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Thousands of gadgets and gizmos were unveiled at the 2019 Consumer Electronics Show, but the product taking top marks wasn't made of silicon or running on electricity.
It was a hamburger.
It turns out, the win is an apt metaphor for the growing presence of food companies in the tech space. Impossible Foods, creator of the meatless burger that Digital Trends named the Top Tech of CES 2019, debuted its second-generation recipe alongside considerably more "techie" products like a TV that can roll itself up and an Alexa-enabled toilet.
But as tech has moved from a novelty to a staple of business, companies outside the strictly software and hardware space have been attracting tech dollars. Investors who put their capital behind food and tech companies say the sheer size of the opportunity in food is attractive. But recent stumbles for meal kit services and delivery-only restaurants known as virtual kitchens have forced investors to reassess where the opportunity lies.
"Food is the biggest industry," said Greg Golkin, managing partner at the Kitchen Fund, which invests in restaurant brands like Sweetgreen and Cava. "Every human on earth needs to eat roughly three meals per day."
U.S. consumers, businesses and government entities spent an estimated $1.62 trillion on food and beverages in stores and on away-from-home items in 2017, according to the Department of Agriculture. Annual spending on food far surpassed other essentials like health care and personal insurance for the average American that year, according to the Bureau of Labor Statistics.
Venture capitalists have taken note of the huge opportunity, as venture funding for U.S.-based food tech companies has grown from about $60 million in 2008, to over $1 billion in 2015, according to PitchBook, which collects funding data. The money is coming from more and more sources, as the number of unique investors, including VCs and private equity funds, has doubled from 223 in 2015 to 459 in 2017, according to research firm CBInsights.
"Technology is not its own industry anymore, it's part of every other industry," Golkin said. "So it's natural for tech investors to find that intersection."
Food companies have also become more savvy at appealing to tech investors and taken on their high-growth mindsets.
"Food has always been a technology; it's just that it wasn't branded like a technology," Impossible Foods COO and CFO David Lee said in a phone interview from CES.
Speaking from his experience working at a legacy food company, Del Monte Foods, Lee said the industry used to be "driven by large strategic players who were seeking to maintain an incremental competitive edge." Now, he said, disruptive companies are seeking to grow "hundreds if not thousands of percents."
Some food investments have failed to deliver on the value they once seemed to promise, so investors are looking to alternatives. Many VC-fueled "virtual kitchens" like Maple, Sprig and most recently, Munchery, have died within the past few years. The meal kit space has seen some serious stumbles as well, with Blue Apron becoming the first to make it onto the public market, only to risk being delisted a year and a half later when it fell below a dollar per share. The company debuted at $10 per share with a market value of nearly $2 billion on its first day of trading in June 2017. But when it fell below $1 per share for the first time in December, its market value was just $128 million.
Greycroft co-founder and partner Ian Sigalow was an investor in meal kit company Plated when several players were entering the space. He said the "dramatic over-investment on the behalf of venture capitalists and entrepreneurs" contributed to its decline, along with the steep learning curve for customers who need to get used to a scheduled delivery of ingredients and still make the meal themselves.
Plated recognizes this barrier to entry and is trying to come up with alternatives to reach a wider market. After being acquired by the grocery chain Albertson's, it's been experimenting with premade meals in the store and is planning its second version of the meal kit to serve customers who don't have the stable routine a meal-kit can require, co-founder Josh Hix said. Hix recently stepped down as CEO, a spokesperson told CNBC.
Now, investors are turning their attention toward fast-growing parts of the space like meat alternatives and delivery apps.
"While meal kits have certainly soured in many investors' eyes, there are certainly pockets of the industry" that are growing, said Spencer Krug, a principal at RiverPark Ventures, who has invested in tech and food companies. Delivery, for example, "is a huge market still in its early days," he said.
A 2018 Statista report on online food delivery found that while delivery restaurant-to-consumer delivery (regardless of platform) is still by far the leading global category, platform-to-consumer delivery is growing faster. The promise of growth attracted $3.5 billion from venture capitalists to food and grocery delivery services in roughly the first 10 months of 2018, The Wall Street Journal reported in October based on PitchBook data. Uber has also entered the space with its UberEats app, and the company has been heavily touting the service's rapid growth. The company said in December it was operating UberEats in 165 cities and was profitable in nearly 40 of them.
Meat alternatives like Impossible Foods' vegetarian burger are expected to flourish as well. The meat substitutes market was worth an estimated $4.63 billion in 2018 and could reach $6.43 billion by 2023, according to research firm MarketsandMarkets. Beyond Meat, another plant-based burger maker, could be the first of this new wave of companies to hit the public market as it eyes an IPO.
One reason tech investors are drawn to food may have more to do with their conscience than their wallets. You may remember a time when social platforms seemed to fulfill the promise of positive social change. But today, privacy scandals and tech addiction have made the impact of pure tech companies feel a bit murkier.
Food, on the other hand, has an obvious and indisputable value.
Investors and entrepreneurs interviewed by CNBC said while they're motivated by the huge opportunity for growth in the food market, they're also driven by the urgent need to create sustainable food options.
The need to find solutions to alleviate world hunger and protect the environment is more pressing than ever. A landmark report issued by the United Nation's Intergovernmental Panel on Climate Change in October said the world has just 12 years to make significant changes to global energy infrastructure before major climate crises, including famine, ramp up as soon as 2040.
"When you have urgency, you have success," said Josh Tetrick, co-founder and CEO of JUST, which makes vegan alternatives to eggs and is engineering lab-grown meat, "then you have more companies entering the space."
Dig Inn, a fast casual chain that makes bowls full of vegetables and protein, eagerly employs data in its kitchens but still deliberately moves slower than its peers. The company is committed to sourcing local ingredients and being responsible with its impact on the environment.
"I think there are more and more investors and businesses individuals that are getting up and saying, 'You know what? We want to do something that matters,'" founder and CEO Adam Eskin said.