Alt-protein VC laments lack of early-stage investment in the sector and outlines plans for Fund II
In such a nascent industry as the alternative-protein space, early-stage investment is crucial to support young, novel innovators striving for a seat at the table. But as with many other sectors, investors are largely seeking established and thriving businesses to support in order to maintain a conservative risk profile.
New VC vehicle Clear Current Capital (CCC) is taking a leap of faith in focusing on extremely early-stage start-ups that share the same ethos of restructuring and reviving the food supply chain to a much more sustainable model. Now seeking capital for its Fund II, CCC founder Curt Albright is adamant he will not compromise on the VC’s mission as it seeks new investors to contribute to the $50 million fund.
CCC has recently hired two key team members to build out the company and compliment Albright’s deep understanding of the growing sector. Here, Albright outlines his expectations for the firm’s second fund and laments the lack of early-stage investment in this space.
What’s your investment mandate at Clear Current Capital?
We’re an impact fund first but my belief is, and this is why I get excited about my investment banking background coming into the VC space, the alternative-protein space is so new and up and coming, and there’s so much momentum around the plant-based food, cultivated-meat and fermentation space that I think if we do our job right in that early-stage, returns are going to take care of themselves.
We only invest in food companies in alt-protein, so we don’t invest in foodservice or in beverage or desserts or snack food companies. And there’s a lot of opportunity there for a small fund like ours. So, our second fund will stay in the early-stage space. Fund II will open up the thesis to international investing. However, since we’re all US based, all three of us that are working for the fund will maintain a US focus first, while also being open to investing outside the US.
How does Fund II differ from your initial fund?
Fund I, I believe made 27 total investments in 12 separate companies, and is close to 80% invested in the marketplace. The idea of Fund II was to be the pioneer in this space from a pure-play perspective. And also, to be one of the first that had LPs funding the fund. What I wanted to do was to build a bridge to the plant-based food space for individual investors to enter. Fund I raised a little over $13 million and had had 26 LPs. Fund I and Fund II will be similar in that respect although we’re targeting $50 million [this time]. We’ve capped it at $75 million because we don’t want the fund to get out of control from making those small initial cheques to the early-stage companies that we feel are best suited for filling white space and having real impact.
What is timeline for fundraising for Fund II?
Fund II is early; we just finished our 2020 audit and that’s what I was waiting on to really amp up the fund and prepare for Fund II fundraising. We’re putting everything together now, including a data room. We did hold an early initial close for Fund II so that we could make a couple of strategic investments. The fund will likely be open for onboarding LPs at least through to Q1 of next year. It’s accredited investors only and we have a 250 minimum for the fund, with co-investment rights at $3 million.
What do you look for in potential portfolio companies?
So much has happened in the space and cultivated meat is still high-interest for us. The biggest issue that we have investing in cultivated meat companies is our typical VC structure. We’re a 10-year final fund which is a business model that takes more capital and time to get up and running. So, the only cultivated meat company that Fund I invested in was [cell-based seafood start-up] BlueNalu. We’ll be open once again to those sorts of businesses in Fund II because now we’ve got a fresh timeline.
Probably the most exciting new areas are precision fermentation and biomass fermentation and what that could potentially do for bringing hybrid (cell-based and plant-based meat) products to market faster and at a lower cost of goods sold. We’re looking at a lot of companies in that space. Fund II will likely focus less on CPG plant-based food and more B2B technology and fermentation related products. And we’ll just see where the market takes us. There are so many big brains and scientists in R&D, I think it’ll just continue to develop and open up new areas for investment.
Why do you think early-stage businesses and funding is underserved in this sector?
I think it’s primarily because it takes so much energy and time for a smaller cheque to get your foot in the door versus the massive amount of money in private equity funds. And to drill down into an area like where we are, you really have to have a smaller fund and a smaller firm to be nimble enough to talk to. We’re not writing $5 million initial cheques to seed rounds, or writing $700 or $750 million cheques for Series A rounds. There will be more funds coming into this market but we have really strong strategic partners and connections within this space. We love what we do and it’s just a matter of finding more business founders that are equally as excited about reshaping the food industry.
Investing only in early-stage businesses must come with a higher risk profile, how do you mitigate those risks?
Anytime you’re investing in Seed or Series A it’s going to be riskier than investing in a Series C or D, once the companies have already established their distribution and manufacturing systems. What we’re trying to do is build a trusted long-term relationship with the founders, do our own due diligence and the bring in others that have strength in science and R&D in areas that we don’t, to do further due diligence and see how the founders deliver on their KPIs. Then we’ll make follow-on investments if it makes sense for us.
As a new VC firm how has the process of building out the team and internal operations gone?
This was a sole proprietor fund until April of this year. The Steve Molino came on board which was a huge help to me from a due diligence standpoint and in mapping the space and bandwidth. And then we brought on Kim Flores in August and I’m really excited to have her on board. She brings a whole new skillset to our team and the diversity that we needed. I couldn’t be more excited about what the three of us can do and how we fill each other’s skill gaps.
What key trends do you foresee taking hold in the alternative-protein space in coming months and years?
There’s so much volume and we’re looking at a trillion-dollar industry. I’m really excited about non-structured products that are bringing in taste and mouthfeel that make sense to massive markets. The sector has an opportunity to clean up the types of products we see today like McDonalds’ new plant-based burger and create a healthier version as the space matures. On the other side of the coin is the structured product and I think there’s this huge opportunity in bringing more meat and fish protein alternatives to the fore. And that’s not only the manufacturing of the product itself but we’re going to need help with breading and flavouring and other elements of the products’ development that could come from specialist B2B businesses.
Date published: 15 September 2021