The current food-tech investment landscape is at a “strange inflection point,” especially for alternative ingredients, as the sector transitions from a period of rapid expansion to a phase characterized by more strategic focus and a preference for proven technologies and scalable models, according to one Pitchbook analyst.
Venture capital investments in alternative ingredients, including proteins, sweeteners and fats, have declined steadily since the pandemic, when the number and size of investments in space peaked at 292 deals worth $4.9 billion in 2021, according to Alex Frederick, Pitchbook senior research analyst for ag-tech and food-tech.
“It is safe to say this is a VC winter overall,” he noted at Future Food-Tech in Chicago last week where he explained the number of investments in alternative ingredients began declining steadily in 2022 when 250 deals valued at $3 billion were made, followed by 194 deals worth $1.2 billion in 2023 and 153 deals valued at $1.4 billion.
He attributed this decline in part to a “challenging exit environment,” in which investors who placed large bets in the alternative ingredient segment prior to the pandemic are struggling to sell for the amounts they expected or go public due to market volatility. Likewise, high interest rates are depressing M&A deals that historically stabilize deal flow and free-up financing for future arrangements.
Unhappy with returns, many of the non-traditional investors, such as hedge fund and other late-stage investors, who do not normally play in food-tech but who invested in alternative ingredients are now leaving the segment.
“We have seen a 54% decrease in VC investors playing in alternative food-tech and a 67% decrease in our traditional investors,” Frederick said.
Those who have stayed are becoming more focused – resulting in fewer deals, but more stable values, he explained, noting that investors are trying to “derisk” propositions by focusing more on later stage companies and those that can demonstrate more traction.
Alt protein’s fundraising track record sends mixed signals
One of the areas investors increasingly are shying away from is alt protein – including meat and dairy – although recent fundraise rounds signal continued confidence by some in the technology and scalability of business models.
“We have seen investment decrease quite significantly” within alt protein – dropping more than 50% from its peak in 2021, Frederick noted.
“However,” he added, “it is still the majority recipient of capital and deal count,” with 22 deals year to date worth $105.4 million.
Among those deals was a $33.8 million investment in Vivici’s series A round within the precision fermentation sector, a $3 million early VC investment in Mush Foods, which plays in biomass fermentation, and a $29 million series C investment in cellular agriculture firm Aleph Farms. Plantible’s $30 million series B round also signals ongoing interest in plant proteins.
Sugar alternatives enjoy sweet success while alternative salt loses appeal
The Trump administration’s Make America Healthy Again movement could reinvigorate investments in alternative sweeteners to help reduce sugar, which is a top target of HHS Secretary Robert F Kennedy Jr, who recently called it “poison,” and USDA Secretary Brooke Rollins, who is encouraging states to restrict the use of nutrition assistance funding to buy sugary sodas and candy.
Like other segments, alternative sweetener VC deal activity peaked during the pandemic with a high of 17 deals worth $151.7 million in 2021, followed by a steady decline in count and value the following years.
However, Frederick notes, beverage companies’ interest in alternative sweeteners could reassure investors. Still, he said, many remain cautious as illustrated by moderate deal volume and limited large deals in the space.
Among the notable deals in alternative sweeteners include Bonumose’s $41 million late VC raise for its enzymatic tagatose and two deals for sweet proteins – Oobli’s $18 million series B1 raise and Amai Protein’s $100 million series A raise. Other smaller but still notable deals include beverage sugar reduction tech player BlueTree Technologies’ $2.3 million series A raise and Ambrosia Bio’s $300,000 seed raise for rare sugars.
Sodium reduction appears to be less of a priority for the Trump administration, although FDA under the Biden administration was actively trying to reduce consumption by encouraging CPG manufacturers to meet voluntary targets.
Investors likewise are less active in the space, noted Frederick, who explained fewer deals and reduced capital deployment may reflect minimal innovation and signal investor rotation away from this subsector.
Still a few notable deals include MicroSalt’s $3.2 million IPO, a $5.9 million late VC investment in NuTek Natural Ingredients, and early VC investments in Done Properly, worth $2.2 million, and BioMush, worth $1.8 million.
Alternative fats and oils grow amid sustainability concerns, health trends and tech advancements
Emerging as a dark horse in the alternative ingredient space are fats and oils, which Frederick notes have seen consistent deal value and count growth in recent years, including 21 deals worth $110.9 million in 2024 which topped the 16 deals worth $87.6 million the year before and rivaled the 20 deals worth $128.9 million made in 2021, when the sector last peaked.
“What is really interesting about alternative fats and oils is investors seem to only be increasing their appetite. Funding does pale in comparison to alternative proteins, but we’re seeing investment dollars and deal count continue to increase year over year,” said Frederick, who added, “There’s a lot of interesting innovation going on.”
Recent winners in this segment include Yali Bio, which raised $3.9 million in seed funding for its precision-fermented fats, and Mission Barns, which raised $24 million in series A funding for its cell cultivated animal fats.
Zero Acre Farms also raised an undisclosed amount in late VC funding for its fermentation-derived oils.