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Food & Beverage

Thai Union and other investors pile into Asia food tech startups

Fundraising reached $350m in first half of 2020, outpacing last year

Singapore-based food tech startup Shiok Meats provides "cell-based crustacean meat" made from seafood including shrimp, crab and lobster meat. (Photo courtesy of Shiok Meats)

TOKYO/SINGAPORE/BANGKOK -- Investment in food technology startups in Southeast Asia is growing despite headwinds from the coronavirus pandemic as consumers in the region become more concerned with environmental sustainability and healthy lifestyles.

According to a report by AgFunder, operator of the online AgriFoodTech venture capital platform, investment in ASEAN agriculture and food tech startups reached $350 million in the first half of 2020, more than 80% of the total raised last year. Michael Dean, founding partner of AgFunder, said he "expects investment [this year] to exceed the 2019 figure."

Industry observers cite several reasons for growing investor interest in the sector.

"Investors increasingly hope to invest in food tech, especially in the kitchen segment, such as smart home appliances, since people increasingly cook at home instead of eating out due to social distancing measures," said Hitoshi Fujiwara, a senior partner at auditing specialist Ernst & Young ShinNihon. Investment in food tech startups focused on health is also on the rise, Fujiwara added, "because the coronavirus has raised [consumer] health concerns, such as gaining weight while staying home."

Foods made from plant-based protein are drawing interest from health-conscious consumers, especially after the COVID-19 outbreak. In Singapore, food tech startup Next Gen, which offers plant-based meat substitutes, announced its launch in October with seed funding of $2.2 million. Next Gen has its headquarters, leadership team and research and development center in the city-state, where it aims to build a global consumer brand, with key markets in China, the U.S. and Europe.

Andre Menezes, co-founder and chief operating officer at Next Gen, told Nikkei Asia that while the pandemic has impacted fundraising, he believes there are still significant opportunities for innovative startups.

"There are sectors that will benefit from the change in mindsets driven by COVID-19. Health and sustainability are two of those areas. At Next Gen, we have deliberately chosen not to onboard any external investors in our initial funding round," he said.

The startup is working on additional funding for a pre-Series A round by the end of the year and is preparing to bring in external investors for its Series A financing round in 2021. Menezes said Next Gen is fortunate that the plant-based food segment has not been hurt by the pandemic.

"COVID-19 was a hard lesson for all of us, highlighting that the things we usually take for granted are not always available. One good example is international travel, which was made practically impossible," he said.

"In this scenario, COVID-19 has reinforced the importance of having the right investors and partners that can add value to the business, especially with regard to international expansion and supply chain networks," Menezes added.

Another Singapore-based food tech player, Shiok Meats, which bills itself as "the world's first cell-based crustacean meat company," oversaw a $12.6 million Singapore dollar ($9.3 million) Series A funding round in late September. The startup offers seafood, including shrimp, crab and lobster meat, cultured from cells rather than harvested live animals.

Investor interest in food technology is not confined to Singapore. In Thailand, Bangkok-based Thai Union Group, the world's largest canned tuna processor, announced in late September that it had invested in four new food tech companies.

Thai Union said the COVID-19 pandemic was not the reason it decided to invest in the food tech startups. The company's strategy has been to foster innovation in the sector since it launched the Space-F project in 2019, working closely with the National Innovation Agency and Mahidol University, to encourage the growth of startups.

The company has also set up a $30 million venture capital fund to invest in new companies. The fund's first bet was on Flying Spark, a company that produces protein from insects.

"We invested in the four startups because it is our long-term business strategy to be a leading food company that is well equipped with innovation, which will put us on a sustainable growth path," Thiraphong Chansiri, president and CEO of Thai Union, said in a statement.

That is part of a broader trend, analysts say. Venture capital firms are pouring money into food tech as the coronavirus has made people more conscious of food safety and encouraged them to seek alternatives to traditional foods.

"Venture capital is seeking investments with high returns. However, COVID has set off a trend that has made food tech their most profitable investment," said an analyst at Kasikorn Research Center.

"While Southeast Asia has been leading in the food tech race, Japan is trying to catching up," said Hitoshi Hokamura, a partner at Scrum Ventures, a venture capital specialist based in San Francisco and Tokyo.

In Japan, investment in food tech totaled $88 million last year according to AgFunder, less than in the U.S., China, India and the U.K. But Japanese food processors are looking gain ground on their global rivals by collaborating with startups amid the pandemic.

Scrum Ventures announced in late September plans to launch a food tech-focused program that it hopes will promote collaboration between traditional food companies and startups. Big Japanese players include instant noodle maker Nissin Foods Holdings, health food and drug maker Otsuka Holdings and green tea brewer Ito En. A few more are expected to join later.

One of the participants, edible oils company Fuji Oil Holdings, told Nikkei Asia that it has decided to join the program to develop new technologies that can expand its business in plant-based foods and food materials, such as fats and oils, and proteins, expanding their distribution and sales channels by working with startups.

"Consumer concerns regarding sustainability practices have been on the rise," said Hiroshi Shimizu CEO of the soy-based food producer, given the growing "impact of climate change, population growth and the food crisis." The company is now focusing on development of meat substitutes and soy-based creams.

Fuji Oil has been making soy-based products since the 1960s. But, said Shimizu, "Making alternative foods is not enough. We must make things linked to the health and happiness of consumers."

Scram Ventures Hokamura said the definition of food tech is changing. Previously, "food technology was beneficial to the business but not necessarily favorable to consumers," citing the example of food additives. Today, food tech is more focused on people's well-being as well as environmental sustainability, he said.

The amount of funding in the food tech sector, "will continue to increase," according to EY's Fujiwara. But "fundraising could be split into winners and losers," as investors become more cautious. "Investors are especially eager to put their capital into startups' technologies that can help revive the restaurant industry, which has been severely damaged by the pandemic," he said.

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