We often comment on the decline in funding in FoodTech startups, as in our latest report on global investments, which shows a 72% decrease since 2021. It is not something that only impacts food, though: we should stress more that it’s also something affecting other “tech sectors”. This is well reflected on the right-hand-side graphs below.
Food is probably slightly more impacted:
- in terms of capital invested, with a “new normal”, which is somewhat at 2017/2018 levels rather than 2020. But that’s largely due to its low exposition to the few remaining “hype areas” in tech, notably artificial intelligence.
- in terms of deals, with a very severe dip in the number of deals. This translates into the depletion of the pool of early-stage ventures, which may be the point we are the most worried about.
These graphs coming from the Global Innovation Index (which ranks Switzerland as number #1), show something else: innovation is slowing beyond startups and venture funding. After years where the growth in the number of patents was stalling, it went down in 2023 with almost 2% less patents. In the same time, the number of scientific publications is going down by 5.3%.
While there is not yet a definitive explanation of what is happening, we can put forward multiple hypotheses:
- Rising costs: the cost of disruptive innovation has increased significantly due to the inflation and to the global contest for talents.
- Disillusion: recent investments in disruptive innovations have proven deceptive and have provided little returns for companies.
- Short-term focus: in the current, highly uncertain economy which creates financial constraints, investment in long-term projects and innovation may be less of a priority compared to short-term gains in productivity or incremental innovation. For venture capital, this translates into a preference for startups with a clearer path to profitability.
- Rationalisation: it has also been shown that the increase in the number of patents, or in scientific publication wasn’t necessarily linked to a rise in quality. As for startups and investments, a form of rationalisation was required.
In the short term, this isn’t too worrying and could be only an adjustment. But I think it reflects something more profound and that it should be taken in consideration very seriously, especially in food where we have a deep need of innovation.
- First, there are growing doubts on the cost and the output of research with the idea that there are diminishing returns in many areas. As underlined in the report on the Global Innovation Index with the example of ageing, the gains of lifespan and health-span have become marginal in the past decades, even if investments in research have kept increasing.
- Then, for food (but it could be the same for many other areas), there is an also growing discussion on whether the venture capital model is the best one for disruptive innovations. Investors expects returns (an exit through an acquisition, which is the preferred path in agriculture or food) in a window of seven to ten years. But we are seeing that many startups working on disruptive technologies (such as alternative proteins, new inputs or materials) need more time to reach a relevant level of maturity.
Now, what do we do next? We could just stay there and complain about the state of things, but let’s see that as a challenge that creates opportunities. If others are disengaging, it’s maybe the best time to consider putting more effort into innovation with a fresh look. Here are a few ideas for agrifood companies:
- Set up strategic partnerships to solve the scale up challenge of disruptive technologies: rather than relying solely on VC-backed startups, companies can consider forming coalitions (ideally between players at different stages of the value chain to avoid direct competition) to boost research, investments, and scale in key areas, such as the broad spaces of alternative proteins, healthy ageing and decarbonation.
- Focus on collaboration, increase R&D spending and open Innovation: with declining patents and publications, collaboration is becoming essential. Companies can increase their own R&D capabilities both by increasing their spending, but also by partnering with universities and. A key of success is probably to be extremely clear on the goals while not being too focused on the short-term.
- Create internal innovation ecosystems, first to seek where innovation is really needed and which level of disruption is required, then to either engage with startups, or to develop innovation internally. This is highly challenging (as it needs to build the right structure with the right metrics that don’t put too much pressure on the need to reach immediate profitability) but it can highly rewarding if done well.
If that’s an important topic for you, and if you also want to make food innovation great again, maybe we should have a chat. Contact us here.
