Cross-border impact investment firm Dao Foods International has invested in four Chinese plant-based startups, as the company joins a rising number of investors seeking to cash in on the nascent yet rapidly-growing alternative protein industry in the world’s largest meat consumption market.
“The alternative protein industry in the US and Europe has grown substantially over the last few years, whereas the market is underdeveloped in China,” said Albert Tseng, co-founder of Dao Foods International, in an interview with DealStreetAsia on Monday.
In addition to help combat greenhouse gas emissions from the traditional meat production industry, “more diversification” of protein sources will grow more important in China, where the population is “[nearly] 20 per cent of the world, but the country only has seven per cent of the world’s arable land,” said Tseng.
Dao Foods completed the four new deals through Dao Foods Venture Fund 1, an investment platform that it had set up this September with a target to back about 30 China-based alternative protein startups in the next three years.
The firm plans to invest in four to six startups every six months with an average cheque size of about 500,000 yuan ($74,780.9).
Patient money Dao Foods is the latest player to join the race in cultivating China’s future mock food giant to rival foreign counterparts like Beyond Meat or Impossible Foods.
London-based consultancy Euromonitor predicted in 2019 that China’s “free from meat” market, including plant-based products meant to replace meat, would be worth nearly $12 billion by 2023, up from just under $10 billion in 2018.
A handful of institutional investors had flagged their ambition in the Chinese market earlier this year, as demand for meat substitutes is expected to further increase amid people’s risen food safety awareness since the pandemic outbreak.
Food-tech investment firm Big Idea Ventures, a Temasek-backed investor of Chinese plant-based local cuisines developer Zhen Meats, was in the market raising capital for a $50-million New Protein Fund.
Lever VC, a New York and Hong Kong-based venture capital firm that invests in early-stage alternative protein startups, had reached the first closing of Lever VC Fund I with $23 million in capital commitments this August. The fund had amassed a portfolio of 10 startups in Greater China, Singapore, and the rest of the world, including Chinese plant-based yoghurt brand Marvelous Foods.
Global venture accelerator Brinc in June had launched a three-month China accelerator programme on a rolling basis for interested food-tech portfolio companies at its new 3,500-square-metre (37,674 square feet) space in Guangzhou. The firm invests $80,000 per company with follow-on capital for teams that demonstrate traction.
“We were originally going to raise a large fund to invest in a lot of transactions in China as we believe China will ultimately become the world’s largest market for alternative protein… But we realized there wasn’t enough deal flow. That’s why we created an incubator to basically find entrepreneurs and help them get started,” said Tseng.
While focusing on startups targeting the mainland market, Dao Foods plans to be a patient investor and could wait for probably five to seven years, if not longer, before the exit comes. Tseng said that it is “a reasonable benchmark” of investment duration for pre-revenue, early-stage food-tech firms to reach a sizeable scale.
“Investors have to be patient. Returns [from China’s alternative protein sector] might take a little longer than from other industries,” he said.
Capture consumer imagination Dao Foods, which supports alternative protein startups targeting China’s 400 million millennials, was launched by Dao Ventures founder & managing director Zhang Tao and Tseng, who created Canada-based impact investing and advisory firm Moonspire Social Ventures.
Zhang and Tseng founded the firm in collaboration with US-based New Corp Capital, a former investor of plant-based burger maker Beyond Meat (the firm’s website shows that it has exited from the deal); and the Good Food Institute, a US-based non-profit organisation that promotes the development of plant-based alternatives.
“If we create an Impossible-like company in China, it will capture the imagination of consumers and, perhaps, drive the demand sooner,” said Tseng.
As their equivalents in the US have reached major milestones in this journey, Alternative protein businesses are taking off in China.
Los Angeles-based Beyond Meat had launched a $240-million initial public offering (IPO) on Nasdaq in May 2019. Its shares rose over 160 per cent from the offering price of $25 apiece and have gained 636.4 per cent so far based on the closing price of $184.1 on October 19.
Impossible Foods, which has raised nearly $1.5 billion in total financing, announced that its faux beef burgers would be sold in grocery stores in Hong Kong and Singapore starting on October 20, as the firm prepares its entry into the mainland China market.
“When you look at the Impossible story and the Beyond story in the last five years, these two companies did a lot to increase the speed at which alternative proteins were put forward in the market… We think that it is the same theory in China,” he said. “If we can support companies that can increase the consumer demand and consumer desire for these dishes, I think we’re going to be able to achieve our goals, both socially but also financially.”
Apart from early-stage seed capital, Dao Foods also plans to provide these portfolio firms with customized training and mentoring through its Dao Foods Incubator initiative over a duration of six months. Its four new portfolio firms all joined the initiative as the first cohort of ventures:
Kitchen 70/30: A Shanghai-based food delivery startup that works on plant-based takeaway food;
Fresh Foods: A Shenzhen-based startup that develops proprietary plant-based yogurt and potentially other dairy products;
Raw Plant-Based: A Beijing-based venture that mainly develops plant-based, organic smoothie products for younger-generation consumers
WOW Foods: A Beijing-based firm that works on plant-based functional protein drinks for children aged 6-12
Dao Foods had made its first investment in China by participating in the angel round of food-tech startup Starfield Food and Science Technology Limited in March 2020, along with other investors like New Corp Capital and Matrix Partners China.
In August, the Shenzhen-based developer of plant-based meat had secured its Series A round at over $10 million from Matrix Partners China, China-focused venture capital firm Sky9 Capital, and Beijing-based Joy Capital, which focuses on China’s TMT and innovative consumption sectors.
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