In 2014 we founded S2G Ventures because we saw a healthier and more resilient food system as an undervalued solution to our national and global health crises and the looming threats of climate change. While we have seen impressive progress in the sector over the past seven years, we have only scratched the surface in terms of the potential for innovation to address some of the most pressing issues we currently face. To meet this opportunity we are challenging the private market to catalyze $10 billion of investment over the next 3 years directed at transitioning to a carbon negative food and agriculture sector. This means that instead of emitting carbon, the processes involved in food production, distribution, and consumption would actually remove excess carbon from the atmosphere.
Over the past few years there has been an upsurge in interest and investment in impact-driven companies, further spurred by Covid-19 and the growing climate crisis. In 2020 alone, we saw $1 trillion in ESG investor assets and Q2 2020 flows up 72% year-over-year. But there is still a lag in food and AgTech sector funding. Currently Food and AgTech represents only 2-3% of VC investments. According to the 2021 Agfunder AgriFoodTech Investment Report, the AgriFoodTech sector is a 7.8 trillion dollar industry responsible for feeding the planet and employing over 40% of the global population. But the pace of innovation has not kept up with other industries and today agriculture is still the least digitized of all major industries. For example, in 2019, $9 billion was invested in Food and AgTech startup funding. This represented 0.5% of risk capital invested as a percentage of Gross Output GDP, compared to 3.1% in Financial Services, 3.6% in Healthcare and 12.8% in Information Technology.
The efficiency of the sector is currently hindered by an increasing number of demands and constraints including a growing global population, climate change, environmental degradation, limited natural resources, changing consumer demands, consumer health issues and food waste. But these conditions create ample opportunity for entrepreneurs to disrupt the industry and create new efficiencies at various points across the supply chain.
There are promising signs that the food and ag industry is growing rapidly. According to the 2021 Agfunder Report, AgriFoodTech startups raised $26.1 billion in 2020, a 15% increase from 2019. This number is expected to increase to more than $30 billion as new 2020 deals come to light. The report accounts for the entirety of the sector, so while human and environmental health objectives are central to the missions of some of the funded companies, it is not the focus of all those included in this data point. In terms of sustainability focused investment in the food sector, a significant portion is composed of larger late stage deals. According to the 2020 CBInsights report on investment in sustainable food and beverage companies, food and beverage funding surged in 2020 to $5.9 billion, from $3.2 billion in 2019. But even with an 82% increase in funding, deal count only rose by 8%. This is due to sizable investments in companies like plant based food producer Impossible Foods, non-dairy milk company Califia Farms, and designer protein developer Geltor. In fact, the top 20 deals were responsible for $1.7 billion or 30% of the total sustainable food investment in 2020. While this spike in funding is encouraging, we hope to see more investment in early stage companies that are exploring new opportunities for innovation with the goal of improving food system efficiencies while advancing environmental outcomes.
The food industry is a particularly interesting focal point because it both encompasses the causes and the solutions to many of our most pressing crises. A recent study led by the University of Oxford found that even if fossil-fuel emissions were eliminated immediately, food production could still push temperatures beyond the 1.5 degrees Celsius threshold. Aspects of our food systems such as meat production, pesticide use, lengthy and inefficient supply chains and rampant food waste are responsible for the food sector’s outsized contribution to GHG emissions. On the other hand, according to the Rodale Institute, if we transition to widely available organic and regenerative farm practices, we could sequester more than 100% of our current annual CO2 emissions.
Beyond moving to more regenerative organic farming practices, there are countless technologies being developed in areas such as alternative proteins, controlled environmental agriculture, precision agriculture, supply chain optimization and food waste that can enable us to drastically reduce carbon emissions in the food and ag sector. By investing in these solutions we can build food supply chains that are carbon neutral or even carbon negative. It will not be easy to flip the switch and transform the food and agriculture sector into one is part of the solution to our climate crisis--but it is certainly doable and it is unquestionably necessary.
Since our founding we have been entirely devoted to investing in and supporting entrepreneurs who are working creatively and tirelessly towards better outcomes for people and the planet. Over the past 6 years S2G has catalyzed $3 billion in food and agtech investment. This includes our partnership with global institutional investor Caisse de dépôt et placement du Québec (CDPQ) to provide financing of up to $125 million over the next three years in food and ag companies that are addressing climate change. Transforming a system requires a holistic approach which is why we are working with companies at various stages of maturity across the supply chain from production to distribution and consumption. Instead of focusing solely on the investment opportunity, we aim to construct a portfolio that addresses our long term theory of change--namely building a network that can collaboratively transform our food systems. To this end we have invested in over 50 companies working on everything from on-farm technologies to farm financing, food packaging, logistics, safety and improving nutritional quality and food access.
S2G Ventures is committed to transforming the food and agriculture sector but we cannot do it alone. It is time to shift from a society that is forced to pay increasingly steep prices to reconcile the environmental and social externalities to a food system that is truly sustainable, equitable, and nurturing--a food system which operates in harmony with the environment and benefits farmers and consumers and a rich entrepreneurial ecosystem. The Covid-19 crisis has shown how science and technology can be mobilized to catalyze rapid and unprecedented innovation. We need to approach our environmental crises with the same urgency. We invite entrepreneurs, co-investors and strategic partners to envision the possibility with us and join us in this mission to catalyze $10 billion of investment in sustainable food and agtech innovation over the next 3 years to transition to a carbon negative food system. The momentum, demand and talent are all there, investment is the spark plug that will enable the sector to shift from being part of the problem to a key component of the solution.
