3 reasons why Israeli FoodTech and AgriTech startups are an attractive investment
FoodTech and AgriTech companies are the rising stars of capital investments and M&A deals. Traditional agriculture players and even retailers are acquiring innovative startups, while venture capital firms, institutional and private investors are showing interest in investing in up-and-coming Food/Agri startups. Why is this industry so hot, and how can investors make the most of its momentum?
What makes Food tech & Agri Tech such an attractive investment?
The societal and economic changes of the past few years have created a strong momentum for the success of the Agri & Food Tech industries. We can outline three main reasons for the boom of recent years:
1 | Solving wicked problems: feeding more mouths with less resources
AgriTech and FoodTech companies aim to tackle the challenge of feeding an ever-growing global population, which is expected to reach ~9 billion in 2050. Even as we speak, global food security concerns are affecting around 1 billion people worldwide. In addition, there is a dire need to radically improve the current supply chains to create sustainable, durable, and highly efficient food systems that do not deplete global and local resources. The overall AgriFood Tech landscape aims to produce more — with a lot less.
2 | Societal and economic momentum: health and well-being
Changing consumer preferences of western societies who focus on health and well-being means that customers expect highly nutritional food with a minimum amount of dangerous substances at any point in production. The derivative of this expectation forces a reconsideration of the way agricultural products develop endurance to pests and disease and overall increased transparency of the entire supply chain. In addition, raising voices regarding animal welfare are shaping customer preferences as well, with regulatory scrutiny, media support, and public opinion pressure shaping consumption patterns.
3 | Disrupting a red ocean: young blood in an age-old industry
These start-ups and scale-ups work on disrupting or drastically improving, the agricultural value chain, and the way food is produced, processed, sold, and consumed by the population. As agriculture and food account for a third of global GDP, with a yearly turnover of ~8$ trillion, it is no wonder that capital is flowing towards startups and scale-ups capable of taking market share.
The unique position of Israel’s Agri & Food tech landscape
Israel is amongst the top 3 countries in the world, alongside the US and The Netherlands, with a sophisticated startup landscape in Agri and Food tech. It’s estimated that Israel is the home of 500 Agri/Food Tech startups, ranging from upstream to downstream services, and crossing all sectors — from biotechnology to IoT and everything in between. Analysts estimate that $250 million have been raised as investments in the Agri and Food tech industry, with local and foreign investors supporting the branch. In 2017 several companies made waves, e.g., Prospera ($15m investment in Series B financing) and Taranis ($7.5m investment in Series A financing), Hinoman ($15m investment), and others.
In November 2018, US-Irish giant Medtronic ($124b in worth) has announced its acquisition of Israeli startup Nutrino Health (established in 2011 and raised $10m until now), for an unspecified amount. This was the second acquisition of Medtronic in 2018, as it also purchased Mazor Robotics for $1.6b. Also, earlier in 2018, IFF (International Flavors & Fragrances, Inc) announced its purchase of the Israeli Frutarom for $7.1 billion.
Other promising startups and scale-ups are on the right track, as funding from local and foreign investors are at all times high (with the US, China, and several European countries as the leading investors).
Are Israel’s VC funds on the rise?
In the past few years, Israeli VC funds have been successful in raising a staggering amount of funding (around $900 million in 2014 and larger amounts ever since). The blossom of local VC funds goes hand in hand with both local and foreign investors interested in supporting startups and age-old.
However, sub-industries within Foodtech such as Modern foods (e.g., clean meat, functional food), personalized food, analytics, or sustainability, did not receive greater and much-needed attention in the form of specialty funds from Israelis VCs. In comparison, established specialty funds in the Foodtech in the US, Europe, and Asia, have managed to raise substantial capital. With that said, institutional investors, which manage the largest capital, are not rushing to invest in Foodtech funds and specialty funds, due to the uncertainty and immaturity of the industry. The large capital raised stems from leading food companies who took the lead and realized the potential capabilities and benefits they can gain. This is even more evident in the rising number of corporate VCs in the food industry.
As it seems from the past few years, Israel will remain a hub of innovation and disruption, with FoodTech and AgriTech startups leading the way for some global breakthroughs in shaping the future of food.
