A deep dive from AgFunder, December 12:
European food tech startups are on course to have raised between €750
million to €1 billion in 2018, according to different estimates. That
will be around a 40% decline on 2017 funding levels.
When you take out 2017’s largest deals — including Europe’s leading
food tech startups in the food delivery segment such as Deliveroo, and
HelloFresh — there will be some moderate growth in funding. But European
food tech startups will still lag the global food tech ecosystem
raising just 16% of global food tech funding between 2014 and the first
half of 2018, according to a report from DigitalFoodLab, a corporate consultancy in France. The report points out that Europe is home to 25% of the global agribusiness market.
Sixty percent of the €4.2 billion raised during that period was
concentrated in the coffers of three companies: restaurant marketplaces
Delivery Hero and Deliveroo, and meal kit startup HelloFresh.
Add in Just Eat and takeaway.com, and this set of food ecommerce
businesses have raised a combined €3 billion and are now worth a
combined value of €21 billion, which is a 7x return in five years,
according to a separate report by local VC Five Seasons Ventures.
These are great exit multiples and a signal of a successful
ecosystem, according to some investors, but DigitalFoodLab is not as
impressed with the success of these startups.
“Each of these three European giants is among the world leaders in
Delivery & Retail. Though, none of these startups has “invented” its
own business model. Delivery Hero and HelloFresh were born from the
German startup studio Rocket Internet, specialized in copycatting
successful (US) startups. While Delivery Hero has grown rapidly by
taking over brands such as Foodora and FoodPanda, HelloFresh has become
the world leader thanks to the US market,” reads the DigitalFoodLab
report.
“If we consider that FoodTech startups are both externalized R&D
and the future of current agri-businesses (either through M&A or by
replacing them), we can only be worried about Europe’s future as a food
powerhouse,” reads the report.
But wait; European Food Tech Innovation is Thriving?
Speak to others in European food tech and they’ll tell you the industry is thriving, albeit with challenges.
Maarten Goossens from Dutch agrifood tech fund Anterra Capital
points out that while last year’s dollar funding levels represented
just 15% of global levels, Europe was more active in terms of the number
of deals closed at 31% of the global landscape.
“When we started Anterra in 2013, there
was already a healthy number of food tech startups in the US, and that
was led by the fact that the US, in general, has a more entrepreneurial
ecosystem, that’s engrained in the culture; European investors have in
general been more risk-averse. But if I look back at the last few years
in Europe, I’d say it’s catching up to the US, just three years behind,
with a healthy funnel of earlier stage companies being developed of
which circa 1,000 got funding over 2015 to 2017,” he tells AgFunderNews.
The European food tech ecosystem is even starting to mature, Goossens
added, with a few notable companies reaching beyond Series B stage
raising significant amounts of capital across the food supply chain such
as Dutch insect farming group Protix ($50m), French indoor farming
group Agricool ($42m), Germany’s Infarm ($33m) and Dutch grocery
delivery startup Picnic ($100M).
Later-Stage Funding Challenges
There could be a challenge for these
startups as they reach later stages, however. “Europe does have a
problem when it comes to later stage capital, specifically for Series B
to D funding rounds when larger amounts of capital are required while
the risk of failure is still significant; there’s a gap in those
investment stages across all tech industries,” Goossens cautions.
Goossens says the distribution between early stage and later stage
capital in Europe is out of balance, there is 14 times more capital
available for later stage startups in the US than in Europe. “If you
compare Europe and the US relative share of global VC funding — 15% vs
45% — you’d expect that to be a factor of three. The lack of later stage
capital will remain an issue until bigger pools of capital turn their
eyes to Europe.”
This appears to be a challenge across European venture capital, according to PitchBook’s Q3 European report.
“From our perspective, the major difference (with the US) is a current
lack of widespread VC support or ability to do €100 million+ deals. This
has become a staple of the US VC playbook but is still relatively rare
in Europe,” reads the report.
While Europe’s startups raised record levels of funding in 2017, much
of that came from foreign investors, according to PitchBook,
highlighting a 23% year-over-year drop in fundraising dollars and a 15%
drop in the number of funds closed in 2017. PitchBook MD Trafalet indicated to the Financial Times
that Brexit was a key consideration in the lacking ability of European
VCs to raise capital. The data company predicts that the number of funds
closed will have continued to fall in 2018, but that VC firms are
raising larger funds, keeping total fundraising at a similar size
(~€8.2bn).
Distinct Startup Investment Ecosystems
Alessio Dantino, CEO of London-based Forward Fooding,
believes that the challenge for Europe’s food tech industry — and
perhaps venture capital overall — is not a lack of capital, but more how
that capital is organized.
“The European food tech industry is
behind but starting to thrive. In my opinion, the real challenge funding
wise is not the lack of capital but fragmentation and investing
culture.
In general, the level of sophistication
of investors is lower than in US; there are less professional investors
and different regulations of what defines a professional investor for
each country doesn’t help either. How investors approach startup
investing is also different,” Dantino told AgFunderNews.
Europe might be a single market — for now
— but each country has clearly different ecosystems for startups. And
the journey for a startup in any European market is not as clear-cut as
in the US where startups typically follow the similar route of
attracting seed stage funds from specific types of investors, perhaps
joining an accelerator and then moving onto a wealth of larger, growth
stage VCs to mature to the next level.
“There are ‘small’ funds/super angels for each country and very few
EU-based cross-country funds that look at investing big checks in
fast-growing international businesses; most bigger deals are primarily
done by a mix of PE, CVCs, family offices and funds of funds,” says
Dantino....
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