A few weeks, I sat down (via Zoom) with Chris Kerr to talk about the alternative protein industry. Chris is the founding partner and Chief Investment Officer at Unovis Capital Management and their early-stage venture capital fund New Crop Capital to. Their investment thesis revolves around identifying companies that are successfully creating products that can replace foods derived from conventional animal agriculture.
Chris was one of the earliest investors in the alternative protein space (he was one of Beyond Meat’s first tickets) and his global portfolio includes pretty much all the pioneers from Miyoko’s Creamery to Mosa Meat to Upside Foods to Sunfed Meats and more.
We had a long and fascinating conversation, during which we touched on many topics including whether the alt protein market is overhyped, where we are when it comes to cellular agriculture and plant-based seafood, what really matters when building out a vegan food brand, the role of a founder, the role of media and so much more.
This interview has been edited and condensed for clarity.
GQ: What do founders need to think about when building out a plant-based protein brand?
CK: We start with price, awareness, convenience and taste. All are critical, but each can be handled during various stages. We generally start with Taste. Fail there and the rest is a fool’s errand. If consumers don’t know about a product or where to find it, it also fails, so we build Awareness once we know we have a product that is a winner. Price needs to be within reason for mass adoption, which means scaling and minimal logistics. Finally, Convenience is perhaps the most important when it comes to regular purchase – is it easy to buy, easy to eat, easy to use? All of these core drivers need to be front of mind when developing the launch strategy of a new product – plant-based or otherwise. But for plant-based foods, we have another driver that can be overlooked: Identity. If the consumer impression of seafood is that it is healthy (even though it is laden with mercury or dioxins or even mislabeled as the wrong fish), we need to create a new identity about plant-based alternative seafoods. If the idea of being vegan itself has a negative identity, we need to spend an enormous amount of time and energy letting people know that plenty of things are vegan and tasty and amazing. Fact is, someone can be vegan eating nothing but Mountain Dew, Skittles and Fritos (all are vegan) – it is not about being vegan, but about selecting offerings that meet the expectations of satisfaction for a specific consumer. Personally, I love the taste of meat, but I won’t eat it – I just eat plant-based alternatives like Philly cheesesteaks, nachos, mac ‘n cheese, burgers, tuna melts, pizza and other fun stuff that is darn close to the animal-based counterparts. When I let go of my identity as a meat eater, the world opened up for me, it didn’t get smaller. Smart founders will study these drivers and work alongside the consumer to find common ground…and enjoy doing it.
GQ: How do you build a great, long-lasting company? What should founders be spending their funding money on?
CK: Food is a slow-to-grow business. It is complex, highly regulated, antiquated on many levels, and requires a well-run system to thrive. If we try to speed it up too much and cut corners, we could be looking at short-term wins but a long-term failure. We really need to be thinking about generational strategies, but with near-term execution. Oatly just did an IPO. People might think it’s a newcomer, but it’s a 25-year-old company and is just recently making a global move.
So, what do you have to do to build a really good company? Well, it takes time. And ultimately, what I feel like is happening is a lot of people are rushing right now thinking, ‘I’ve got to be the only winner.’ The total addressable market (TAM) is simply massive. We can all win, and all well-built ships will rise. If you just stick to the basics of building a great company, you can survive – that is the goal. Whitewave was around for about 20 years before Silk came to market and changed the dairy sector permanently. Beyond Meat invented its Beyond Burger about 7 years after the company was founded. The idea for Quorn goes back to the 1950s but didn’t arrive in the market until the 1980s.
Look at every great food company on the planet today. They’ve taken their time to build it – whether on purpose or not. Nestlé is 150 years old. Cargill is 150 years old. And here we are trying to rush through a venture capital cycle, hoping to get a unicorn. I think it’s trouble. So, I’m asking everybody: please slow down, stick to the basics, get it right. Success will matter if we want this planet and life on it to thrive.
With this in mind, many companies spend too much money in one area – including companies I’ve run (I am figuring all of this out as I go, too!). Too much money spent on R&D, but it never got into production. Too much money in production, but nobody knows about your product. Too much money in marketing, but you don’t have any product to sell. Ultimately, you have to pull these levers in a really organized fashion. That’s just smart business and smart leadership, and we can all learn from those veterans with experiences to share. What is new is that plant-based foods are now clearly deemed a legitimate opportunity with broad-based appeal. As such, we are now able to attract veteran talent in a way we could not in decades past. It is amazing the breadth of knowledge that is now inside the movement.
