Why Europe’s climate-focussed food start-ups are defying the slowing global investment trend

12-May-2023 - Last updated on 12-May-2023 at 15:31 GMT

Image: Getty/Ian Nolan

Start-ups in Europe with a bent towards finding solutions that promise to reduce the environmental footprint of the food system are resisting the rise of investor retrenchment globally, a new report claims.

FoodLabs, the European early-stage venture capital investor and venture studio for food, sustainability and health, has teamed up with a global data provider Dealroom to release the first Food for Climate report.

According to the report, climate-focused European food and ag-tech start-ups raised $1.9B (€1.74B) in VC funding in 2022, marking a 20% increase from the previous year and making it the most active year ever in this space.

The rise is in contrast with the marked decline in wider venture capital investment. Global venture funding reached $415.1 billion in 2022, marking a 35% drop from a record 2021, according to the CB Insights State of Venture report from CB Insights.

Further illustrating the stronger momentum for climate tech-focused foodtech was the fact that around 30% of VC-backed climate-focused European food and ag-tech start-ups raised a round in 2022, compared to 18% of the VC-backed food and ag-tech start-ups across the board.

The growth also chimes with Dealroom’s previous State of European Foodtech 2023 report, which said that after a record 2021, European foodtech start-ups raised $5.6B in VC funding in 2022. This was down from $9.8B in 2021, but was skewed by food delivery funding, which fell 64% year on year while there was slight growth for everything else.

Gaining momentum for climate foodtech start-ups

The latest report indicated a desire among investors to back start-ups ‘supporting the transition to a sustainable food system’, its authors said.

Today, the global food system accounts for 30% of total greenhouse gas emissions, with over half of them resulting from livestock agriculture, the report claimed. Livestock farming uses 71% of arable land, consumes 10% of drinkable water, and causes 80% of deforestation. Not only the production, but also the food supply chain needs to change to meet 2050 targets.

For these reasons, food has been increasingly incorporated into climate discussions, both in the public and private space, resulting in climate food-tech start-ups gaining momentum in the VC space.

“As global warming threatens food security, the food industry plays a crucial role in climate change, it is essential to rethink our food systems, and FoodTech and AgTech are key to solving future challenges,” said Christophe F. Maire, Founding Partner at FoodLabs.

“The environmental footprint of our food system is enormous — a stark fact that is reflected in the data. Agriculture is responsible for massive water use, greenhouse gas emissions, and land use,” added Christian Guba, Principal at FoodLabs.

In recent decades, extreme weather events and new global crisis scenarios have exposed the vulnerability of our food value chain and food security. By 2050, the global population is expected to increase by another 50%, leading to a surge in demand for food and agricultural production.

Food production is struggling to keep up with the growing demand as crop yields level off, ocean health declines, and natural resources—including soils, water, and biodiversity—dangerously decrease, the report warned. However, a new generation of technologies is emerging aiming to tackle these challenges.

“The upcoming decade is crucial in the fight against climate change, and transforming the food industry can greatly impact our chances of success. Start-ups can bring fundamental change and ensure a sustainable future for our planet,” said Patrick Huber, General Partner at FoodLabs.

Europe’s resilience

The latest Dealroom/Foodlabs report ties with other findings illustrating that specifically climate-focussed and specifically European start-ups are showing more resilient against a backdrop of global deceleration.

For instance, alternative protein companies in Europe raised €579m last year, nearly 24% more than in 2021, according to a report from the Good Food Institute in in February 2023. It said the continent’s plant-based sector saw a 15% increase in venture capital deals, raising €284 million ($305 million) in 2022. This growth was also in contrast to the global trend that saw investment in sustainable proteins decelerating last year, from a record-breaking €4.7 billion in 2021 to €2.7 billion in 2022.

Over 340 start-ups across 16 segments

The Dealroom/Foodlabs report identified over 340 start-ups across 16 segments including alternative proteins, Food waste & circular economy, sustainable packaging, precision farming, regenerative agriculture and vertical farming. Water tech was identified as untapped industry. In the last five years, only 1.5% of the investment went to water technologies. European water-focused start-ups raised $16 million in 2022, with a growth of +300% from 2021.

The current industrial livestock production model is unsustainable due to its resource consumption and pollution, the report claimed. Innovative approaches such as biomass fermentation, precision fermentation, and cell cultivation are being developed to address these problems.

“Biomass fermentation, using mushroom mycelium or bacteria, can produce vast amounts of healthy proteins with reduced food waste. Precision fermentation creates bioidentical food products with superior taste and texture, while cell cultivation produces genuine animal-based proteins. These new methods have the potential to be significantly more efficient, cost-effective, and environmentally friendly than traditional animal proteins,” the authors wrote. “The upcoming decade is crucial in the fight against climate change and transforming the food industry can greatly impact our chances of success.

“We need collective action beyond commitments and support for innovative start-ups to bring about fundamental change and ensure a sustainable future for our planet.”

Technology and innovation offer ‘a buffet of potential solutions’

“This isnʼt a wake-up call, but a call to action,” added Guba. “The environmental footprint of our food system is enormous — a stark fact that is reflected in the data. Agriculture is responsible for massive water use, greenhouse gas emissions, and land use.

“Technology and innovation offer a buffet of potential solutions. Mycelium, precision fermentation, molecular farming, and cell culture — all different routes to the same goal: less impactful food production. Each comes with unique timelines and strengths in cost, taste, texture, scalability, and regulation. They promise land-independent, sustainable protein production without the burden of traditional animal agriculture.

“AgTech breakthroughs are reshaping the core of agriculture. Feeds that reduce methane, fertilizers that capture nitrous oxide, enhanced rock weathering for carbon sequestration. Traditional agriculture, done right, can sequester carbon, preserve biodiversity, maintain soil health. We should value these practices while embracing new technologies.”