Dive Brief:
- Venture capital funding for food and beverage upstarts during the last four quarters — both the amount of money raised and the number of deals — is down significantly from the same period the year before, according to data provided to Food Dive by PitchBook.
- In the first quarter of 2023, there were 1,030 transactions that raised roughly $1 billion, compared to 1,349 deals totaling $1.3 billion in the first three months of 2022. The fourth quarter of 2022 saw an especially profound drop, with 785 deals raising $800 million. At the same time in 2021, 2,316 deals raised $2.3 billion.
- The decline comes as challenges in the global economy, rising interest rates and the ongoing war in Ukraine weigh on young companies looking to raise money.
Dive Insight:
From the last quarter of 2020 until the second quarter of 2022, food and beverage startups were in a highly favorable environment to raise cash.
In each quarter during that time, there were 1,000 or more deals that collectively raised at least $1 billion, according to PitchBook data, which showed funding through April 4 of this year. The peak occurred in the fourth quarter of 2021, when $2.3 billion was raised from 2,316 deals, the most in any three-month period between 2019 and the first quarter of this year.
Of the top 20 venture capital fundraising deals since 2015 in consumer food and beverage, 12 of them closed in 2020 and 2021, the data showed. Two transactions — Little Leaf Farms and Upside Foods — closed in 2022. Meati Foods had the only round that closed this year, though the majority of those funds were raised in 2022.
To be sure, companies are still raising money, but the deals appear to be smaller.
Prime Roots, which uses koji mycelium to make meat analogs, announced earlier this month it closed a $30 million Series B round to expand its deli meat-style product. And two weeks earlier, low-carb and better-for-you bread maker Hero Bread raised $15 million in a Series B round and announced a national retail launch.
But other businesses are running into problems and being forced to shut down.
Cultivated pork maker New Age Eats closed in March because the company no longer had enough money to keep operating. Cana, which was building an appliance it said could create and customize virtually any beverage, shut down this month. The company reportedly could not secure funding and laid off all of its employees, The Spoon reported, citing LinkedIn posts from former employees.
The environment is hardly favorable for companies looking to raise cash. With interest rates at their highest level in years, it’s more costly than ever to borrow money. Some banks are being more cautious to whom they lend money. The collapse of Silicon Valley Bank earlier this year removed a player that was known to work with young companies.
At the same time, venture capitalists are being more selective in what they invest in.
In an interview last September, Peter Burns, a managing partner at Sunrise Strategic Partners, said investors are being more cautious and prioritizing profitable, established brands.
“We have the capital to spend, but more so than ever, we’re going to do the right diligence against the right businesses,” Burns said. “We’re going to focus less on explosive growth, more on the ability to get to profitability.”