GQ: Do you think VCs are part of the overhype cycle?
CK: Many venture capitalists will generally listen to projections that should be grounded in reality, but the underlying expectation is that a founder will consistently exceed expectations, which is a false and problematic premise. What’s happening right now is that we’re having a correction around those expectations. If you overplay that hand, all you have is disappointment at the back end. Your capital markets interest wanes, people stop investing and they question the opportunity. These companies that actually had something good, something that could have grown…they’re done just when they were getting started. And that is really, really unfortunate. I believe we could be looking at a lot of dead soldiers along the road in the coming year or two based on overhyped expectations.
Most venture capital funds strive for an internal rate of return (IRR) of about 20%. This is a very high expectation if you own a company’s shares for 10 years. But not impossible. While we may tell our investors we seek this IRR level, what we are really hoping for is something much, much higher. Why? Because a few of these investments will be a goose egg. And losses in one investment need to be made up by wins in another. This can put a lot of pressure on a company to take risks it should not take.
Finally, an entrepreneur should keep in mind that VCs are very good at protecting their capital. Whether you are valued at $1 million or $1 billion, that valuation is not truly about the value of the company, but simply the value of the last investing round. We generally won’t know what a company is really worth until that stock turns to cash and is deposited in a founder’s bank account. And that is the number that matters in the end.
GQ: What was the significance of the Beyond Meat IPO?
CK: Prior to Beyond Meat’s IPO, there was no exclusively plant-based company that found a path to IPO. Acquisition was always the outcome. I can tell you that I was very nervous about Beyond’s IPO. A failure could have closed that path to exit for another decade or more. But its success opened that new path to exit as a viable option. That being said, IPOs in the food sector should really remain outliers, not the norm. Being publicly traded is a complex and demanding undertaking and puts a company in a position of fighting for quarterly earnings when we should be focusing on the long-term strategy. Because an IPO is on the table, it does help to drive capital to the sector, and capital speeds up the growth of companies – and time is not on our side. From that angle, it is important that public markets are in the mix.
Beyond made sense because of the long-term objectives of the company, but it now has to deal with perpetual judgment on near-term performance. And there is no lack of opinions. To me, this is a pretty serious distraction to the day-to-day managerial demands of running a rapidly growing company. Bottom line, an IPO is a transactional moment in the life of a company. It, in and of itself, does not define the company and should be seen as a funding tool to help build a company.
GQ: How do you choose where you allocate Unovis’ capital?
CK: First, we focus on the fundamentals: What’s the underlying technology? Is there something there that can serve as an inflection point? Will it improve the food system? Is there something here that we can use to make our portfolio better? Does our team’s expertise matter, or are we just needed for cash? We really have no FOMO. There’s a lot of opportunities in a $1.7 trillion market. We don’t need to be in every deal to be relevant and successful. We look for white spaces in technology, engineering achievement (scaling), underserved markets, and investments that complement our portfolio. We see our portfolio as a food menu that has a little something for everyone. And we like it when our companies work together – a Gathered Foods plant-based pork sold through a Wicked Kitchen dumpling in Thailand. Or Zero Egg sold in an Alpha Foods breakfast item. These pairings allow our portfolio to benefit with a double win.
GQ: As we see pioneer founders step down (see: Impossible Foods), how do you see the role of founders when building out their companies?
CK: My mother used to say that being a good parent is knowing when to let your kids go. Ultimately, in our early stage of investing, there’s the founder that can take a company from zero to five or $10 million, maybe $15 million. Then there’s a CEO who can come in for that next stage – let’s say up to $50 million. And then there’s somebody who goes from $50 million, to maybe $250 million leading to IPO or a sale. A founder’s self-awareness around his or her skill set is very important.
Either you need to build a team around you that can support you and that is smarter than you, or you need to step aside. Some founders want to play the long game, some of them are tortured in the process. Some focus on vision and philosophy and allow others to handle execution and operations. Find a sweet spot and know when it is time to let go of one or both of the reins.
I think a lot of people enter into the food space because, frankly, it’s not all that hard to get started in this sector. Barriers to entry are fairly minimal for proof of concept. If you’ve got low barriers to entry, that means you’re going to be dealing with a lot of competition. And what I think we’re starting to see is a group of founders who came into the sector three, four or five years ago, some of them are getting up to seven, eight years, and they’re now somewhat weary and even frustrated. The reality is that it can be very hard to grow a company quickly, try to meet investors’ expectations, when it really should take 15, 20, 25 years to grow – just like Oatly or Whitewave or Follow Your Heart. That’s the reality of food companies. If you have a founder that’s exhausted or loses a little bit of steam or is getting distracted, you’re going to run into an issue. As investors, we need to support that transition, and we prepare for it with our first investment, not force it at a later stage. Part of our job is to watch that cycle. As I noted, self-awareness around your abilities is critical. And if you don’t have that, and you think you know everything, there’s a good chance you’re going to get yourself in trouble. It will always be best to surround yourself with people who will help you along that learning curve.”
