"Where are we?"
It's the question I'm constantly asking myself about the food waste sector.
The answer is difficult to say. There are many viable food waste solutions, and many businesses and nonprofits are offering them. There's uptake of solutions in some parts of the supply chain (e.g., retail) but less in others (e.g., at home) – or at least it's very hard to see. "Food waste" is a mish-mash of different industries that are at varying lifecycle stages. Rescue for the most part is established, and food waste prevention has incumbents and new technologies. In contrast, recycling is largely established centralized infrastructure with a few disruptors that are addressing the problem with distributed infrastructure at source or at least closer.
These aspects can make funding food waste solutions quite difficult. Given food waste is an up-and-coming sector, a single deal can swing the whole year, which was the case for 2022 – yet less of a factor in 2023. Venture capital has made up a majority of trackable private capital for food waste except for last year, when private equity was the major factor. For that reason, food waste growth rates have been directionally following U.S. VC growth rates. While the growth rate for food waste is underperforming overall global VC, it's been outperforming the specific industry of food and land use. Climate capital decline has been a factor in food waste investment as well.
The funding environment was affected by higher interest rates, along with private investors being cautious – both leading to higher investment hurdles. This led to funder and businesses slowing investment, and – in a few cases – companies shutting down. The consensus expectation is that valuations will come down with this new reality and ultimately stabilize. Given this environment, we would be remiss to not mention that this is an important opportunity for impact and philanthropic capital to support the sector.
Funding in 2023 was defined by:
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A continued focus on recycling. On a macro level, waste-related infrastructure has a lot more attention from infrastructure and private equity funds, with larger platforms consolidating the fragmented sector. A perfect example of this is Vanguard Renewable’s build-out of anaerobic digesters throughout the U.S., now with Blackrock’s backing. The benefits of scale, increased infrastructure dry powder, and the transition to renewables have driven capital into the sector through M&A and development capital. Continuing from 2022 was M&A activity related to sustainable infrastructure (including AD); while this has slowed, it still makes a meaningful portion of the funding for 2023. Policy (e.g., waste bans, municipal programs for collection) has also made the environment more favorable for organics recycling. Government funding also supported sector building last year with $44M going to prevention and recycling projects from EPA’s $100M grant program from the Bipartisan Infrastructure Law. USDA and USAID also have funds available for food waste projects.
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Organic waste and methane reduction driving interest in recycling. This also is a growing acknowledgement that organic waste isn’t necessarily going away and for the time being, it’s one of the easier-to-implement ways to divert food waste from landfill. Methane reduction is another reason why recycling solutions are being favored. ReFED published a deep dive into insect farming last year, and notably we are watching the organics bin wars play out before us with offerings from Mill, Food Cycle Sciences, Lomi, and others. Both of these solutions provide some spice in a fairly stable industry.
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Prevention funding driven by shelf-life extension and retailer tech. Funding waste prevention has largely concentrated on solutions for extending shelf life and in technology that helps retailers through forecasting, dynamic pricing, etc. – solutions that have found a business model, can scale, and are demonstrating traction with multiple businesses. Shelf-life has been focusing on naturally-derived interventions that don’t affect product quality or taste. Hazel Technologies raised a funding round (at a lower valuation – not unusual given the venture environment now) last year on this promise, increasing their runway. And supply chain tech has always been appealing to investors (did someone say subscription revenue?). Software technology that can provide a clear ROI for the most influential part of the food supply chain – retailers – has had the easiest path to adoption, and that promise is reflected in funding raised. The chart below largely shows where private funder attention has gone, which has played out over the last few years with a cohort of established food waste organizations that are quickly scaling and have shown promise to investors.
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“Sharing” operations – for a fee. A new development that speaks to the maturity of the food waste sector is the “sharing” of operations through a fee-based arrangement. The parallel here would be Amazon building out what would become their AWS business – in developing Amazon, they became experts at developing websites and online infrastructure, so why not get paid for helping others do the same thing? It’s like licensing an internal capability that others could benefit from, and we’re seeing examples of this now in food waste. Misfits Market spent years building their logistics platform to get fresh food from point A to point B in boxes and is now offering this up with their “Fulfilled by Misfits” service, which can help other businesses reduce food waste through logistics, inventory management, and finding the right destination or end market. Loop has done a great job of upcycling waste from produce distributors and is offering that framework and know-how to other businesses – allowing businesses to make their own private-label products. Upcycled Food Inc. and Full Harvest are also helping businesses adopt upcycling as a solution; they've already done the legwork to either develop processes for ingredient conversion or – in the case of Full Harvest – providing the marketplace for it, so upcyclers don’t need to spend their time finding the next source of waste on their own.
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More philanthropic dollars in the space. We hope to release more information as we get additional philanthropic data, but from what we can see so far, increasing bets are being made to fight food waste. Last fall’s $15M transformational grant from Ballmer Group for ReFED’s system-building work was a landmark for food waste (and us!). Starting this year, we also saw MacKenzie Scott give a substantial grant ($15M) to DC Central Kitchen for their work providing healthy food and employment opportunities. And shelf-extension solution provider Ryp Labs’ Series A raise is a fascinating case study, as impact investors and philanthropists including King Philanthropies also participated in the round as a way to decarbonize the supply chain.
We’re excited to see what 2024 holds – although it promises to be another murky year of funding. When rates will come down is anyone's guess, and the euphoria of a substantial rate cut is probably gone (at least this looks to be the Wall Street consensus). Yet we’ve already seen some funding activity again, mostly for the established cohort. And we’re heartened that the funders we've been speaking to are indicating they’ll be funding more this year than last.