Anthony Chow | Agronomics

Co-founder of investment vehicle on why he believes cellular agriculture is more attractive to investors than plant-based alternatives

A recent report by global management consultancy McKinsey & Company has predicted that lab-grown meat could grow to a $25 billion industry by 2030.

Anthony Chow, co-founder of UK-listed VC fund Agronomics, is bullish on the growing investor interest in cellular agriculture (cell-ag), the science behind lab-grown meat, fish and milk proteins, as well as materials like leather and cotton.

Chow believes cell-ag represents the “second wave” of innovation in the global shift from traditional animal farming to more sustainable solutions for food. However, key challenges for the market remain, as regulation is slow and mass-scale production is likely two to three years away.

Here, Chow explain why lab-grown meat start-ups are more attractive for investors than plant-based alternative companies with “very limited intellectual property”, and details Agronomics’ plans for its latest £65 million funding round.

What is Agronomics and what areas do you invest in?

I’m a co-founder of Agronomics with Jim Mellon who is a high-profile UHNW individual who has made his money by identifying emerging investment themes before they become mainstream. I started working with Jim in his family office Burnbrae about 15 years ago when I moved from Sydney to London.

At that point we started investing in the field of biotech. Since then, we’ve been investing in direct early-stage investments in the field of biotech. And Jim has co-founded a number of companies which have been pretty significant successes.

About five years ago that focus on biotech was narrowed down into the field of longevity. This is ageing research and it is now beyond the point where it’s being tested on animals having demonstrated scientists can clearly alter the rate of ageing in organisms like mice, and now it’s moving into humans.

Jim then put me onto the field of cellular agriculture and that’s where Agronomics came from. We had a cash shell listed on the London Stock Exchange AIM market and we went out and raised a small amount of money at the time, four and a half million pounds, and ramped up our activity in the field of cellular agriculture.

The first investment we made was in a company called BlueNalu that is producing seafood using this technology. We’ve done a number of successive raises and now have raised about 100 million pounds; the market cap is about 200 million pounds. And we are one of the major investors in the field of cellular agriculture globally.

How do you define cellular agriculture?

This is the production of things that we have traditionally derived from animals, but directly from cells without any need for the animal. Meat is a big focus in particular because of the environmental and ethical issues associated with the production of that meat. It extends into materials as well like leather.

One of our portfolio companies can just grow leather now and that I would argue is one of the most exciting companies in the field. It also includes precision fermentation, using microbes for the production of other proteins such as casein and whey from cow’s milk.

Collagen and other proteins can also be produced using this technology and even certain parts of plants such as cotton can now be grown in a bioreactor.

The way we see things, is that plant-based alternative proteins, including Beyond Meat and Impossible and now Oatly, are the first wave of innovation in trying to move away from the use of animals and reduce the environmental footprint.

But this second wave of innovation, the field of cellular agriculture, is going to be much bigger and much more disruptive and transformative for the world’s food (and other) supply chains.

How new is the cellular agriculture sector?

Even though it was conceptualised much earlier, we view 2013 as the dawn of [cellular agriculture] as that was the year the first proof of concept beef burger was produced. It wasn’t until 2016 that the first company Mosa Meat was formed from that research project at Maastricht University.

Fast forward from 2016 and by about 2018 there were around 20 companies and only around $50 million had gone into the cultivated meat sector. Then we saw a pretty meaningful increase in activity, but the $50 million mark was when Agronomics started investing in the field. In the first four years from 2016 to 2019, about $150 million went into the field.

In 2020 alone, $270 million went in and now, just half way through this year we’re already above that $270 million number from 2020. So, we’re really at an inflection point in this industry where larger sums of capital are starting to flow and the risk associated with these technologies has decreased quite dramatically.

In December of last year, the world’s first cultivated chicken nugget, was approved by Singapore, which is the leading jurisdiction in the world for this technology. The reason that Singapore has taken such a leading role in this is because of issues of food security, and Singapore is actually one of the least fertile country in the world and has approximately zero agricultural land.

Acknowledging this, the government has an initiative to produce 30% of their food locally by 2030 and they have no prospect of doing that unless they adopt this technology. Temasek, the Singapore-based sovereign wealth fund has invested in a couple of these companies.

Over the next couple of years, we’re going to see multiple approvals of these products in much more meaningful jurisdictions like the US and hopefully Europe and China as well.

What is your investment mandate at Agronomics?

We’ve taken a portfolio approach because this is a major secular trend. Multiple tens of trillions of dollars we believe are going to flow into the sector in coming decades.