GQ: One of the big criticisms about the alt protein sector is that like most others, it’s dominated by (white) older males. What do you say to that?
CK: The word ‘dominated’ may be relative but regardless, it is evolving and evolving in the right direction – particularly on the global level. As of today, 53% of our holdings are female-led. But it is absolutely not about only the CEO position. Unovis is always working to make the C-suite and board membership diverse, representing the consumer base we serve.
Particularly in this sector, women are the most significant driving force behind consumer adoption – be that buying power, willingness to experiment with new ideas and new foods, and/or a general eye toward wellness and well-being. We look at DEI opportunities throughout our portfolio, and not just female representation, but a truer reflection of society. We look closely at every board where we have influence with a focus on diversity. When structuring a portfolio or a board or a management team we must absolutely set an intention at the earliest stages. I find it takes about three years to make this happen, and it is wise to withhold judgment until the process is complete. It is easy to take a snapshot in time and come to a quick judgment, but if you dig a little deeper and see the engineering at work behind the scenes, you will see significant progress. We all can and will do better.
GQ: How important is convenience when it comes to changing people’s food behavior?
CK: As I noted earlier, convenience is, more times than not, the final driver. If you’re sitting in an office tower, you might be hungry for a burger, but if you’re in a rush you are going to open up your half-eaten yogurt that’s in the refrigerator because that’s what’s in front of you right now. And it’s just good enough tasting to get you through to the next meal. In that moment, that convenience is probably the most important driver. Now if you’ve got two items, Item A and Item B are both in your refrigerator, you’re going to pick the one that’s more tasty. If you have a little more time, you might go to a nearby market or restaurant, but you are not likely to hop on a subway, or walk a few miles, or take a cab downtown when you just need to solve for this fleeting need. When hunger is at its height, convenience is actually the number one driver. And once convenience is fulfilled, mass market adoption can then be attained because the ease of fulfillment is a low threshold.
GQ: How did you convince Tesco to invest in Wicked Kitchen?
CK: Derek Sarno and I walked into a Tesco superstore near their HQ with some of the senior management. They wanted to understand the vegan customer. We said ‘We’re gonna walk in here as vegan consumers, and we’re gonna walk out with something to eat.’ And there were only two things that we could walk out with as prepared foods: a fruit cup and a hummus wrap. That was it. We were all a little surprised.
Then the next comment was, ‘our customers aren’t really asking for vegan.’ I said: that’s because they’re walking right past your door. They’re going to Pret a Manger or somewhere else where they can get something to eat. Derek designed the Wicked Kitchen line around this concept. Put good tasting, plant-based, well-priced offerings in the front of the store, build some awareness, and these consumers will come in. And they did. It’s been a grand slam.
GQ: Where do you think we are with the plant-based seafood sector?
CK: I believe it will take about 20 years for plant-based seafood to become something that is truly understood. And we’re in year four of it right now. We eat between 200 and 300 different types of sea creatures, compared to 30 or so types of land animals. This creates a lot of opportunities, but too many options can make it hard to find a sweet spot.
In the world of seafood, you’ve got all sorts of ways of approaching food options including how it’s prepared and served. You’ve got sushi, caviar and bluefin tuna on one end all the way down to shrimp and canned tuna, and they’re all lumped together as ‘seafood’. If you solve for chicken, you’ve solved for duck and turkey and you can probably get darn close to beef with that, right? They’re not all that far apart. Seafood is very, very different. Flaked finfish is going to be one thing, where a lobster is going to be completely different. And having to solve for that entire spectrum will take a lot of ingenuity.
That’s why we created Cultivated Food Labs at Good Catch. We knew the top three consumed seafood products in the US are shrimp, salmon, and tuna and they’re completely different eating experiences – and we’ve developed all three and added crab to the mix. The idea is that plant-based seafood will take a footing when consumers figure out how to use it. I think that will take a little bit of time, and I hope to see a bunch of new players help push the sector forward. It’s a really, really big opportunity. About 40% of the global population relies on seafood as a core protein. And it’s all threatened. Seafood is the only real industrial ingredient that we eat today that is still hunted. And that won’t last either. I believe we’re actually looking at an existential crisis around seafood that has to be solved, which means we need a ton of innovation, which means a ton of capital. And I’m not sure that the markets will stick around long enough to allow that to happen. To be determined, but I am hopeful.
