Smarter investment and debt-financing needed to drive alt-protein growth in Europe

Good Food Institute corporate engagement manager Carlotte Lucas outlines key points from the entity’s latest investment report, including why governments need to provide capital to alt-protein start-ups

Europe is home to much of the world’s scientific and commercial talent and has a great deal to offer the rapidly growing plant-based and cultivated meat sectors.

Huge amounts of investment have already poured into this sector and barely a week goes by without news about a new European start-up getting involved in this space.

But to keep up the momentum and maximise its potential benefits for the environment, food security and public health, the sustainable protein sector needs to be strategic. Today, food sustainability NGO the Good Food Institute Europe (GFI Europe) has released a roadmap to success for new entrants to the alt-protein space.

The report suggests the industry is in need of investors that can provide debt-financing to fund the next stage of growth, through the creation of infrastructure loans and leasing funds to unlock economies of scale. Sources able to provide investment further up the supply chain will be particularly valuable, as well as those willing to supply patient capital that allows for longer back-to-back periods.

Venture capital has been the driving force behind the sector’s expansion. But as plant-based and cultivated meat companies scale up, they’ll need to fund large infrastructure projects, such as processing or manufacturing plants, which venture capital isn’t the best fit for.

As GFI Europe’s corporate engagement manager, I spent the last three months talking to investors, entrepreneurs and other industry experts from across 10 countries about where their key challenges lie. From start-ups to large and well-established food production companies, I found a remarkable level of consistency in what they said – particularly when it came to the importance of smarter, more targeted investment.

The same factors that attracted venture capitalists to sustainable alternative-proteins should grab the attention of other institutional investors. The sector – which includes plant-based, cultivated and fermentation-enabled meat, eggs, dairy and seafood – is on the rise across Europe and consumers are hungry for more.

Research shows that Europe accounted for 39% of worldwide market revenue for plant-based meat in 2019. Plant-based retail sales across the continent hit €3.6 billion in 2020, while European sustainable protein companies raised a record €441 million in investment – more than four times the amount raised in 2019 and almost 17% of the total invested in the sector worldwide. Currently, Germany leads the market with sales totalling €993 million in 2020, while the UK is in second place with €750 million.

Hindered by a lack of knowledge

While many investors are eager to get involved in the sector, some may be hindered by gaps in information and understanding as they approach new and innovative technologies being developed by start-ups.

That lack of deep scientific knowledge makes it difficult to carry out the necessary due diligence on start-ups and therefore it can be overly time-consuming to identify promising investments.

Our research suggests that investors newer to the industry could benefit from the expertise of pioneering, mission-driven investors that could invest alongside new entrants through schemes like coalitions, syndicated deals and co-investments. The Glasswall Syndicate is a partnership that is already working in this space.

Initiatives like these will be particularly important to attract investment into the B2B space – which has so far seen less support than the more familiar consumer-facing companies.

The success of companies that provide ingredients, equipment or expertise to other alt-protein businesses is now crucial for speeding up innovation throughout the whole sector. This includes companies like Motif FoodWorks, which has developed a heme-binding protein that will enable plant-based meat manufacturers to develop products replicating the texture, flavour and aroma of conventionally produced meat.

Investors will be key to expanding plant-based and cultivated meat production at the scale and pace needed to build a more sustainable, secure and just food system – but they alone can’t guarantee the sector’s success. Governments will also need to step up and fund open-access research in the space. Elsewhere, universities should provide dedicated courses to train and reskill the workforce and support the creation of new and novel businesses.

There are many challenges but also enormous potential for this industry to grow. A report published earlier this year by Boston Consulting Group and industry VC Blue Horizon found that current levels of investment into sustainable proteins could make up 11% of the global protein market by 2035. They also discovered that major investment from governments could see this figure climb to 22%.

But as the sector begins to mature, those involved at every level need to think very carefully about how they operate. How – and where – investments are made will be key to the alt-protein industry’s future.

Key stats from 2020

€3.6 billion – Plant-based retail sales across Europe

€993 million – German plant-based sales

€750 million – UK plant-based sales

€441 million – Amount on investment raised by companies in the European sustainable protein sector

Source: Nielson data