Last month, Singapore-based cultivated seafood company Umami Bioworks announced a merger with Shiok Meats, a renowned crustacean meat startup backed by Y Combinator, SEEDS Capital, and other high-profile investors. The development surprised many, given that the alt-protein market in Southeast Asia is still nascent and far from mature, its surface is barely scratched, and consolidation is still many years away.
Alternative protein — encompassing a wide range of products, including plant-based meats, insect-based protein, and cell-cultured meat — witnessed an upsurge in interest and excitement in the region in the past four to five years, attributable to a mix of societal, environmental, health, and ethical considerations. Nearly a hundred alt-protein companies currently operate in the region. Massive capital was poured into the space, with investments peaking in 2021 (US$103.8 million across 11 deals) and 2022 (US$178.8 million across 10 deals).
However, the investments witnessed a significant decline in 2023 (just US$9.5 million across six rounds) thanks to funding winter, leaving many alt-protein companies high and dry. Among them, cellular agriculture and cultured meat startups felt more pinch.
Also Read: Shiok Meats CEO Sandhya Sriram to step down after merger with Umami Bioworks
A high capital-intensive business
“Alt-protein is a high capital-intensive business,” says Jonas Eichhorst, Executive Director of Protenga, an insect-based nutrition business in Malaysia. “Many models require significant capital for IP development (PhD researchers are expensive) and to scale the production facilities.”
However, regulatory uncertainties and business scaling challenges forced VCs to turn their focus to traditional high-margin products, and the alt-protein space suffered.
“VCs typically prioritise investment opportunities that align with current trends and emerging market demands,” according to Jason Fong, founder of Wholesome Savour (a plant-based foodtech company. “They follow the money by investing in sectors with the potential for significant growth and returns.
In the context of the alternative protein industry, where there is a growing interest in plant-based proteins, cell-cultured meats and other innovative protein sources, VC funding has been increasingly prominent. “In alt-protein, certain areas, such as cellular agriculture and cultured meat, require substantial R&D and technology investments to scale production and bring costs down,” Fong shares.
But that is not happening. According to experts, VC investments will continue to be slower, and VCs will likely look very carefully at who they’d be co-investing with and if there are deep pockets.
“Alt-protein is a game that needs to be done on a massive scale, so the cost of capital becomes a major constraint here. This means that the business needs to be large-scale, too. However, it is hard because if you want to be a large-scale business, you can’t be a niche/boutique business; rather, you should go mainstream. This, in turn, means low margins,” adds Eichhorst.
However, choosing between being a boutique business and going mainstream is a task in itself. “Because of this, many companies will likely get stuck in the middle; you may find some boutique companies doing interesting work but not venture-backed firms. Then, for large-scale ones, the venture capital still may not be enough because of the scale of capital required and the resulting cost of capital,” Eichhorst explains. “Some players are trying to go into high-margin niche applications, but fundamentally, you need to go mainstream to justify the quantum of capital raised and then subsequently return the capital.”
The way forward
It is important to recognise that there are bound to be winners and losers with any trend or fad. Despite the initial hype or investment, not all companies or technologies within the alternative protein space will succeed. Factors such as product quality, scalability, market fit, competition, regulatory challenges, and consumer acceptance play crucial roles in determining which companies emerge as successful players in the industry.
“Identifying the right niche or space within the alternative protein industry is crucial to succeed,” remarks Fong. “It involves understanding consumer trends, market demand, competition, and regulatory landscape. Companies can differentiate themselves by focusing on product innovation, sustainability, taste, and affordability or targeting specific consumer segments.”
Finding partnerships with players with strong balance sheets or being in niche applications in the value chain is equally crucial. However, they must be cautious about capital as these likely aren’t hypergrowth stories.
“As the global cultivated meat sector continues to evolve, reducing production costs and achieving scalability through innovations in raw materials sourcing, media use reduction, and supply chain optimisation becomes paramount. The (Umami-Shiok Meats) merger allows both teams to leverage their compounded learnings over the years, fostering an environment ripe for breakthroughs that could set new industry standards. Further, it underscores the critical role of sustainable food systems, like cultivated seafood, as integral components of the broader climate solution framework,” said Manav Gupta, Founder and CEO of Brinc, an accelerator-cum-VC fund and an investor in Umami.
Crafting a well-developed go-to-market (GTM) strategy is also vital. A strong GTM plan delineates how a company will engage with its target audience and drive revenue generation. “Companies that clearly communicate and execute their GTM strategy are better positioned to excel in competitive environments. Financial adaptability is crucial during periods of industry unrest. Companies with solid financial structures and access to capital possess the resilience to withstand uncertainties, undertake strategic initiatives, and leverage growth prospects emerging from industry shifts,” says Fong.
Also Read: Umami Meats secures US$2.4M seed funding to scale its cultivated seafood business in Singapore
“Ultimately, success in any sector hinges on delivering value to customers by effectively meeting their needs. Companies that comprehend market requirements, innovate to address these demands, and provide superior products or services will likely thrive, regardless of prevailing industry trends or competitive pressures,” he goes on.
In Fong’s view, VCs have a unique opportunity to drive positive change and make a lasting impact on society. By embracing a longer-term perspective that includes considerations for green, sustainable practices and social impact, VCs can catalyse innovation that benefits their bottom line, the planet, and communities.
“Prioritising initiatives that contribute to environmental sustainability, social responsibility, and ethical practices can lead to long-term value creation and positive outcomes for both investors and society. By going beyond the pursuit of immediate financial gains and focusing on holistic, sustainable approaches, VCs can play a pivotal role in shaping a more prosperous and equitable future for all,” the Wholesome Savour founder says.
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