Lever VC Fund I has already deployed about $5m in 10 startups including TurtleTree Labs, which makes cell-cultured human breastmilk and cow’s milk; Better Meat Co, which supplies the plant-based components in a new wave of ‘hybrid’ products such as Perdue’s ChickenPlus nuggets; Mission Barns, which cultivates pork fat from animal cells; and GOOD PLANet Foods, which makes plant-based cheese.
Money from the fund has also been set aside for follow-on investments in these companies, said Lever VC managing partner Nick Cooney, who co-founded the Good Food Institute and the New Crop Capital venture capital trust, and has been working in the alternative protein space for over 15 years.
“We’re doing 20-25 early stage investments; so far they have been anywhere from $200,000 to close to $1m, and then we’ll be writing larger follow-on checks,” he told FoodNavigator-USA.
“We’re looking at literally every company that’s doing alternative protein globally, so we track them in a proprietary database we’ve put together that has more than 1,200 companies globally, but we’ve also got a pretty wide network of entrepreneurs, other investors, trade groups, NGOs and so on where the deal-flow is coming from.”
There are some companies that are raising at valuations that are not smart bets for investors
So how has COVID-19 impacted the investment landscape in the alternative protein space?
While investors are generally being more judicious, the pandemic has if anything “increased interest in alternative protein, both from investors and entrepreneurs but also from governments,” said Cooney. “There are still a lot of great deals out there, and for a few companies it’s been beneficial in terms of valuation.”
But can the jaw-dropping valuations of some players in the space be justified?
“We’ve seen valuations all over the place, and there’s no doubt that there are some companies that are raising at valuations that we at least think are not smart bets for investors," said Cooney.
"It's in part due to the fact that there are a number of investors and funds out there that know there is something valuable going on in alterative protein, but don’t have a granular enough understanding of the sector to make smart bets, so they are just investing in one of the three or four companies that they hear about.
“For us as a sector specialist fund, we have the ability to really look across the board to identify the companies that are exciting but also have a valuation that makes sense from a risk return perspective.”
The addressable market for plant-based meat
So what’s the size of the prize in plant-based meat, and is it fair to assume that it will capture a similar share of the market as plant-based milk?
While many investors base their predictions on such assumptions, the dynamics of every market are different, said Cooney: “We think it’s possible that plant-based meats could get up to 7, 8, 9, even 10% of the market in the coming decade, but we’re by no means taking that as a given, and we try to be much more conservative and make investments where even if the plant-based meat sector only gets to 2% of the meat market in the next seven years, that the companies we’ve backed could still have an excellent return.”
He added: “For us, at least in the US, we’re looking at companies doing something other than the next beef burger or sausage, as it’s hard to think of a company that could come along and produce a product better than where Impossible Foods and Beyond Meat are right now or will be in a couple of years’ time.
“So in the US, we’re looking for companies that are working in other areas, either other plant-based meat categories or plant-based dairy categories that are not yet saturated, or companies that are working on the higher tech alternative protein side and developing something that could really be the next huge leap forwards when it comes to product quality.”
Cell-cultured meat
When it comes to cell-cultured meat or dairy, the biggest risks are around price point and execution, he said. “We’ve looked at literally all of the startups in the space and chatted with the vast majority. There are some where we don’t get to the point of scientific due diligence, because for one reason or another - maybe it’s team or strategy - we don’t think they will be the right fit. But if we do, we have a scientific advisor that is an expert in this space [to vet the technology] and we’ll also bring in third party consultants to further validate if necessary.”
The key question then, he says, is “not can they do it, but what price point can they get it to and how well will they execute? We’ve prioritized companies that have a large commodity addressable market if they can get prices low enough, but that if they don’t get the price points low enough to play there, they also have a second market that’s also sizeable and has a higher price point.
“So, for example, if TurtleTree Labs can’t get the price point low enough to compete with premium or organic dairy cow’s milk, which is a massive market, they have the secondary market of infant formula to go after with their human breastmilk, in a market that can tolerate dramatically higher pricing [given that nothing can really compete with human breastmilk].”
Alt-protein + conventional protein blends: ‘There’s a huge opportunity for hybrid products’
Whether it’s plant-based meat and conventional meat (as in Perdue Farms’ Chicken Plus nuggets) or plant-based meat and cell-cultured meat [see Mission Barns’ bacon prototypes featuring plant proteins mixed with cell-cultured animal fat – which are not yet on the market, but highlight a possible trend to come], the ‘blended’ or ‘hybrid’ trend could be significant in the next few years, both for financial and technical reasons, he predicted.
“I think there’s a huge opportunity for hybrid products, in fact the vast majority of cell-cultivated and fermentation-based product launches over the next five to seven years are going to be blended products, both due to price, and because in many use cases you don’t need 100% of the product to be cell-cultivated, for example.
“So if you take a plant-based product and add some cell-cultivated animal fat, like Mission Barns is doing, maybe you can get 90% of the flavor [of a 100% animal-based meat product].”
Microbial fermentation: Existing vs novel proteins
Producing proteins from microbes in fermentation tanks is another huge area of opportunity, although it’s too early to say how consumers will react to entirely new-to-the-world proteins produced this way vs proteins that we already eat, such as whey, casein, egg albumin or collagen produced from engineered microbes, he said.
“Consumer acceptance is definitely something we think about in the alternative proteins space when we’re evaluating companies, and I do think there will be an increased challenge for companies producing novel proteins.”
I don’t predict the imminent collapse of the animal protein industry
So what did he make of last year’s report from RethinkX, which predicted that the US dairy and cattle industry would collapse by 2030 as ‘precision fermentation’ – producing animal ingredients more efficiently via microbes – disrupts food production as we know it?
While Lever VC is clearly betting big on alternative proteins, RethinkX is probably being “overly optimistic” both about the timing and scope of the disruption, said Cooney.
“Food culture is evolving, but I don’t predict the imminent collapse of the animal protein industry. It’s going to be a more gradual transition, with plant-based and cell-cultivated meat and dairy playing their part.”
