In 2012, the co-founders of a fledgling company called Beyond Meat received the e-mail of start-up dreams.
An investor, Seth Goldman, had read about the Los Angeles-based venture’s mission to make a burger from plant protein that truly, once and for all, tasted like meat. Intrigued, Goldman went to their website and sent a note saying, “If there’s any way I can help, I would love to,” he recalls.
Having been an aspiring social entrepreneur himself—back in 1998, before anybody called it that, he co-founded the organic beverage company Honest Tea—Goldman had vowed to support up-and-coming companies in the sustainable food space. But he had another, more selfish reason for his interest in this particular start-up.
“I’d been a vegetarian for 13 years and was always frustrated with the options,” says Goldman, who’s now executive chair of Beyond Meat. “So I had a personal interest in seeing this company succeed.”
“Personal” is the key word here.
Think of sustainable food and agriculture as the impact investment where the mind, heart and body meet. The sector is increasingly attracting the smart money by offering significant opportunities to create environmental impact alongside market-rate financial returns. But it also appeals because of the personal, and very human, connection investors can make to the product. Food is one of our basic needs.
“There’s no doubt that people being able to go into their local Whole Foods and pick up brands they’ve invested in through us, or seeing other people pick up those brands, makes an investment much more real,” says Paul Richardson, CEO and co-founder of Renewal Funds, an early-stage venture capital firm with portfolio companies such as Ian’s Natural Foods and Sensible Organics. “It’s an investment trend really driven by the consumer, which investors are following. And actually the investors are a little late to the party.”
U.S. organic food sales have more than doubled over the last decade, to $43 billion in 2016, and now make up more than 5% of the country’s total food sales, according to the Organic Trade Association. Moreover, this growth shows no signs of letting up as consumers increasingly demand these products, whether they’re concerned about personal health and nutrition, animal welfare, the effects of conventional farming practices on the environment or a combination of the three.
This trend is not lost on a growing number of wealthy and influential investors who envision a very different food system than the one we have now. In August, Richard Branson and Bill Gates, alongside smart money investors like Cargill Ventures and Kimbal Musk, backed the “clean meat” start-up Memphis Meats in its $17 million Series A round. Memphis Meats, which produces meat directly from animal cells, marked another in a string of sustainable food companies that have raised an impressive amount of capital in recent years. (Gates also invested in Beyond Meat.)
Branson even made the bold prediction that in roughly 30 years we will no longer need to kill animals because all meat will either be clean or plant-based.
Whether or not you can imagine people across the planet chowing down on veggie burgers and “clean” chicken nuggets, this does raise an important point: The future of food is not just about suburban American moms who want their kids to eat pesticide-free carrot sticks or urban hipsters who will pay through the nose for locally raised, organically fed, free-range duck. It’s about feeding a global population expected to top 9 billion by 2050 without destroying the planet that sustains us.
Animals raised for food are estimated to contribute between 14% and 18% of the human-related greenhouse gas emissions causing climate change. This is also one of the main causes of deforestation, another contributor to global warming, since 36% of farmland is used to grow animal feed, mostly corn. Meanwhile, the overuse of chemicals and other unsustainable practices deplete soil and pollute waterways.
Reducing meat consumption and implementing sustainable agricultural practices—for example, by grazing cattle on natural grasslands rather than feeding them feedstock, by eliminating (or at least significantly reducing) chemical-based farming and by growing a larger variety of crops while using mindful crop rotation—could go a long way toward solving these problems.
It’s also financially smart. With an annual investment of $320 billion in sustainable business models by 2030, the food and agriculture industry could reap $2.3 trillion a year, a 2016 report from the Business & Sustainable Development Commission (BSDC) estimates. That represents a seven-fold return on investment and could create more than 80 million jobs.
“We’ve been watching food and ag for quite some time,” says Nancy Pfund, founder and managing partner of DBL Partners, an impact-focused venture capital firm best known for its clean tech investments in the likes of SolarCity and Tesla.
With its third fund, a $400 million vehicle that closed in 2015, DBL has invested in Apeel Sciences, which creates products from plant extracts that allow growers to reduce their reliance on pesticides, increase produce quality and extend shelf life, thereby reducing food waste.
