The reality of securing investment to scale alternative proteins

The rise of alternative proteins

A few years ago, a powerful solution to feeding a growing global population was taking off. Funding for the alternative protein industry reached a record high, plant-based protein sales were strong, and evidence of the environmental benefits of alternative proteins was mounting. 

The industry’s technological breakthroughs and growth potential attracted venture capital (VC) and other institutional investors. Sustainability investors, who had traditionally focused on renewable energy and electric vehicles, increasingly recognized the importance of addressing the huge impact of the food system on the environment and the critical role alternative proteins had to play in food system innovation.

Then came March 16, 2022.

Exploring funding solutions

To address these important questions, we embarked on extensive research. We looked at what worked in other industries like solar and electric vehicles, interviewed over 30 companies, capital providers, and industry experts, and formed an industry working group to guide our path. 

What emerged—and was synthesized into a financing guide — is that companies would need to develop creative and multi-pronged funding strategies to access growth financing. 

We advised that companies should first explore asset-light approaches such as co-manufacturing before committing to building their facilities. Co-manufacturing can offer significant advantages, including faster speed to market and lower initial capital expenditure (capex). However, its feasibility can vary considerably depending on the alternative protein technology and other company-specific factors. 

In cases when co-manufacturing is not practical or optimal, we found that companies looking to finance self-owned facilities have a few options today:

• Equipment leasing could fund up to 30% of a company’s manufacturing capex with short-to-medium term non-dilutive financing, enabling companies to acquire necessary equipment without large upfront costs.
• Strategic partnerships between alternative protein companies and large agricultural or food corporations offer a powerful pathway, providing not only funding, but also expertise, infrastructure, and market access to help companies scale more rapidly. 
• Sovereign wealth funds in regions like East Asia and the Middle East see alternative proteins as a strategic means to increase food security and diversify their local economies, presenting an interesting opportunity for U.S. companies open to building facilities abroad.  
• And U.S. government programs, like the U.S. Department of Agriculture’s B&I Loan Guarantee Program, the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, and programs at the Department of Energy and Department of Defense have the potential to accelerate alternative proteins, as they have with other strategically important industries.

While companies had hoped that long-term offtakes and project financing would bridge the gap to affordable, long-term debt financing, we found that commercial banks, other senior debt providers, and even the majority of government loan programs, were mostly inaccessible due to the early-stage, higher-risk profile of many alternative protein companies.

However, companies looking to build commercial manufacturing facilities should ideally integrate significant amounts of lower-cost, non-dilutive funding into the capital structure to lower their average cost of capital. So a gap remains.