According to a new report by PitchBook, venture capital investment in the culinary technology sector declined for the eighth consecutive quarter in the third quarter of 2023, with 205 deals totaling $2 billion.
This represents a decrease of 13.9% compared to the preceding quarter, during which 268 investments totaling $2.2 billion were executed. Additionally, there is a decline of over 71% annually. PitchBook defines “foodtech” as including the following industries and sectors: bioengineered foods, alternative proteins, e-commerce, food production, restaurant and retail technology, and discovery and evaluation.
“The continued decline in deal activity is somewhat disheartening,” a senior analyst of emergent technology at PitchBook and report author told Eltrys. “However, the market is still rapidly evolving.” 
He cites the Instacart IPO as one of the shining points of the third quarter, remarking that there was considerable anticipation surrounding it, particularly since it was a success. Nevertheless, Frederick added that he has not yet observed a significant number of other technology firms rushing to exit.
“As long as the IPO window remains closed, venture activity will continue to be challenged,” he added.
Regarding investor sentiments
According to an interview with Meir Rabkin, founder and managing partner of climate tech venture firm Blue Vision Capital, the industry as a whole has remained “extremely resilient” over the past two years. He observes that the resilience is in terms of company valuation; climate technology was not as severely affected by the decline observed in other industries.
Rabkin stated that investment in agricultural technology is “a bit of a tough space” for a variety of reasons, including the relatively high cost of capital expenditures and the lengthy R&D process.
“However, considerable innovation and disruption must occur in that area,” Rabkin stated. “It is a tremendously exciting environment to be in.”
However, capital constraints are not entirely negative, according to Cristina Rohr, managing director of investments in food and agriculture at S2G Ventures, an impact investment firm.
She discovered that when capital became scarcer, the business models of companies became more resilient as their proprietors adopted more capital-efficient strategies. Additionally, they are contemplating various forms of collaboration, such as the possibility of licensing their models.
Rohr is unsurprised by the decline in venture capital in the food technology industry, given that firms are concentrating on scalability and positive unit economics.
Rohr stated, “We operate in an environment susceptible to commodity pricing and supply chain expenses.” “Beyond all of this, in order to achieve scalability, one must be priced at par with established technologies or products.” “As these large funding rounds come together, investors are recognizing the technical milestones in conjunction with the positive unit economics required to achieve these milestones.”
The plant-based sector is experiencing a slower growth rate.
In contrast, 46 transactions totaling $724.2 million were completed in the alternative protein sector during the third quarter. VC funding into plant-based foods “is down significantly from its peak in Q3 2021,” according to the report, although deal activity is improving, with a second consecutive quarterly increase.
Amid the surge in investment transactions pertaining to plant-based products, Frederick of PitchBooks characterizes the meat alternative industry as “struggling,” attributing this to a reduction in the amount of space allocated to such items on grocery store shelves.
Frederick attributed this to the difficulty in attracting new consumers to sample these premium products, which is primarily due to price, flavor perception, and the fact that they are processed foods.
“Obtaining and retaining it on the shelf is challenging,” he stated. “Delivery is of the utmost importance for these businesses.” As a whole, consumer packaged products are currently facing significant challenges due to price inflation. Despite the growing preference for affordable alternatives among consumers, plant-based beef companies continue to charge a 2% premium over conventional meat.
Prominent transactions among alternative proteins in the third quarter include Meati’s $200 million Series C extension, Meatable’s $35 million round, and Enough’s €40 million funding.
