Veganism in vogue
Consumer appetite for vegan products is taking a bite out of the US$1.4 trillion global meat market, but who are the start-ups innovating in the industry — and which venture firms are backing them? Will Monroe finds out for the BVCA Journal
The date is Thursday 3 January 2019 and a vegan sausage roll launched by bakery chain Greggs has become an internet sensation. Everyone from Piers Morgan to Geordie Shore star Charlotte Crosby takes to social media to air opinions on the new product, sparking mass demand and shortages at Greggs outlets across the UK.
The release of the vegan sausage roll — and the furore that accompanied it — arguably encapsulates the current state of global veganism. Consumer demand, fuelled by ethical, environmental and health considerations, has generated an explosion in popularity, widespread celebrity validation — be that through financial backing of start-ups or public endorsement — and the engendering of vegan start-ups. Public demand has served up a veritable vegan banquet, and food and beverage retailers are scrambling to tap into the lucrative market and consume a slice of the proceeds.
Mainstream veganism
The extent to which veganism has become mainstream in society is apparent from the sheer number of companies in the food industry that are innovating to include plant-based alternatives to meat. McDonald’s launched a vegan-friendly Happy Meal on the same day as Greggs launched its vegan sausage roll — albeit to significantly less fanfare — while the majority of large UK supermarkets have launched or expanded vegan ranges over the past two years. British high street restaurant chains including Pizza Express, Carluccio’s and Wagamama offer vegan options, PG Tips stocks vegan-friendly tea bags, while even Guinness stopped using fish bladders in its brewing process in 2017.
The number of vegans in the UK is now estimated to be around 600,000 — according to the Vegan Society — with this number set to grow substantially over the coming years as consumers increasingly adopt plant-based diets. This year, some 250,000 people signed up for the ‘Veganuary’ campaign, compared with 168,500 in 2018 and a mere 3,300 five years ago.
As attitudes continue to change, vegan products will proliferate. In the UK, the share of new vegan products nearly doubled between 2014 and 2017 according to Mintel, while the global market for meat substitutes is predicted to grow from an estimated US$4.6 billion in 2018 to US$6.4 billion by 2023, according to research firm MarketsandMarkets. Veganism is now a mainstream lifestyle choice.
Global mega-trend?
One of the best-known original start-ups in the vegan food arena is Beyond Meat. The California-based company launched in 2009 offering animal-free, plant-based ‘meat’ products — produced via molecular science, with cells created to mimic those of animal protein using plant nutrients — and is backed by US venture capital firms including Kleiner Perkins and Obvious Ventures, as well as celebrity investors such as Leonardo DiCaprio and Bill Gates. The company’s products are now available at 30,000 outlets in the US and globally, including Tesco and TGI Fridays in the UK. Beyond Meat, which has a burger that ‘bleeds’ in its plant-based portfolio of products, recently made its debut on Wall Street and is valued at more than US$4 billion.
Chris Kerr is the founding partner and chief investment officer of Unovis Partners, a global investment fund that manages the private venture New Crop Capital Trust. Unovis Partners has made about 35 investments on behalf of New Crop Capital, which is an evergreen fund with about US$70 million in commitments. Unovis Partners, which aims to bring plant-based alternatives to the global market in raw form, has a stake in Beyond Meat, and also co-founded Good Catch, which focuses on plant-based seafood. Kerr, who first started working in the plant-based food sphere over a decade ago, has been taken aback by the rapid expansion of veganism into the mainstream.
“In 2015, when Unovis Partners began investing for New Crop Capital, I was still following the model and expectations of the decade that preceded it,” he says. “Namely, expecting to have difficulty funding, difficulty with early adoption, and virtually no strategic corporate investors willing to look at seed stage companies. The shift happened in early 2016 when major meat companies and retailers saw the pent-up demand and shift in consumer behaviour, and redefined their role in the plant-based food sector, which has now led to a global mega-trend.”
Kerr started in 2007 and reveals that, at the time, he spent enormous energy just trying to convince investors that there were economic opportunities in vegan food. “Helping Daiya Foods raise its seed capital was a good example — no one really believed that vegan cheese was a truly viable place to park capital. If only they knew the pent-up demand for nondairy grilled cheese sandwiches! Nine years later and Daiya’s sale to Otsuka Pharmaceutical [a global holistic healthcare company] for US$325 million has proved that thesis true. Beyond Meat is another example. Not in my wildest dreams did I think that a vegan meat company would make it to IPO. Acquisition was the only path forward — until 2 May 2019.”
Kerr, who is himself a committed vegan, says that veganism is now “unquestionably a mega-trend” and concurs with the idea that the vegan revolution is here to stay. “A fad typically has one driver, and a trend has multiple,” he says. “In the case of vegan foods, we hit a broad list of drivers including animal protection, sustainability, health, environment, food scarcity and more. It matters little as to which driver(s) consumers focus on. They all land in the same trend.”
Interestingly, Kerr places an emphasis on allying with non-vegan food companies and changing the system from the inside, rather than fighting it. “Food is slow,” he says. “It is a very real, very delicate, very needy item that, if done wrongly, can kill you. Strategic partners know this, and they have been building infrastructure for decades to ensure consumers are served safely and efficiently. We need them. The good news is that they need us. Corporations exist to serve consumers, not the other way around. When consumers ask for something — in this case vegan foods — the smart companies will go to them with a solution.”
Who’s investing?
As more and more mainstream retailers expand into the veganism sector, venture capital firms are also picking up on the trend. A number, including the US-based New Crop Capital, PowerPlant Ventures and Stray Dog Capital, are specifically vegan-focused. Notably, more mainstream venture funds are also providing significant funding. Bain Capital Double Impact, the impact investing fund of Bain Capital, was the lead investor when by CHLOE, the US vegan restaurant that also has two London locations, secured US$31 million in funding in April 2018.
Others that have invested in vegan start-ups include Octopus Ventures. It led the £7.5 million of funding gained by Allplants, a frozen vegan meal delivery service, which secured the largest early-stage backing achieved by a vegan company in the UK to date in September 2018. London-based Felix Capital was also part of the funding. France-based venture capital firm Five Seasons Ventures is another that has invested in Beyond Meat, while it also provided funding for Beyond Meat’s major rival, Impossible Foods, which raised US$300 million in its latest funding round in May, led by Hong Kong firm Horizons Ventures and Singapore-based Temasek.
The potential in the global veganism industry is vast, and it’s not just US vegan start-ups that are leading the charge. Kerr explains that Unovis Partners is set to launch a second fund, which will have a stronger focus on Europe, with the UK a key target.
“We love the UK,” enthuses Kerr, explaining that one of Unovis’s partners is Derek Sarno, who now leads Tesco’s Plant Based Innovation operation and co-designed the Wicked Kitchen line of vegan products. “The UK is the number one country for vegan fare at the moment. We actually make our Good Catch products in the UK, and we have two other investments we are working on that are based in the UK, and one that is specifically importing vegan products to the UK. Our commitment is best demonstrated in our planting a foot in Europe with our next fund — we are very excited about the prospects in that part of the world.”
