Food and agritech companies are starting to seek public capital, riding the wave of green investing and changing consumer tastes.
Companies recently listed on stock markets include a high-tech greenhouses venture that grows tomatoes with 90 per cent less water, a plant-based creamer company founded by a big-wave surfer and a company that makes sustainable plastic using a form of rapeseed.
Early-stage investors and venture capitalists have been putting their money into food and agritech start-ups for several years in search of disrupters. But stock-market listings in the industry grew almost eight-fold to more than $31bn in 2020, according to corporate data firm PitchBook.
Heavy demand for sustainable investments, coupled with a US craze for special purpose acquisition companies that buy targets to take them public, means this is likely to accelerate in 2021.
“A lot of my portfolio companies are being approached by Spacs at the moment,” said Sanjeev Krishnan, chief investment officer at S2G Ventures, a food and agritech VC firm. Spac deals offer capital-hungry food and agritech start-ups access to funding. “Public [sustainable investment] capital dwarfs private capital,” he added.
Already, public-market capital raising has crept ahead of investment from venture capitalists and early-stage investors in this sector, which is thought to have reached $30bn last year, up 35 per cent from the year before, according to venture capitalist AgFunder.
Plant-based protein group Beyond Meat’s stock market debut in 2019 proved that investors were willing to put money to work in the sector. Its shares have pulled back from their highs, but are still more than five times from their listing price.
The shift on to stock markets can, however, test investors’ nerves. Shares in US high-tech greenhouse company AppHarvest, which completed its Spac deal last month, almost halved last week as the lock-up period ended for early investors. Shares in Oregon-based Laird Superfood, a plant-based coffee creamer co-founded by surfer Laird Hamilton have also been on a rollercoaster, underlining the volatility of early-stage companies’ stocks.
Its market capitalisation may have halved from its peak in February to about $1.9bn, but AppHarvest said its “business strategy and fundamentals remain strong”.
The company, which runs a high-tech greenhouse in Kentucky the size of 60 football fields, cuts water usage by 90 per cent compared with open-air agriculture.
It plans to build another 11 such greenhouses by 2025. “What’s happening in agriculture is what we saw in the early 2000s when people started talking about cars not running on fossil fuels,” said Jonathan Webb, the company’s founder and a former renewable energy developer.
Other start-ups that have turned to deals with blank cheque companies includes Danimer Scientific, which produces biodegradable, renewable and sustainable plastic using canola oil. Natural Order Acquisition Corp, a Spac looking to buy a plant-based protein food and drink company, started trading on Nasdaq late last year.
Food and agritech investment company Eat Beyond went public on the Canadian Securities Exchange last November. Its portfolio includes California-based alternative protein start-up Eat Just, which has started selling its cultivated chicken in Singapore, and TurtleTree Labs, a start-up looking to create lab-grown human breast milk.
Also in Canada, Farmers Edge, a crop data company, floated on the Toronto market last week, while Swedish oat-based milk company Oatly last month submitted a confidential filing for an initial public offering in the US.
While the bull run in equity markets has meant that investors are willing to turn to early-stage companies, public company investors need to understand that the nature of start-ups is such that “some [investments] are going to end badly”, said one VC investor.
Spacs offer short-cuts for start-ups to access public capital, but seasoned investors warn that some of those companies may not be ready for public markets. “You need some form of maturity [to do an IPO],” said Eric Archambeau, a former Silicon Valley entrepreneur who established Benchmark’s Europe operations and now runs agritech VC Astanor.
Jim Mellon, co-founder of Agronomics, an agri and food tech investment company listed on the London Stock Exchange’s Aim, categorises the fate of start-ups as “fold, sold or bold”. Some early stage companies will fail, or fold, while others will be sold to established players in the food and agricultural sectors. Some “bold” success stories may achieve global reach and offer investors the most returns, he said.
Archambeau said that like the investors in the late 1990s who bought shares in technology companies, the market for food and agritech companies was “still fairly indiscriminate”, leading to high valuations.
“Because agri-food tech companies move more than just bits and electrons, it might take longer for many of them to reach ‘escape velocity’ than the pure online service companies such as Google or Facebook did,” he cautioned.