Plant-based, Fermented, and Cultured Proteins: Incredible Food Coming in Hot!

The addressable target market for alternative proteins has grown in step with hype and investment over the last several years. Five years ago, forecasts were for niche replacement for veg- and flex-itarians. Then, forecasts grew to include some cannibalism of the conventional meat market. Today, forecasts ask what is left for conventional animal products once alternative products mature.

This serves as proof alternative protein development follows the exponential progress of technological innovation. As Ray Kurzweil of Singularity University phrases it:

‘Technological change is exponential, contrary to the common-sense ‘intuitive linear’ view. So we won’t experience 100 years of progress in the 21st century—it will be more like 20,000 years of progress.’

The size of this market is consistently underestimated and the speed at which the cost of production is decreasing is underestimated. There are a number of key driving forces to account for this, including:

• cost of production dropping faster than forecast
• increasing consumer and regulatory acceptance
• faster product iterations to continually improve recipes
• new natural ‘clean label’ ingredients and flavors are being discovered

As Ron Shigeta, Co-Founder of Indie Bio, puts it, Lab-grown meat is scaling like the internet:

This is not to say conventional animal-based proteins will disappear. As we have covered before, there are opportunities for optimization in conventional livestock breeding and good practices on animal farms have been shown to be carbon sinks (see the White Oak Pastures study).

Should I invest in plant-based, cultivated, or fermented?

Of all of the market forecasts available, the one closest to our understanding of the sector is Kearney’s prediction that up to 60% of meat will be alternative proteins by 2040, with cultivated meat comprising 35% and plant-based meat reaching 25%. Plant-based proteins are set to take market share in the short-term, before the brute force economic efficiency of cultivated and fermented accelerates to a dominant market position.

Here is an overview of a few key indicators we are hearing from innovators and investors in this market:

Optimization, Optimization, Optimization

Base Proteins

New breeding and genetic engineering technologies are aiming to improve both the functionality and protein content of the basic ingredients being used in plant-based and fermented proteins. This can either seek to improve the raw percentage of protein in an ingredient, or adjust its characteristics to suit different functions of taste, flavor, mouthfeel, etc. Both genetic and non-genetic methods are being developed to optimize the protein content of basic biological factories including plants, microbes, bacteria, and fungi. Some key innovators and market activity we have seen recently includes:

• Benson Hill, a bioscience platform being used to design desirable traits in food crops such as high protein content and functionality, will become a publicly traded company via a merger with Star Peak Corp II, a special purpose acquisition company (SPAC) operated by Illinois’ Star Peak. The deal will raise around $625 million in cash proceeds, valuing St Louis-based Benson Hill at $2 billion. This includes a $225 million private investment in public equity transaction involving funds managed by BlackRock, Lazard, and Van Eck Associates, among others.
• Equinom, a developer of non-GMO high protein seed breeding technology, has been working with Roquette to develop a high protein pea seed to fuel growth in the plant-based product market. The company took in a $10 million Series A round last year from BASF Venture Capital, Roquette, Trendlines, and Fortissimo Capital.
• Ginkgo Bioworks, the parent company of food protein-focused spin out Motif Foods, plans to go public through via merger with SPAC, Soaring Eagle. The deal will generate $2.5 billion in gross cash processed including $1.7 billion from Soaring Eagle and $775 million from Baillie Gifford, Putnam Investments and accounts advised by ARK Investment Management. The deal gives Ginkgo a pre-money equity valuation of $15 billion.

Production and Distribution

There are a number of production methods currently being trialed with varying costs, scalability, and capability.

System designers

• Innocent Meat, a provider of plug-and-play cultivated meat production systems is designed to be sold to food processing companies wishing to bolt on the hardware for cultivated meat production. The Germany-based company wants to offer a ‘clean meat as a service’ model to existing supply chain operators.
• Future Meat Technologies is a designer of bioreactors for cost-effective cell-based meat production. The company has developed a scalable process which can be inserted at many points in the food supply chain. The company raised $27 million in funding round earlier this year from industry incumbents like Tyson Foods, Müller Group, and Archer Daniels Midland and also from investors including S2G Ventures, Manta Ray Ventures, Emerald Technology Ventures, Bits x Bites, Rich Products Ventures , and ADM Capital.

