Nick Cooney | Lever VC
Alt-protein VC managing partner on why he has his eye on nascent markets to source future sector leaders
The food world has long sourced its innovators in CPG and foodtech hubs like North America, Western Europe and Israel. But one alt-protein VC is scouring less-developed markets for its next investment.
Lever VC was established by Good Food Institute founder Nick Cooney to leverage his longstanding knowledge of the food and CPG sectors, including his relationships with leading food corporations.
Here, Cooney discusses the value of these relationships in vetting potential portfolio companies and presenting their partners with potential investment or M&A opportunities.
What is your background in the alternative protein space and wider food sector?
I’ve been working in and around the alternative protein space for 17 years. Further back than that my work was more focused on consulting on policy for some large food groups, both retailers and CPG groups, to help them add more plant-based brands to their portfolio. Secondly, I was working on promoting the entire category of alternative protein products to consumers in North America, Latin America and Asia. In 2015, I co-founded the NGO ‘The Good Food Institute’ and chaired their board of directors for the first few years.
At that time i also started investing in the alternative protein space, helping a US family office set up and then run a private vehicle focused 100% on this sector. Through that I invested in about two dozen companies between 2015 and 2018, including Seed stage and a number of the first cell-cultivated and precision fermentation companies. We also invested in a bunch of plant-based meat and dairy brands that have done quite well like Beyond Meat and Kite Hill. In 2018, I left that vehicle with my colleagues and started putting together the Lever VC fund, which was co-founded by my partner Lawrence Chu who’s based in Hong Kong.
His background is more traditional VC and private equity over the past 15 years, but that also includes some direct deals he made into the alternative protein space. We co-invested in the same round of Beyond Meat in 2015. We both saw the need and the opportunity for a sector specialist fund that was focused on alternative protein globally.
What you’re looking for in potential investments, particularly at such an early-stage?
For background, Lever VC Fund I was an $80 million early-stage traditionally structured fund. We’re typically investing first cheque in Pre-seed or Seed although we have also done first cheques in Series A or even Series B. We are investing across the alternative-protein spectrum in plant-based meat and dairy brands and tech companies higher up the value chain within cultivated agriculture.
Similarly, we have a few companies on the crops and agtech side within the alternative protein sector. We currently have a portfolio of 24 companies including five in Asia, three in Latin America, one in the Middle East and the remainder split roughly 50/50 between Western Europe and North America.
For us, some of the criteria we would look to varies depending on whether we’re talking about a plant-based company, a CPG formulation brand, or a company that’s on the tech side where the value is really generated by the IP. For the more plant-based meat and dairy or CPG side, there’s certainly a lot more companies in this space now than there were a couple of years ago.
There are of course the very obvious things to consider like the quality of the team and the deal terms. And there are things that are applicable to other sectors but very much apply here as well like total addressable market (TAM).
We do see some companies entering more niche sectors within the plant-based world and we typically don’t invest in those. We’re looking for companies and product categories that are large enough to grow addressable markets and have significant room to grow sales. We’re looking for companies and categories that we view as whitespace opportunities. In some product categories and geographical markets there is very tough competition and we would be much less likely to invest in those. We’re not likely to invest in a high quality plant-based burger company in the US, given the level of competition in that category there, whereas we have invested in that category in other markets like Brazil or Russia for example.
We think for local or regional market leaders taste is very important, so we will only invest in a company if we think it’s in the top one or two spots in terms of where a product ranks within its category and its broader geographic region. For companies that are already on the market in a significant enough way that they have reliable or early data on turnover, we want to see what their level of turnover looks like, how they sit relative to their competition and how that’s been trending over time. And certainly how their points of sale and revenue have been trending over time. I think those things are more important than our own subjective views on taste.
For plant-based companies, and we’ve made a few exceptions early on, we’re focused on companies that have a $200,000 sales run rate at least so we can see that the company knows how to sell and the products resonate with consumers. In terms of valuation, we look for multiples on sales and we have a general range that we pretty much always stay within.
On the tech side, we like to invest very early, usually within the first funding round. We have an in-house scientific advisor who knows and understands alternative protein technologies like cellular agriculture, so we have the ability to carry out due diligence on companies at a very early stage, before they’ve done much R&D work.
