Venture Capital Can Fund Meat Alternatives

Stock image of cattle

Cattle rest on a mountain slope. (Credit: Chad Harder)

Food entrepreneurs are exploring plant-based meats and cell-based meats. According to one market analysis, the global meat-substitutes market is estimated at $4.63 billion USD as of 2018. It will be worth $6.43 billion USD by 2023 at a compound annual growth rate of 6.8 percent.

Plant-based meat is made from plant proteins that have been manipulated and combined to replicate the taste and texture of conventional animal meat. Cell-based meat – also known as clean meat, lab-grown meat, or cultured meat – is made by growing animal cells from stem cells without raising any animals.

Certain venture capitalists are interested in the sector as an opportunity that can promote conservation outcomes. They believe that investment in plant-based meat and cell-based meat companies will spur their market share to eventually displace conventional meat production, which is estimated to use 26 percent of the planet’s ice-free land for grazing and 33 percent of its croplands for feed production.

At the Ivy League Future of Food Conference, representatives from three venture capital firms presented at a session on the role of the investor in plant-based meat and cell-based meat company growth and development. The focus of the conference, which took place in Philadelphia from Oct. 12-14, was the opportunities and implications of plant-based meat and cell-based meat for our global food system.

Alternative Meats and the Environment

Industrial animal agriculture is linked to a number of conservation concerns. According to the international Food and Agriculture Organization, the livestock sector causes 14.5 percent of all human-induced GHG emissions. Land conversion for animal-feed production is also a major source of emissions.

Additionally, the Food and Drug Administration reports that of all the antibiotics approved for food-producing animals, 60 percent are medically important to humans. Their overuse contributes to the growing antibiotic-resistance crisis. Finally, animal welfare and ethics groups continually raise concerns that industrial animal production facilities mistreat and abuse animals.

By removing animals from meat production, plant-based meat and cell-based meat companies aim to provide meat without the negative impacts.

However, there are concerns about the unintended consequences of removing animals from the food system. This has implications for conservation. Rangeland that is used for grazing also has conservation advantages. Most of this land isn't viable for agriculture. Additionally, removing animals would cause further disruption to the livelihoods of farmers in the conventional animal agriculture system, since the numbers of dairy farms and farmers in the United States decrease every year.

Last, in February, the United States Cattlemen’s Association filed a petition with the United States Department of Agriculture calling for official definitions of “beef” and “meat.” The organization pointed out that although it doesn’t currently see alternative protein sources as a direct threat to its industry, it is concerned about using the term “meat” for products that do not come from an animal.

Investment Opportunities and Companies

Despite these reservations, venture capitalists are eager to invest in plant-based meat and cell-based meat companies. At the conference, when asked about the success rate of investing in these companies, panelists said that it wasn’t a question of if that investment would pay off, but when and how much.

When asked about choosing between returning on investment or promoting an impact, Lisa Feria, CEO of Stray Dog Capital, said that her company didn’t have to choose. Looking at today’s trends - the rise of flexitarians, the increase in consumer awareness of food’s environmental impact, and the acceleration of product-development cycles - she said she believes that plant-based meat and clean meat will definitely succeed as sectors, resulting in both a return on investments and the accomplishment of impacts. (Flexitarians are consumers who reduce their meat consumption but are not complete vegetarians.)

All three firms on the panel are providers of early-stage capital - angel, seed, and series A funding. They generally invest $5-10 million into companies that are just getting off the ground. Then, according to Crunchbase and financiers, investors with more capital, like Khosla Ventures, Bill Gates, and Richard Branson, step in to invest further down the line.

Additionally, panelists explained that multinational food companies like General Mills and Danone are creating their own venture capital arms. Instead of investing in their own research and development, these companies are investing in early-stage startups and then acquiring them once they become successful.

Panelists said that Tyson, the second largest meat and poultry company in the world, is investing in plant- and cell-based meat companies.

Adjusting Investing Horizons for Innovation

“I’m 62 years old. We’re investing in products that’ll come out in 10 years, so I don’t care about getting that ROI in 3-5 years.” For Jody Rasch, managing trustee at VegInvest Trust, adjusting his expectations for a return on investment (ROI) was acceptable.

The clean-meat sector is in its very early stages. Companies have created viable products, but at high cost and not at scale. For example, the first cell-based hamburger cost $330,000 to create and took three months of intensive labor.

It’s still too early to even calculate expected returns. Rasch said that for clean meat to mature as a sector, it still needs tens of millions of dollars to develop and perfect the cell-growth technologies. Then it needs hundreds of millions of dollars more to figure out how to build factories to produce at scale. There’s too much uncertainty in the sector to accurately predict any outcomes.

Feria said she shares Jody’s concerns about uncertainty. For clean meat, there’s no set market-to-consumer path. For clean meat, there’s no clear path for development. Which meat should companies develop? Should companies focus on retail or restaurants? What about regulation?

In November, the regulatory pathway for cell-based meats became clearer. In a press statement, the United States Department of Agriculture and Food and Drug Administration concluded that they should jointly oversee the production of cell-cultured food products derived from livestock and poultry. This clarifies how cell-based meat will be regulated in the future, giving new companies an easier path forward. 

Note: The United States Department of Agriculture is a funder of Conservation Finance Network.

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