3D Printing

• Redefine Meat, a developer of a 3D printing process for proteins with a ‘steak’ being the end goal, recently raised a $29 million Series A form Happiness Capital, Hanaco Ventures, CPT Capital, Losa Group, Sake Bosch, and K3 Ventures. The Israel-based company is looking to roll out products to European markets including Germany and Switzerland before looking to Asia and North America.
• Revo Foods, a producer of 3D printed plant-based seafood alternatives, raised $1.8 million in April 2021 from Danish and German investors including Hazelpond Capital and friends2grow. For some 3D printing companies seafood such as salmon fillets are a more attractive first product as the layer of fat and protein are easier to build up, compared to the marbling of a steak. The company was accelerated at Austria’s Greenstart incubator.

Fungal fermentation

• Nature’s Fynd, a manufacturer of fungi-based proteins based on microbes found at a Yellowstone geyser, have found a way to take out the expensive bioreactors required for many fungi-based protein growth systems. The protein can be grown in open trays rather than in closed environments, potentially reducing the cost of production. The company raised a further $45 million in its Series B round at the end of 2020, having raised $80 million in March 2020 from Breakthrough Energy Ventures, Generation Investment Management, 1955 Capital, Mousse Partners, ADM Ventures, and Danone Manifesto Ventures.
• Mycorena an owner of a proprietary fungal strain which converts biomass to protein at a high efficiency. The company has a strong process engineering background and is looking to take biomass waste-streams as an input in customized systems. The company has recently announced its first commercial scale factory that will create thousands of tons per year through fungal fermentation processes. The partner in the joint venture is Falkenbergsgruppen.

Competition heating up in Asia with Singapore a leading hub

In 2018 we started to see companies like Avant Meats, Shiok Meats, and others appear with headquarters in Asia. At the time, we noted the combination of strong production capacity in the region, growing protein demand, and a focus on high value seafood and shellfish items will start a strong investment cycle in these companies. This has prompted industry incumbents to set up innovation labs in Singapore to take advantage of this growing innovation ecosystem with links to high growth markets in the region for alternative protein products.

• Givaudan and Bühler announce The Protein Innovation Centre in Singapore. The Centre combines the pilot technology of Bühler’s extrusion and processing equipment with Givaudan’s expertise in flavor, taste, ingredient, and product development.
• ADM launches an innovation lab in Singapore to develop plant-based products to meet growing food and beverage demand in the Asia-Pacific region.

Keep an eye out for…

Further SPAC activity and acquisitions in the enabling technology and fermentation space. As we see alternative protein product market become crowded and Beyond Meat share price fluctuate with supply issues and problems reacting to new consumer channels, investors are interested in the picks and shovels required to optimize this industry. Benson Hill and Ginkgo Bioworks were just the start of a busy 2021 for M&A and IPOs in this sector.

A look back…

When I first wrote about alternative proteins at the beginning of 2017, Beyond Meat was raising funds at a $250 million valuation ($6.58 billion market capitalization on 18^th May 2021), and companies such as Nature’s Fynd had not even been founded yet (they have since raised $158 million in growth equity). Since then, we have covered:

• cultured and insect protein
• cultured protein and Asia expansion
• our initial market landscape
• first hints of the precision protein boom
• rise of insects
• changing business models
• competition from conventional meat
• another look at precision proteins

A look forward…

There are now so many production methods and raw materials available for alternative proteins that the question is no longer ‘which technology will work?’, but ‘how fast will it scale?’. Future Meat Technologies are already at $7.50 for a chicken breast. Scale will depend on available infrastructure to co-produce proteins, as well as the cost of additional infrastructure to support this industry. This will require many more partnerships with protein industry incumbents and manufacturers, many of whom are setting up offices in Singapore, and other Asian innovation hubs, to help meet this demand. Asia looks set to feed the next wave of this food revolution.

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