Food tech funding fell 21.5% in Q2, but Alt-Protein proved resilient with just a 9% decline.

According to a new report from PitchBook, overall food technology funding fell by more than a fifth of total deal value in the second quarter of 2022, down from $6.9 billion in Q1 2022 to $5.6 billion in Q2 2022.

The decline in deal value was matched by a decline in the total number of deals, which fell 23% in the second quarter, from 359 financing deals completed in Q1 2022 to 275 in Q2 2022.

The Q2 decline marks the fourth straight quarter in which food technology funding has declined. Total investment is down 45% ($4.5 billion) from the $10.1 billion peak reached in the first quarter of 2021.

Food technology is not alone in going backwards. The sector’s quarter-on-quarter decline in financing is relatively modest relative to the overall capital market, which is down 23 percent from the previous quarter. At $5.6 billion in total funding in Q2 2022, food tech represented 5.2% of total venture capital in the quarter, compared to 7.6% of total funding in the first quarter of 2021, when food tech funding peaked.

As usual, the overall funding for the sector has been covered by a few mega rounds, including Wonder’s $350 million series B. Other large rounds include Upside’s $400 million series C and GoPuff’s $1.5 billion.

GoPuff’s funding comes at a time when many investors and industry watchers are reassessing the business model for the fast-paced grocery business, which, thanks to several mega-rounds, raised the food tech sector’s overall deal value last year and in half. GoPuff, like many of its peers, has announced layoffs and closing a large distribution network in the past few months. Basically everyone at the fast-casual grocer is trying to cut costs while looking to extend runways, realizing they’ve seen their last big funding boost for a while.

So will food technology investment continue to decline? My guess is yes, at least in the near term, largely due to recession fears, continued monetary policy in the US and broader geopolitical uncertainty. The lack of future investment in fast-paced grocery may be down to a near-term decline next year compared to previous quarters, but the good news is that as inflated prices for fast-paced grocery items slide into the rearview mirror, overall declines should slow over the quarter.

One area I’m keeping an eye on is the alternative protein segment, which is the most well-rounded of the entire food technology space. According to the Good Food Institute, alt-protein funding fell just 9 percent quarter-over-quarter, far less than the broader food tech industry and the overall venture market. Alt-Protein has seen its share of high-value deals (like Upside, Impossible, Just Eat, etc.), something that has continued into the most recent quarter. It also saw continued investment in all three major sub-sectors (plant-based, precision fermentation, and cultured/cell-based), contributing to its relative strength. If any of the three is likely to backfire, it’s plant-based meats, a market that’s competitive and oversaturated.

Longer term, I expect investors in alt protein to remain bullish, especially as we begin to see government money begin to flow into the alt protein market. Globally, governments are beginning to see the future of food as an important part of their national security strategy, and while the U.S. is lagging behind in this regard—food was not a major part of its recent climate change-focused deflationary legislation—we’re starting to see state governments start investing in space. . While the alt protein space does not have the same government taxpayer support as alternative energy, the modest future growth of government support should encourage private investment in the space in the future.

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