On the tech side, we’re also looking for really quality companies in categories that have large TAMs where there is not too much competition and we think they can be a regional leader. We like companies that are pioneering new things so we’ve invested in Seed rounds for the first and leading cultivated fat company, cultivated dairy company and cultivated seafood company in Europe. And in Asia, the first and leading company producing meat protein from precision fermentation.
In terms of valuation it’s much more difficult because these are brand new companies. We work backwards based on the market being addressed and what portion of that market could be secured. From there we consider what an exit price could look like and then the valuation that would give us a return in the desired range. That being said, in terms of what the actual final figure is, it really ends up being set by market comps. For an early stage deal, we’re trying to keep it as low as we can and the company’s trying to keep it as high as they can so it’s really a balancing act.
You closed Fund I in September last year, are you still on track to launch Fund II in Q1 this year?
We are planning a soft launch of those efforts at the end of Q1. We’ve had a lot of interest from our existing investors. We’re fortunate that Fund I has been doing very well from a returns and valuation growth perspective and we’ve had a lot of continued inbound interest from folks that didn’t connect in time to join Fund I. There are also institutional investors for whom our Fund I was not large enough.
What is the timeline for when that might close?
At this point it would just be speculative, based on the average timeframe. We have nothing more concrete than that.
You’ve received some backing from major food corps, what is the value of their interest in your investment vehicle and vice versa?
The value for us is in the ability to gain insight into how those sorts of companies would utilise specific opportunities. For example, we’ve had a couple of potential investments we have been vetting and deciding whether or not to move forward with, and we’re able to talk to some of those large corporations as they have good scientific teams that are well positioned to assess whether a start-up’s viewpoint and expectations are reasonable.
The benefit for them is the potential to be co-investors in our portfolio companies, which obviously can bring direct value to the company in various ways, both via the additional capital but also through a strategic partnership. We have a lot of portfolio companies that are potential acquisition opportunities or JV partners for our corporate LPs. We also have a proprietary database with around 22,700 companies which is tracking the alternative protein space, and we share that with them. Our corporate investors have in-house capabilities, technology, manufacturing etcetera, that could be quite useful to some of the companies in our portfolio.
In terms of what we provide to the big food groups, I think it’s a few things. Our Fund I is split 50/50 between corporate LPs and family offices.
How do you foresee the sector progressing in the next few years?
We’ve seen in the last couple of years an increasing number of large corporates getting into the alternative protein space in one way or another, either launching their own lines by acquisition, through private investment, or a combination of both. We expect this level of interest and investment to continue and I think we’ll see an increasing number of food companies enter the space through one or a number of those routes. We’ll continue to see this level of involvement starting with maybe one acquisition that could turn into two or three, looking at multiple product lines.
I do think we’ll see that on the cultivated meat and precision fermentation side as well. We haven’t seen any of the corporates launch their own in-house R&D efforts there as it’s a very large expense and it makes sense to outsource it. I think it will probably be a little bit before we see other more sizeable acquisitions in the category. If you look at what happened in the autonomous vehicle space fairly recently, a number of the leading companies, both in North America and Asia, were getting to the point of being able to actually commercialise their products. Then we saw some of the large automotive manufacturers acquiring these companies and bringing them in-house. I think we will see the same for cultivated meat and precision fermentation as the technology continues to get closer to the price point that will work in the market.
What are you seeing in some of the lesser-discussed markets you’re investing in?
What we’re seeing is kind of on track with what the larger investment banks and consultancies have projected, which is a very high rate of growth in places like Asia, Eastern Europe, Latin America in addition to North America and Western Europe.
In these other jurisdictions outside North America and Western Europe, alt-protein is starting from a smaller base, with the exception of China where there’s a very large incumbent industry, especially on the plant-based dairy side. We are keen to invest in companies that are in smaller plant-based meat and dairy markets in terms of total dollar sales at the moment, but are growing very quickly.
The expectation is that they’ll keep growing and in five to seven years these will be significantly larger industries and the local companies will likely have sales similar to Beyond Meat in North America.
Asia saw a significant increase in investment in alt-protein and novel food start-ups in 2021, is that level of investment supported by consumer demand?
Yes, although that’s not the only thing driving it. There was nearly nothing in this space in Asia three years ago and the increasing number of companies in the space has certainly driven an increase in investor interest. You’re also seeing local and regional investors seeing what’s happening elsewhere in the world and believing that the same is going to happen in other country, whether that’s China, Japan, or Korea. The level of apparent consumer interest is huge and there’s going to be very strong growth in this category.
