Section 1 - European Venture Capital Industry
The European venture capital industry has undergone significant changes in 2022 and 2023. Deal value peaked in 2021 at €109.0 billion, driven by inflated valuations, before declining 49.1% in the first 9 months of 2023 to €43.6 billion (PitchBook). However, deal value appears to have troughed in Q1 2023, increasing 5.9% from Q2 to Q3 2023. This could indicate early signs of recovery, although the economic outlook remains uncertain.
Early-stage deals have held up better than late-stage, with the biggest declines in the venture growth stage at 61.9% through Q3 2023. This aligns with investors taking a long-term view on early-stage companies, making them more resilient to downturns. By sector, commercial services fell the least at 16.7%, while media saw the steepest decline of 92.9%. Regionally, France & Benelux showed the most resilience with a 37.7% drop, taking share from the UK & Ireland which still leads at 33.0% of deal value (PitchBook).
Exits remain weak, with 2023 on track for the lowest value since 2013. Exit value was €9.1 billion in the first 3 quarters, down 72.8%, with IPOs faring the worst at a 79.8% decline. IT hardware exits held up the best while energy saw the biggest drop. Acquisitions continue to comprise the majority of exits. Until valuations and IPO markets recover, exit activity is likely to stay muted (PitchBook).
Fundraising also slowed with €13.9 billion raised over 91 funds in the first 9 months of 2023, compared to €27.6 billion for all of 2022. First-time managers are struggling more than established firms, evident in longer fund closing times which stretched to a median of 15.1 months in 2023. By region, France & Benelux and DACH saw the largest fundraising share gains (PitchBook).
Overall, while 2023 paces well below 2021/2022, deal value now appears past its trough. Provided the economic climate stabilizes, early-stage deal activity may continue to rebound heading into 2024. However, exits and fundraising still face headwinds from depressed valuations and unreliable IPO markets. Until exit opportunities improve, giving LPs confidence to reinvest capital, the downturn effects are likely to linger. The extent of COVID-driven overvaluations also needs to be fully cleared. Once this happens, metrics can reset to more normalized long-term trends.
Section 2 - FoodTech Industry
The foodtech industry is rapidly evolving, projected to grow at a 19.0% CAGR from $76.3 billion in 2023 to $423.0 billion by 2033 (Future Market Insights). Key factors propelling industry expansion include:
Sustainability: Growing awareness of the climate impact of traditional agriculture is driving demand for sustainable proteins with a lower carbon footprint. A University of Oxford study found plant-based diets could reduce greenhouse gas emissions and healthcare/environmental costs by $1.5 trillion globally by 2050.
Health & Wellness: Plant-based proteins are perceived as healthier, with links to lower risk of cardiovascular disease, colorectal cancer and other chronic illnesses. This is capturing consumer attention and spending.
Technology Innovation: Advancing food tech in areas like cellular agriculture and fermentation enables the production of alt-proteins that closely replicate animal products in taste, texture and nutrition. Companies are rushing to leverage these technologies.
Positive Demographic & Regulatory Trends: Millennials and Gen Z show greater preference for plant-based and clean-label products. Governments are also increasingly supportive through investments, incentives and clear regulatory guidance.
As the largest segment, alt-proteins like plant-based meats raised $3.97 billion in VC funding globally in the 12 months ending June 2023. Deal value grew 6.3% over this period, indicating resilience amid the venture downturn. Median pre-money valuations climbed back toward the 2021 peak of $19.0 million after dipping in 2022, signaling investor optimism in growth prospects (PitchBook).
Food e-commerce has also fared well, raising the second highest VC funding at $2.32 billion globally as consumers shifted towards online grocery shopping and delivery during COVID-19. While slower than alt-proteins, food e-commerce deal value still increased 11.9% in the year ending June 2023 (PitchBook).
Other emerging food tech areas like bioengineered foods, biotech crop development and data analytics for supply chain optimization also attracted meaningful VC investment between $125 million to $407 million annually. Continued technology breakthroughs and global sustainability needs are providing tailwinds.
As a key growth industry solving massive real-world problems, food tech offers differentiated investment opportunities compared to oversaturated sectors. However, it remains relatively nascent with idiosyncratic risks related to regulatory approvals, long R&D timelines and unproven route-to-market strategies for novel products. Investors must evaluate these case-by-case. But for patient capital, the addressable market scale, expansion growth rates and societal benefits are immense.
Author: Plutus, Head of GenAi, Potentia Inc
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