November 24, 2020
As a firm, we’ve been interested in Food Supply Chain Tech and the infrastructure used to allocate food resources in a safe, efficient, reliable and sustainable manner. As a partner with experience in E-commerce supply chain technology, I also took a liking to Food Supply Chain Tech as it rhymes with the mechanics of shipping internet goods in many ways. Now more than ever (thanks COVID), it’s important to invest in the global food logistics market, which is projected to reach around $162B by 2024. The lasting effects of the pandemic, plus a potential economic downturn and margin pressures, have urged food supply chain actors to pursue technology strategies to bolster efficiency and throughput.
Alpaca is not new to the Food Supply Chain Tech scene, but we’re certainly not known for it. We’ve made several investments spanning producers and distributors (notably Imperfect Foods, Brad’s, Aloha, Yay Lunch) and I have personally invested in several female founders (Tiny Organics, Shiru, Pod Foods, Foodology). As such, we wanted to investigate the future investment opportunity in the space.
From our research, we gauged the importance and weight of this market. The global food system accounts for 10% of the world’s GDP and employs as many as 1.5 billion people. The global food logistics market reached a value of $100B (2018), projected to reach around $162B by 2024 (CAGR over 8%). Technology adoption has driven cost competitiveness up and trading margins down over the last ten years. However, less than one-quarter of executives feel that they’ve made significant progress in developing a playbook for the future.
The impetus for new technology adoption deepens as we investigate the industry wide challenges faced by executives, producers, processors, distributors, regulators, and consumers. See below:
As new challenges arise within the sector, new opportunities for solutions also emerge. Innovations in Food Supply Chain Tech are developing quickly as available capital increases each year (42 deals in 2018 and 33 deals in 2019, with over $3B capital raised each year). We believe investment opportunities will arise from these challenges and usher in a new reality post pandemic:
Because the sector is so vast, we have focused on five key technology trends that will catalyze the industry and present attractive investment opportunities. Let’s dig into these below.
After investigating the major technology trends, and assessing their relative attractiveness given our own investment criteria, we believe opportunities exist in three key areas: Digital Marketplaces, AI/ML Analytics, and Food Repurpose. Our analysis details our rationale for these areas, as well as qualities that we look for in potential investments.
Macro/Thesis: Food supply chain technology is transforming the way that e-commerce supply chains have over the past two decades. The global food system accounts for 10% of the world’s GDP and employs as many as 1.5 billion people, and as such presents a massive market opportunity where technology can drive margin, speed/convenience, safety, waste reduction, flexibility, and healthiness.
Research: We investigated the funding landscape, key industry challenges and technology trends driving investment opportunities forward. From this research, and digging into specific examples, we concluded there are a small set of investable areas for us to play.
Conclusion/Opportunities: We believe investable opportunities exist in three key areas: Digital Marketplaces, AI/ML Analytics, and Food Repurpose. Because these areas are asset light, growing quickly, agile, and largely unregulated, we believe they can generate venture returns for a fund like Alpaca.
To keep up with the latest from Alpaca, connect with us on Twitter, Instagram, and LinkedIn @alpacavc, subscribe to our bi-weekly newsletter The Rundown here, or by reaching out directly to [email protected].
Alpaca VC Investment Management LLC is a U.S. Securities and Exchange Commission-registered investment adviser. Alpaca VC Investment Management LLC is committed to diversity and inclusion in the workplace. We prohibit discrimination and harassment of any kind based on race, color, sex, religion, sexual orientation, national origin, disability, genetic information, pregnancy, or any other protected characteristic as outlined by federal, state, or local laws.