Signs of life emerge across the natural products investment landscape

As the Federal Reserve ratcheted up interest rates, investment in natural and organic products slowed to a trickle. See when the spigots might open again.

Douglas Brown, Senior Retail Reporter

April 17, 2024

3 Min Read

It remains too early to declare, “They’re back.” But after several years of zero interest in the natural and organic products industry among investors, attention to the sector is beginning to fizz again. While the 2022 pivot from effervescent to phlegmatic has not reversed itself, signs suggest that the situation may have reached rock bottom earlier this year. And now, leaders in the sector who pay close attention to capital and deal flows say frigid attitudes and actions are beginning to warm up.

Maybe summer is coming?

“The pendulum always swings back,” said Tim Avila, president and founder of Systems Bioscience Inc., a consultancy that offers investment and other guidance. “We might be on the upside now. I think Expo West in March highlighted that. There’s a lot of activity on the ladder, where people are now interested in acquisitions and other things. There is energy. Angel investors, for example, are now thinking about writing checks, or actually writing checks.”

He also said that stakeholders should remember that investments skyrocketed during the COVID pandemic, thanks to consumer interest in health. But in 2022, the Federal Reserve began raising interest rates, money grew expensive and the bright landscape dimmed. The change was most abrupt in the supplements industry, which witnessed its strongest year ever in 2020.

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“Supplements may never again see years like 2020 and 2021 again,” Avila said. “And we don’t want that. Let’s just go back to steady, competent growth.”

According to Mike Dovbish, founding member and executive director of New Hope’s Nutrition Capital Network, the first quarter of this year was weak, with transactions down 17% from the first quarter of 2023. But the quarter includes January through March. And signs of green shoots first began emerging in March. According to Nutrition Capital Network:

  • Health and nutrition financings were up 5% in March 2024 over March 2023.

  • Food and beverage transactions were up 7% in March compared to a year earlier.

  • Agtech/Foodtech/Biotech grew 7% during the quarter when compared with Q1 2023.

“While one month does not make a trend, all signs point toward a strong investment climate as we move through the year,” Dovbish said, highlighting three big tech deals:

  • Protein Distillery raised $15 million in seed capital.

  • Pacifico Biolabs launched with $3.3 million in pre-seed funding.

  • Heura Foods announced $42.9 million in Series B financing.

Avila thinks investments in fermentation technologies might remain stalled for a while—“A lot of investors are still licking their wounds” from investments that didn’t pan out, he said—but other areas of food tech are experiencing fresh enthusiasm.

Related:Looking for food investors? 6 takeaways from Jennifer Stojkovic

“I would say anything mycological is hot. That’s all getting a lot of love and attention,” he said, pointing toward leaders in the space like Meati Foods, which crafts plant-based meats from mycelium.

Avila also pointed toward Jack & Annie’s, a brand using jackfruit to craft plant-based meat products such as breakfast sausages and chicken patties. Companies in the space today that are making products “the old-fashioned way,” he said—that is, keeping things simple—have more potential for investor enthusiasm. Companies that combine regenerative agriculture with the ability to scale remain hot today, he said.

“With each generational shift, whatever is old is new again,” Avila said, pointing towards Gen Z’s interest in creatine as one foundation of the ingredient’s recent rise in popularity. “That’s an overriding theme and people are willing to put money on it.”

Prior to the rise in interest rates, what Avila described as “free money” led to “a lot of mediocre ideas getting money.” As the industry emerges from hibernation, he says, companies in the space will just have to work harder to raise capital, as free money doesn’t seem likely in the near term—which isn’t such a bad thing.

“Meanwhile, we continue to satisfy consumers,” he said. “If you walk around Expo West, it’s no wonder people are putting money into these products and ingredient companies that service the brands. We’ve got energy.”

About the Author(s)

Douglas Brown

Senior Retail Reporter, New Hope Network

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