GQ: How much will government policy matter for the alt protein sector?
CK: Policy always matters. And we will take our businesses to the countries that have the best policies. That’s the great thing about our companies. If the U.K. won’t adopt it and China is open to it, then we will go to China. We’ve long had the ability to move products to where willing consumers will buy them. In our world, price will matter. And ultimately, you have to localize this food. The question is, where do we get consumer buy-in? But we need a fair playing field with Humanity’s best interest being represented. Here in the United States the government has set up dumping grounds for things like dairy – prison systems, K-12 school systems, veteran centres, hospitals, a lot of government-run institutions. These are used to buy up surplus dairy and cheese, meat, eggs, sugar – all a subsidy to keep otherwise problematic industries propped up. Wouldn’t it be nice if our sector benefited from this assistance too? We have a few non-profit organisations like the Good Food Institute, FAIRR and the Plant Based Foods Assn. which are fighting to level the playing field. But these are some deeply ingrained policies that people don’t want to adjust or simply don’t want to battle. And the fact is, it might take 20 years to get to a place where policies are less driven by economics and more driven toward the good of the citizens, good to the Earth, good to animals.
But it is not always government that will effect the change. I would argue one of the most pivotal moments in our current sector was when Cargill redefined itself as a “protein company” from a “meat company.” When they made that stance, Tyson did too, and everybody else came along. In so doing, they can feed consumers any protein they want, not just animal protein. That is outstanding corporate policy. And if governments won’t respond, progressive companies are wise to.
GQ: Where are we when it comes to cultivated meat? Are we close to widespread commercialization?
CK: It’s still really early, and we need to be a little more patient. Remember, cultivated meat will change our food system permanently – a way of eating that was millennia in the making and over a century to industrialize to the state it is today. The last thing we want to do is rush it.
We’ve got a good idea that can change the world for the better – for animals, the environment, feeding the world, antibiotic abuses, workers’ rights, food safety and more. We’re not there yet. If we fail on this – as investors, consumers, food scientists, engineers – we’re in trouble, we actually need this. This one needs to work.
The way Unovis is currently looking at this: we’re no longer looking at scientific discovery, and whether or not you can make cells divide and grow. That’s been proven. We are focusing on engineering achievement. We won’t invest into anything that’s too exploratory, scientifically. If you’ve got something that can show that this can scale, we’ll be interested in it. We’re entering into a world where the big money needs to come in and be willing to invest in a $400+ million cultivated meat factory. We need those investors because that’s the next stage. Tyson just invested $355 million into an industrial pig operation in Kentucky. If that same funding were put into the cultivated foods sector, we’d be speeding toward widespread commercialization of cultivated meat. We all need to all start thinking generationally.
GQ: How important are B2B companies in this space? Are they going to be key going forward?
CK: We’re trying to replace a farming system that goes from DuPont making seeds to John Deere plowing the fields to ranchers raising cattle to Cargill with its feedlots all the way into the slaughterhouses and then to McDonald’s. We have to solve all of these inputs, but in an extremely truncated space and timeline. Now who’s solving for the inputs? There is a ton of opportunity across this development. No single company needs to own the whole thing. As an example, Matrix Food Tech doesn’t make cultivated meat, but they make the scaffolding for cell-cultivated meat. And this scaffolding is a key component to scale. These cells need something to grow on. It is a critical piece of the puzzle. We need some of the larger players to focus on growth media – we need to feed these cells. B2B engagement with well established firms like a DuPont or a Merck will advance this process rapidly.
GQ: What is the role of media in the industry?
CK: The role of media is pretty simple: as best possible, get the facts right. Try not to overhype for the sake of click-bait, but actually understand what is being hyped. We don’t need to overplay it. This goes in both directions. If a plant-based food company’s stock price drops, the story is not that the company is failing, but that investors overshot their own expectations. Most traditional food sectors grow by 1-2% a year, so when a plant-based food company hits 10% instead of 18%, this is still a massive overperformance versus the rest of the sector. Media likes hype and big stories – the grand slamming MVPs. But games are often won by a good set of singles, a well-timed bunt, or a sacrificial fly. Not as exciting to report, but it all matters to the winning team.
Lead image courtesy of Chris Kerr.