The firm has also expanded its position in the Farmers Business Network (FBN), an analytics company that provides farmers with data that helps them track and reduce the use of chemicals, water and energy. Pfund believes this type of technology will produce change on a larger scale because mainstream mega-agriculture is where the numbers are.
“To move the mega-beast, you’ve got to do it through this data-based approach,” she says. “It eliminates the opaque nature of the industry and reveals that you can get good [crop] yields without using so much of this stuff, and, if you can show that to buyers, you’ll be able to command better pricing as consumers increasingly care more about this. It’s a very nice marriage of demand pull and technology push.”
Some U.S. farmers, also seeing the potential of a growing marketplace, have begun changing to organic practices, but the numbers for certified organic farms remain tiny, less than 1% for most U.S. crops. Still, more than 4 million acres of U.S. farmland are now devoted to organic agriculture, according to a 2016 report from the market research firm Mercaris, a record that marks an 11% increase over 2014. The number of certified organic farms is close to 15,000, rising more than 6% since 2014.
“We believe we offer a superior investment within agriculture, because it’s healthier and the farmers are ultimately restoring the soil back to life,” says David Miller, CEO and co-founder of Iroquois Valley Farms, a 10-year-old sustainable farmland finance company that buys farmland, converts it into organic practices and leases it to farmers. “It’s the difference between depleting the soil, so its value decreases, or restoring the asset and making it healthier and more productive. And even if you didn’t buy into that, why not hedge your bets? The reality is that 99% of agriculture is dead. And 1% to 2% is the living alternative. We’re where the growth is.”
Iroquois Valley has purchased roughly 4,500 acres of farmland—around 50 typically middle-sized family farms—in 13 states, with most of that land concentrated in Indiana, Illinois and Michigan. The farmers come to them, Miller says, and continue to run their own businesses—another clue that mind sets have begun to change.
“For decades, big industry has told farmers that organic doesn’t work,” says Craig Wichner, co-founder and managing partner at Farmland LP, a sustainable farmland investment company that currently owns 13,000 acres in the Northwest. “But it’s the unsustainable agriculture practices that fail.”
Like Iroquois Valley, Farmland LP acquires undervalued farmland and converts it into organic practices. It differs in that it manages the properties. Wichner says the firm’s organic acres generate 72% more revenue per acre than its conventional fields because of the supply-demand imbalance.
Growing demand for organics makes the mainstream food and agriculture industry nervous. This is why you see the likes of Cargill Ventures investing in Memphis Meats, and it’s a big part of the reason corporate giants such as General Mills, Kellogg and Hain Celestial have all launched their own venture capital arms in the last couple of years.
This raises questions about the consolidation trend in the food industry; many organic/sustainable brands are being gobbled up by corporations—Ben & Jerry’s by Unilever; Annie’s Homegrown by General Mills; Stonyfield Farm by Danone. The list goes on. Does this leave impact investors with fewer opportunities? And does it dilute the end goal?
Folks involved in the sector don’t seem to think so.
“Typically what we’ve seen is that consolidation happens later in the cycle. It might not be until a company hits $100 million to $200 million in revenue,” says Michael Whelchel, co-founder and managing partner of Big Path Capital, a boutique investment bank focused on impact investments. It’s a company’s period before consolidation that’s “actually a really nice phase for one of our family office investors,” Whelchel says. “They can come in when the revenue is greater than $10 million or $20 million and watch the company grow 10-fold.”
As for whether a corporate acquisition dilutes the goal of sustainability, many seem to think it does the opposite—social entrepreneurs not only ensure that their mission continues when they sell, but these acquisitions can have a positive effect on the larger corporate culture. A corporate parent also, undeniably, brings scale to an operation.
Renewal’s Richardson explains this point of view with the example of Sweet Earth, a vegan food company Renewal invested in that Nestlé acquired in September.
“If our goal is to encourage more people to eat plant proteins rather than animal proteins because of the huge environmental impact of that decision, think about Sweet Earth’s potential to become a billion dollar brand with Nestlé’s distribution arm behind it,” Richardson says. “Then think about the amount of water and CO2 emissions that will be saved by that growth. We think that’s pretty exciting.”
