accelerators, called on large companies to embrace open innovation where companies collaborate externally to seize innovation opportunities with respect to their existing business model, to solve challenges of today’s food industry.

Its survey of 43 midsize and large companies found that more than 90% plan to partner with outside firms on innovation in the next three years.

There is growing certainty that open innovation, through collaborative networks, could be a viable approach to drive business, customer satisfaction and industry sustainability in the short to medium term, the report said. As the food sector faces enormous pressure and buyers demand products that are healthier, more functional and more sustainably produced, this sector presents a very favorable environment for these valuable partnerships to develop.

Jos Luis Cabaero, CEO and founder of Eatable Adventures, told FoodNavigator that the agrifood value chain is currently exposed to a significant number of challenges, from a growing population to eating with a lower carbon footprint, global warming and meteorological instability affecting crops, the need to reduce the water footprint in agriculture, methane and CO2 emissions and finally geopolitical conflicts damaging basic supplies.

All of these problems, he told us, must be overcome with advanced biotechnology and digital business models. The agribusiness segment is just starting to incorporate emerging technologies into the end-to-end value chain to achieve these goals, he said she. As we move forward, this asset class will become more stable and reach new heights. Therefore, food technology represents a great investment opportunity in the future of what is probably the largest industry in the world.”

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