We’ve built a portfolio of 16 companies, investing from pre-seed through to Series B. The idea there is for us to be able to capture all the credible technologies which are being utilised to produce meat, proteins and other materials in this way.

The most advanced company in the field has only completed a Series B financing and the universe of companies on the meat side has now grown to about 70 companies globally.

We’re seeing companies focus on niche products rather than beef, pork and chicken which each account for about 25% of total animal protein consumption. That’s 75% of total animal protein which means that these smaller categories really are considerably smaller and don’t move the needle from a sustainability standpoint nearly as much.

We do have beef, pork, chicken and we also have seafood. We’ve got the leather company. We’ve got a company working on dairy proteins and have a company called SolarFoods which is working on a novel protein Called Solein. The strapline of the company is ‘food from thin air’ because its key input is electricity and carbon dioxide from air. Then we have slightly newer applications of cell-ag, like the production of cotton.

We have now deployed about £30 million and now we have just raised another £65 million. Approximately 70% of that money is going to be used on follow-on investments into our existing portfolio, but we’ve also got our eye on a couple of newer applications and companies in the field. Agronomics needs a global mandate because there is just such a limited number of companies in this field overall.

What is your risk appetite in this sector like, compared to plant-based alternatives perhaps?

It’s a completely different proposition. You and I could start a plant-based company tomorrow and get a pretty significant part of the way there in terms of product, marketing and distribution of course is another matter altogether. But marketing and distribution power is fundamentally where the value of these plant-based companies is derived from.

From an investment standpoint, the biggest companies in the world like Unilever are starting to produce their own lines of plant-based products, and so you can see how quickly it’s becoming very competitive. These companies have very limited intellectual property and they have high valuations. With all those things combined, we think that at this point in the cycle they’re less attractive investments than the companies in the field of cell-ag.

These companies are biotech companies to start with so in most cases they have patents and at the very least they have very important know how in terms of growing cells/proteins on an industrial scale and at a reasonable commercial price point.

What do you tend to look for in companies in terms of management and business strategy?

We’re looking for really mass scale potential. We are financial investors but this theme of ESG that runs through this sector is very important to us. And then yes, experienced management team, defensible intellectual property, the ability to produce large amounts of biomass and differentiated technology.

There are companies out there that are putting out announcements making very large claims, but when you scratch the surface you realise that there’s a lot of hype going on.

What is the level of wider investor interest like in the cellular agriculture space?

It’s pretty limited. Agronomics is the largest, and as far as we can identify, the only investor dedicated to this field either public or private. There are a number of groups out there that are investing in both the plant-based sector as well as cell-based products but typically they have a heavy weighting towards the plant-based opportunities.

How restricted are cell-based companies from a regulatory standpoint?

Regulators are well and truly aware [of the industry]. In the US, the FDA (Food and Drug Administration) and USDA (US Department of Agriculture) put out a joint statement around the regulation of these products in 2019 but it is not happening as fast as the companies want.

Part of that has to be Covid-related as the regulators’ offices just haven’t been staffed in the way they should have been, but there are still unresolved matters around naming and the actual approval process. 

Singapore has led the way with the first approval, but the US, and seafood specifically, is likely to be next.  Europe is slow and China is likely to follow Europe.  Although, we understand that Japan is starting to get its house in order also.

These companies, in many respects, have products that are ready for the consumers to at least begin to try but they’re still not producing things at a particularly large scale. I think the regulators in the US and Europe are going to be very heavily lobbied by special interest groups.

We’re already seeing a lot of activity around trying to ban certain terms that the animal-based lobbies believe are ‘owned’ by them exclusively. This lobbying activity shouldn’t be underestimated as a very meaningful risk to this sector. The Good Food Institute has done some great advocacy work on this front.

Is the lack of regulation in North America and Europe an issue when sourcing investment?

Our last financing was only closed last month and the £65 million we raised was above our expectations. I think that’s the best indication that generalist investors are ready to back this sector at significant scale. We had some top-tier institutional investors participate like BlackRock, and Canaccord Genuity are also public holders.

What is the production timeline for these products? How much of a challenge is mass production?

Even once the first companies get their products approved, they’re still going start out at a small scale. Most innovation in the food space starts generally at restaurants, and in small quantities, it then ultimately works its way onto supermarket shelves. I think the first truly large-scale production facility that we’re going to see in this industry will be established in 2023/ 2024, maybe even a little bit later than that.

By large scale production, I’m talking about more than a couple of tonnes a day, which is still a rounding error in the demand for protein in a city the size of London, let alone at the country level. There is no point in these companies scaling up until regulatory approval has been achieved.