The report, compiled by Ryan Williams who directs finance and special projects at Rise Brewing Co., was published on Food + Tech Connect in June.
It notes that 2018 saw $1.45bn invested across 200 disclosed transactions in total, with the largest deal involving a $114m funding to the plant-based meat producer Impossible Foods, followed by $108m invested in Ancient Nutrition, $75m that went to Vintage Wine Estates and $65m raised for Ripple Foods.
Some of the better-for-you brands that were listed on the top 20 food and beverage funding include diary-alternative beverage company Califia Farms which received a $50m investment in 2018; cannabis-infused products maker Dixie Brands which raised $29m; and Jennifer Garner-cofounded Once Upon a Farm, $20m.
Dairy alternatives, as the top category in 2018, raised over $200m in total investment with three companies – Ripple Foods, Califia Farms and Kite Hill – receiving more than $40m. Other notable brands in the category include Perfect Day, which raised $25m in 2018; New Barn, which received a total funding of $19m; as well as FabaButter’s parent company Fora, $1.4m.
The second top category, alternative meat and seafood, collected a combined $192m.
The report adds that M&A remained strong in 2018 with 59 branded food and beverage deals closed, although the number represents a slight decline from 65 deals in 2017.
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Plant-based diet was on the top of the U.S. food and beverage investors’ mind. FOOD + TECH CONNECT/RYAN WILLIAMS
Competitive deals and differentiated capital providers
Williams noted that deals have never been more competitive as “valuations average between 3x and 6x sales, although the hottest brands command 10x.
“LP dollars are also waiting to be deployed in old guard and newly launched funds alike. Returns will be squeezed by the competitive forces impacting both term sheets and retail shelves.”
Capital providers have also sought to differentiate their dollars by either providing additional capabilities or targeting specific sectors.
“Bringing something unique to the table is becoming increasingly important and VCs are seeking to establish their value add,” Williams wrote in the report.
For example, Wild Ventures, which specializes in online distribution and sales, has assembled an investor syndicate of wellness influencers that can help drive direct sales, while New Crop Capital, Powerplant Ventures and Stray Dog Capital have focused exclusively on alternatives to meat, seafood and dairy.
The report also notes an increasing amount of large CPG companies began to invest off their balance sheets through their own VC arms in 2018, such as Coke’s Venture Emerging Brands and WeWork’s Food Labs.
The trend continues in 2019 with Mars and Wrigley’s recently launched Seeds of Change Accelerator.
Meanwhile, these CPG companies are also making more earlier-stage investments and buyouts rather than mega acquisitions, with notable start-up acquisitions of 2018 – Core Nutrition (acquired by Keurig Dr Pepper), Tate’s Cookies (acquired by Mondelēz), Bare Snacks (PepsiCo), and Primal Kitchen (Kraft Heinz) – totalling $1.4bn in deal value.
Mondelēz reportedly walked away from buying Campbell Soup’s Arnott’s biscuit brand, according to CNBC.
Keto, non-potato snacks are hot; headwinds ahead for bars
While plant-based foods have been on the top investors’ mind, consumer trends such as keto also drew a tremendous amount of attention over the past year, as consumers are re-embracing fat in their diet.
Keto-positioned coffee maker Bulletproof topped the 2018 funding list in the keto category with a total of $40m investment, followed by Love Food Fats that received a $5m funding; Bear Squeeze, $0.88m; and NEOH, $0.046m.
However, investing in dietary trends can be risky. That’s why companies, including Cave Shake, Bear Squeeze and Quevos, “wisely embrace keto while remaining cautiously in fully ensconcing their identities in the trend,” Williams wrote.
“Bringing something unique to the table is becoming increasingly important and VCs are seeking to establish their value add.”
Ryan Williams
Meanwhile, the desserts and sweets sector also continued to woo investors’ attention against the broader sugar-reduction trend.
The report shows that California-based artisan ice cream producer Coolhaus received $28m, the largest amount among all disclosed deals in the category, followed by SmashMallow and Hu Products which both raised $10m funding.
SmashMallow is the first spin-off from Jonathan Sebastiani-led Sonoma Brands, which previously invested in Hu Products for undisclosed sum.
Although nutrition bars also benefit from dairy-alternative and keto trends, Williams warned that start-ups in the category will face an increasingly difficult time getting their products on shelf and ultimately acquired, especially following the exits of Peter Rahal-led RXBar to Kellogg and Health Warrior to PepsiCo.
The report shows that 11 bar brands, including Tosi, IQ Bar and TeaSquare, attracted institutional dollars in 2018, with Bobo’s Oat Bars receiving $8m – the largest amount among all recorded deals in the category, followed by FitJoy and Regrained which raised $5m and $2.5m, respectively.
However, “the average check size was just $1.9m, significantly less than the $7.3m average across the [food and beverage] industry,” Williams wrote.