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Plant-Based Investing: Is There Value Behind the Hype?

by Julia Yee

  • 18 Jun 2019
  • PE

Plant-based meat producer Beyond Meat reached a peak valuation of +570% following its IPO in May 2019. Bill Gates started investing in Impossible Foods in 2017. Film director James Cameron has invested in and brought attention to alternative, plant-based foods. Word is out – plant-based investing is in.

A seemingly ambiguous phrase, ‘plant-based investing’ primarily refers to investments through a plant-based lens in which food, agriculture and environmental sustainability are paramount. Food in this case refers to plant-derived alternatives to meat and dairy, a niche within food technology investing that is currently thriving. Over the past two years, $13bn has been invested in the US vegan/alternative food industry, bringing the total amount invested in the sector up to $17bn*. With the vast majority of this capital injected into the industry within the past couple of years, the plant-based trend has gained considerable investor support and remains a force to be reckoned with well into 2019.

Institutional Support on the Rise
The plant-based food sector has garnered a huge amount of support in recent years. Attracting investment from venture capital firms in both the private equity space and the corporate arena – even Tyson New Ventures, the venture capital arm of Tyson Foods, has invested in Beyond Meat – as well as from individual investors, goes some way  to legitimizing a space that has not always been taken seriously. The latest deal figures from Preqin Pro demonstrate this rise in institutional support: in 2016, there were a total of 10 deals for plant-based food companies in the US. The number of transactions rose to 12 in 2017, and in 2018, it leapt to 22. With 14 deals already completed so far in 2019, interest in plant-based investing is growing rapidly.

Investing Responsibly
There is yet more evidence for an unprecedented level of institutional support when we look at the rise of venture capital funds within the food & agriculture industry that have a focus on environmentally and socially responsible investments. These include funds that are both explicitly focused on plant-based alternatives or more broadly invested in the plant-based sphere. In 2016, a total of $86mn was invested across six such funds, while 2019 has already recorded commitments of $199mn though just three vehicles. Excluding 2017, capital secured by these funds has increased steadily over recent years; 2017 was an outlier year with a record $2.2bn raised due to the closing of the $2.1bn Rise Fund. Even more astounding is that there are 30 such funds currently raising in the market, with an aggregate target of $5.7bn. Interest in the sector is clearly growing in leaps and bounds, with GPs capitalizing on the opportunity to raise larger funds, and LPs supplying the demand.

 

A Celebrity Affair
For a more immediate look into investor sentiment surrounding plant-based food companies, we need only look at the success of Impossible Foods. The plant-based production company recently raised a monumental $300mn during its latest round of funding, bringing the brand’s total amount of capital raised to $750mn. Besides Bill Gates, investors have included celebrities such as willi.am and Jaden Smith.

Rival company Beyond Meat has also been met with great enthusiasm following its IPO, and by close of business on 10th June 2019 had reached a valuation of $10bn, its stock price at over 570% from its initial offering. Although Beyond Meat’s stock has recently been downgraded by JP Morgan and has a taken a slight tumble as a result, investor belief remains strong. The founder of investment firm Evolution VC, Gregg Smith, described the strength of the company and the sector in a recent interview: “Beyond stock can easily go up three to five times from its current levels because the market opportunity for plant-based proteins is so large.”

Another great believer in the power and breadth of plant-based investments is film director James Cameron, whose family office invests solely through a plant-based lens, with investments ranging from plant-protein alternatives to a New Zealand farm. While this may seem like a limiting strategy, Cameron’s advisor Barry Didato, echoing the data and the view of Gregg Smith, remarked that “plant-based food is the internet in 1994” – perhaps we have only seen the tip of the plant-based iceberg.

The Global Crisis
While Didato’s claim may be bold, it is likely justified when we consider the impact of meat production on the environment, in tandem with the consumer and investor enthusiasm for the sector we have previously explored. Not only are more and more people interested in plant-based proteins from a health-conscious perspective, but plant-based alternatives to meat are lauded as a way to sustainably feed a rapidly increasing global population. As stated by UN scientists, industrial animal agricultural is incredibly damaging to the earth, depleting resources and contributing to air and water pollution, land degradation and global warming. With this in mind, plant proteins are here to save the day, and the hype behind plant-based investing is supported by the demand for and necessity of such products now, and in the future.

*The Good Food Institute (GFI), 2019.

For more data and analysis on the plant-based and environmentally responsible investing sector, please arrange a demo of Preqin Pro.

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