Navigating Agri-foodtech: Strategies in a Changing Talent Landscape

HC Group recently participated in the Future Food Tech conference held in San Francisco, an event that convened industry leaders, entrepreneurs, investors, and policymakers. Participants explored the evolving landscape of the food and agriculture sectors.

A number of key talent trends emerged, including the need for leadership capable of both successful fundraising efforts and navigating a dynamic market characterised by significant consolidation. 

By Alex Coghlan and Louis Stevens, HC Group's Agriculture and Nutrition practice, Houston.

The gathering highlighted the remarkable growth and innovation within the food ingredient startup market, spurred by evolving consumer tastes, technological progress, and a growing commitment to sustainability. 

Startup ventures have been at the forefront of introducing inventive ingredients, processes, and technologies aimed at bolstering the nutritional quality, taste, and eco-friendliness of food offerings. Yet many have also recent faced significant headwinds.

Challenging Context

The surge in agrifoodtech funding in 2021, which reached a record-breaking $51.7 billion, was influenced by various factors including increased investor interest and advancements in technology. After the occurrence of war, inflation, and ongoing supply chain disruptions, the market experienced a significant decline. In 2023, agrifoodtech startups globally raised $15.6 billion, marking a staggering 49.2% decline from the $30.5 billion raised in 2022. Presently, investment in agrifoodtech startups is at its lowest point in six years, with funding decreasing across all categories except for bioenergy and biomaterials and farm robotics, mechanization and equipment.

While some venture capital investors anticipate modest improvements in valuations for 2024, driven by the increasing recognition of the sector within the climate discourse, others remain cautious due to uncertainties in market dynamics and geopolitical factors. Nevertheless, the overall sentiment towards agrifoodtech remains positive, with investors recognizing its potential to address key challenges in the food system.

Adapting Strategies

Within the dynamic landscape of food industry trends, investors are shifting their focus towards pragmatism and reevaluating core strategies. Embracing the understanding that genuine progress requires patience, there is a burgeoning appreciation for sustaining innovation over the transient allure of disruptive change.

As investment opportunities decrease for food ingredient startups, the industry is seeing consolidation, emphasizing the crucial role of product innovation and differentiation in a competitive market, especially with the growing popularity of plant-based products. Startups are under heightened pressure to demonstrate how their ingredients offer novel solutions compared to competitors, as well as a pathway to profitability to secure funding. While growth opportunities remain, they are expected to be more modest compared to the exaggerated expectations of 2021 and 2022.

Investment Landscape

Despite a significant decline in investment activity of 49.2% in 2023, with VCs exercising caution, two main investor groups have emerged.

The first comprises family office firms focusing on sustainability, owned by second-generation offspring of industrialists, seeking to invest in mission-driven organizations. The second group consists of corporate venture capital from food multinationals. While these companies initially invested less in early-stage startups, they are now deploying more capital in later-stage companies that have differentiated themselves. However, this comes with a trade-off: they often require not just equity but ownership of startup intellectual property.

Industry Consolidation

Multinationals that have undergone acquisitions continue to grapple with effective business and personnel integration. There's a growing concern regarding whether some multinationals have become too broad and lost their focus on innovation, which was key to their success, especially as certain ingredients become increasingly commoditized. Organizations must prioritize providing customized applications of their ingredients rather than solely relying on legacy IP. Consequently, there's increased interest in developing corporate accelerators to scout and innovate ingredient technology through external partnerships.

Industry consolidation is seen as a natural and beneficial process, as it would streamline the industry and allocate capital to companies genuinely innovating and addressing industry issues. Amidst this consolidation, there are opportunities for players equipped with distinctive technology and a competitive advantage.

Talent Trends

Talent remains crucial in navigating lean times, with increased demand for leadership capable of aiding fundraising efforts. 

Board members are valued not only for their business acumen but also for their network and reputation, enabling them to open doors to potential investors. Multinationals continue to face talent shortages below the C-suite level, with frequent reorganizations and matrix structures leading to talent outflow to smaller and medium-sized organizations offering autonomy and minimal bureaucracy. 

While succession planning remains a challenge for large multinationals, companies offering funding, autonomy, and a collaborative, entrepreneurial environment emerge as winners in the talent war. The ongoing correction in startup valuations throughout 2024 will likely result in closures and the consolidation of companies and talent, as market leaders engage in roll-ups and acqui-hiring strategies across various categories.