Although the investment in food technology has slowed down in line with the rest of the venture capital world, the industry has recently passed important milestones that suggest industry and government are aligning.
In fact, some investors believe that 2023 will be the year that alternative seafood companies and products make notable strides.
More than $178 million was injected into alternative seafood products in the first half of 2022, and the market value is expected to reach $1.6 billion over the next 10 years. One of the industry’s largest investments was Wildtype, which raised $100 million in a Series B round for its “sushi-grade” farmed salmon.
If this momentum continues over the past six months, sector funding would reach or exceed $306 million invested in all of 2021, despite last year’s slowdown.
“Investments have been steadily increasing, and we expect that to continue,” said Christian Lim, managing partner at Blue Ocean of SWEN Capital Partners. “We see the alternative seafood industry reaching key technical and economic milestones faster than the alternative meat space, indicating potential for continued acceleration,” he said.
Many companies say they’re in it for the sustainability factor, and even with the FDA’s initial blessing to Upside Foods for its cultured chicken manufacturing process, the focus is on getting these alternative foods close. the scalability and cost of traditional meat.
“The cultured seafood industry no longer needs to solve the technology – the technology is there and it continues to improve with each iteration,” said Kate Danaher, Managing Director of S2G Ventures. “Now we need to think about branding, labeling, consumer education, scaling up production, and developing and improving the supply chain. supply and inputs that will support a scalable industry.”
Every startup journey is very different, but one model we’ve seen work is an iterative approach to go-to-market strategy, product development, and regulatory approach. Friederike Grosse-Holz, Director, Blue Horizon
And like other plant-based, cultured, and fermented food companies, alternative seafood companies must also find the best way to get people to not just try their products, but ask for seconds.
As we enter 2023, investors say regulation will help seafood alternatives make further headway, and they’re optimistic it can find traction. Read on to find out how active investors are thinking about seafood alternatives, where they’re seeing growth, what they’re watching, and more.
We spoke with:
Kate Danaher, Managing Director of Ocean and Seafood, S2G Ventures
What will it take for the alternative seafood industry to have its first unicorn? Do you think 2023 is the year for that? Which companies do you think are close to reaching this milestone?
I don’t expect the first alternative seafood unicorn to happen in 2023. The first goal we should all focus on is demonstrating repeated production cycles at viable prices.
Cultured protein companies have made tremendous strides in product development, but the big hurdle is getting a product of consistent quality and cost to market.
To date, we have seen big dollars flow to support the first wave of cultured protein products, including in seafood. To achieve the increased valuations that will eventually lead to a unicorn, companies will need to demonstrate a product of quality with margins that fit into a viable business model at scale.
There has been some progress in the United States towards approval of the alternative protein production process. How can founders work with regulators and investors to complete more proof-of-concept projects?
Many groups need to be “conquered” to mitigate the headwinds that cultured proteins are likely to encounter when they come to market, such as industry groups, consumer groups, and regulators.
Startup founders can support industry growth, commercialization and acceptance by building bridges with industry groups to show that cultured seafood can be complementary to wild and farmed seafood.
Additionally, they must ensure transparency of the production process to win over consumer groups and join an association, such as AMPS or the Good Food Institute, which do important regulatory work on behalf of the industry.
Depending on who you ask, the traditional production of alternative proteins, such as beef, chicken, and pork, is still years away. How can the alternative seafood industry get there faster?
I am confident that alternative protein products will be available for purchase in the United States over the next 12 months, both cultured seafood and other animal protein. But for the foreseeable future, this product will be niche, high-end and in limited production. Once production capacity constraints are resolved and costs reduced, I expect these products to be as widely available as their animal protein counterparts.
One area where seafood may have a speed-to-market advantage is in regulation, since the FDA has exclusive jurisdiction over alternative proteins, while the USDA and FDA share competence on animal proteins.
Additionally, seafood has a higher price and simpler muscle structure compared to other animal proteins, making it easier to grow a product that replicates wild/farmed species more easily.
Many alternative seafood startups also aim to solve the climate crisis, but this industry has unique challenges such as cost and consumer appeal. What will be essential to help companies produce sustainable products at scale?
For cultured seafood, the technology is there and it continues to improve with each iteration. Now we need to think about brand building, labeling, consumer education, scaling up production, and developing and improving the supply chain. and inputs that will support a scalable industry.
If these products can be more affordable and meet consumer expectations, they can have a large-scale impact – for the animal through less wild fishing, for humans by providing a seafood product free of toxins and microplastics, and for the environment thanks to less waste.
In addition, consumer education will be essential. Part of this includes raising awareness of the true cost of our food beyond what we pay for at the grocery store. Consumers are increasingly aware of externalities and take them into account in their purchasing decisions, but there is still a lot to be done in this regard.
What does the future of investing in this space look like? What areas do you put forward as future growth indicators?
The good news is that cellular seafood has reached a stage where it is almost ready to market from a regulatory, taste, and performance perspective.
Cellular seafood companies are making incredible strides in lowering prices and are approaching the stage where they are ready for growth capital to scale the business. I expect to see more innovation and investment in advancing customer experience and 3D structures.
What does it take to attract more institutional investment for subsequent funding to help scale the market?
I expect cellular seafood companies to be in a sold-out position in the future as there is demand from a large early consumer segment. The next wave of investment will be in infrastructure and companies building adjacent inputs to outsource parts of the supply chain.
We have strong indications that FDA clearance is coming, and that will tick a big box for institutional and later-stage investors. Once that is behind us, it will be a question of who is in the market and who is producing a product at a price that makes a compelling business case.
Friederike Grosse-Holz, Director, Blue Horizon
What will it take for the alternative seafood industry to have its first unicorn? Do you think 2023 is the year for that? Which companies do you think are close to reaching this milestone?
It will require a clean label and a healthy nutritional composition equivalent to seafood, especially in protein and omega-3 fatty acids.