European FoodTech has been shaped by two generations. The first was largely characterised by food delivery services and the second generation by restaurant delivery and every day food. Now there’s a third generation on its way and this wave of startups, although having just appeared, are showing some interesting trends. But what is setting this wave of startups apart and what can we expect?
The new report by Digital Food Lab looks at 2021 and the State of the European FoodTech System. From these findings, we can expect the European FoodTech’s 3rd wave to be distinguished by two features: startups raising at earlier stages and betting on long term trends.
Traditionally, advice to startups is to bootstrap as long as possible until the target market is validated and there’s a proven track record of customers. Ideally, the capital raised is to scale, and not to launch. That’s because every month, or even week, that VC funding is delayed, the startup can get more customers, more proof and a higher valuation, creating more certainty for the investors and a better deal for the startup. But now startups are opening rounds sooner, and investors are willing to fund. Why this shift? The traction of a few FoodTech trends.
Trends
The trends are your friends when it comes to FoodTech startups. Previous startups in these trends would use investor money partly to scale their startup, but also to contribute to a mind-set change of the market. Imagine food delivery in its earliest days, or the first plant-based meat. The challenge bigger than reaching their target market was convincing their market of their product or service. Why deliver food, and why switch to a plant-based alternative. But now the market is familiar, leaving investors to jump in earlier, especially with these trends.
Trend 1: Alternative proteins
One of the most notable findings was the rise of FoodScience and alternative proteins in particular. Funding in alternate proteins had the highest growth in 2020, increasing from €203m in 2019 to €556m in 2020. But there’s even more to consider than this 178% increase. Beyond Meat’s IPO in 2019 sparked investment in all kinds of alternative protein burgers and meat replacements and that’s a trend that could follow in the space of plant-based dairy as Oatley is gearing up for an IPO this year. In our own portfolio, Innovopro bring entirely new plant-based proteins made from chickpeas to the markets.
Trend 2: Food delivery
We might think the food delivery model is dating, but 2020 showed many unique business models. Traditional restaurant delivery has been challenged by meal kit delivery, farm to home delivery, grocery delivery and zero waste delivery. We can expect the internationalisation of some of these startups, including Gorrilaz, Picnic and Everli.
Trend 3: Food service
Food service has revolutionised the hospitality industry and startups in food delivery, food waste diversion and reservation technology has led the growth of this area. However, 2020 has been an unprecedented year in that many of our beloved restaurants, cafes and hospitality hotspots have been partially or fully closed for service. But there are still some startups like Too Good to Go that have thrived in connecting food providers and customers to reduce food waste. If the industry can reopen this year, it will be an interesting time for these startups.
In 2020, European food technology startups raised €2.7B. Despite the challenges of 2020, that’s the same amount as 2019. Now is the time to see if 2021 will bring growth to the FoodTech industry, and we expect it will.
If you are interested to learn more, you can download the new (and free) report by DigitalFoodLab here.