Food technology is gaining traction in China’s VC world. It’s a huge industry—from plant-based meat to agricultural drones, foodtech encompasses everything in the food supply chain that uses technology to improve efficiency and output.
So far, grocery delivery has garnered the most attention. The sector saw a boom thanks to pandemic-induced demand for everyday items on e-commerce platforms.
This year, tech giants like food delivery platform Meituan and e-commerce firm Pinduoduo have tapped into the market. Meanwhile, venture capitalists have injected billions of dollars into startups to compete with them.
Grocery delivery is just one part of the “downstream” link in the food technology value chain, said Matilda Ho, founder and managing director of Bits x Bites, a Shanghai-based foodtech venture capital firm. Companies in this category deal directly with customers.
China has built a vast digital economy with “impressive e-grocery and food delivery penetration,” which has been driving food and retail investment in the country, said Ho.
But when it comes to producing food to deliver, the country could still face challenges. “Without investment in upstream innovation, we won’t see meaningful improvement in farm production efficiency to sustain the rapidly growing food demand,” she said.
China was the world’s second-largest market for foodtech investments in the first half of this year, following the US, according to a report by foodtech venture capital firm Agfunder.
Some 24 startups raised a total of $1.2 billion from VCs during the period, according to the report. More than half of the total investment went to grocery delivery startups Missfresh and Tongcheng Life, which raised $500 million and $200 million in July and June, respectively.
“Since the start of the trade war and the African Swine Fever outbreak in China, self-sufficiency in food production has become a national priority. The Covid-19 pandemic has accelerated the timetable for investment in supply chain efficiency.”
— Matilda Ho, founder and managing director of Bits x Bites.
In the “upstream” link of the foodtech value chain, which includes categories such as farm management technology and farm automation, one of the biggest deals went to Suzhou-based farm drone company Skysys, which raised RMB 10 million (around $1.5 million).
Nevertheless, investment into the upstream link is growing. Funding for companies focused on farm management technology, including internet of things (IoT) equipment and management software for farms, reached $490 million in 2019, up 363.4% from the previous year, according to another Agfunder report. The largest deal last year went to Beijing-based Mcfly, which provides remote sensing, big data, and AI technology to digitize farming in China. The company raised $14 million in March 2019.
READ MORE: How tech is changing agriculture in China
Big deals
- April 29: Suzhou-based farm drone company Skysys raises RMB 10 million.
- June 11: Suzhou-based Tongcheng Life raises $200 million from investors including Legend Capital, Bertelsmann Asia Investment Fund, and Yilian Capital.
- July 23: Missfresh, a grocery delivery startup, raises $495 million from investors including CICC Capital and Tencent, valuing the company at $5 billion.
- Nov. 10: Jianyun Technology, a precision agriculture company, raises RMB 10 million.
- Nov. 12: Yinongyuan, an agriculture supply chain firm, raises RMB 20 million.
Investor talk
Matilda Ho, founder and managing director of Bits x Bites. (The interview has been edited for brevity and clarity.)
TechNode: How do you decide whether to invest in a foodtech startup?
Ho: We invest in companies that are advancing bioscience, data science, and processing technology to tackle challenges in China’s food supply chain, from precision agriculture to crop and animal health to protein alternatives and nutrition.
I should add that we’re a purpose + profit fund. That means we invest in companies that can demonstrate they have a sustainable business model to achieve meaningful growth and scalable impact. We carefully select founders with purpose in their core and empower them to build great enterprises of the future. With the $30 million first close of our new fund, we look forward to working with more pre-A to B stage companies that are bringing disruptive solutions to our food system.
TN: What are your projections for the foodtech market in China?
Ho: Since the start of the trade war and the African Swine Fever outbreak in China, self-sufficiency in food production has become a national priority. The Covid-19 pandemic has accelerated the timetable for investment in supply chain efficiency. In the past two years, we have seen tremendous investment from state-owned enterprises and other corporates to consolidate agriculture.
Without industrial-scale operations, it is very challenging to apply technology and modernize production. So, in agriculture, we are looking at IoT and bioscience solutions that can help producers improve yields while reducing input, address soil degradation, and protect animals, crops, and farmers’ health.
Midstream, only 19% of the Chinese market has access to cold chain logistics, far below other developed countries, which exceed 95% [on average]. We are looking at how automation and data can improve food safety and cut down spoilage in storage, processing, and transportation.
TN: Why are investors interested in food tech?
In the past few years, there has been a surge in startups that are tackling the challenges in the food system. Many of them are applying proven technology from other industries.
For example, satellites from the aerospace field are now being applied to provide farmers with environmental analytics to make better decisions to improve crop yields. Gene engineering driven by human medicine is now used to improve breeding technology for more resilient and disease-resistant crops and livestock. Automation in industrial manufacturing is now being adopted to address the labor drain in agriculture.
The food industry is the largest sector of the global economy. The World Bank estimates food production to compose 10% of all economic output. This is an opportunity that investors cannot ignore.
TN: How do you categorize food tech startups? Which category do you think is the most promising?
Ho: One way to dissect food tech startups is by where a solution fits in the food supply chain. Downstream generally refers to innovations directed at the consumer, such as new packaged foods, personalized nutrition apps, and grocery or food delivery platforms that offer convenience.
Bits x Bites tends to focus more on upstream and midstream opportunities. Upstream examples are farm automation, breeding technology, and crop and animal health solutions that address food security and production efficiency. We also look at midstream applications such as ingredient technology [Editor: techniques that help make new food ingredients], food processing, packaging, and food preservation that can address nutrition and safety challenges.
TN: Will plant-based meat become the next big thing in the market? What is Bits x Bites’ projection of the market?
Ho: Chinese people consume more plant protein per capita than most countries in the world. Until two decades ago, meat was barely affordable for most consumers. In our view, China’s per capita demand for animal protein is unlikely to come down any time soon in the same way it has started happening in more meat-centric western diets. This leaves little room for plant protein consumption in China to see substantial growth.
TN: What are the exit options of food tech companies?
Ho: There are numerous initial public offering (IPO) and merger and acquisition (M&A) cases in agrifood. In China, recent acquisitions are primarily driven by the Chinese government’s push for self-sufficiency and food security. We’ll likely see more Chinese acquisitions of very few large, and likely international, targets. Globally, we see a number of multinationals highly active in M&As in the ingredient tech and agtech [agriculture technology] spaces. Most recently, Ingredion gained full ownership of legume protein company Verdient. However, I would still be more positive on IPOs when talking about exit [options] in China rather than M&A. Especially with the STAR market, biotech and data science companies in agrifood have an achievable pathway to raise public funding.