Fund focus: Lever leverages spiking food tech appetite

Several elements contributed to Lever VC closing its debut global fund 60% oversubscribed, not the least of which was early traction – at least on paper. When the Hong Kong-based food tech specialist reached a fourth close in August 2020, it claimed the vehicle's then 14-company portfolio had increased in value 2.3x in less than 12 months.

There's also the reputation factor. Lever is headed by Lawrence Chu and Nick Cooney, both early investors in sector leaders Beyond Meat and Impossible Foods. Chu has made more than $450 million in private equity investments in animal protein, while Cooney has been active in alternative protein space for 17 years and co-founded industry lobbyist The Good Food Institute (GFI).

The key denominator, however, was the category itself. Food tech, and especially alternative protein, has been on a tear. According to GFI, 2020 was a record year for investment, with $2.1 billion plowed into plant-based meat, egg, and dairy companies, or more than 3x the 2019 total. This year appears set to extend the parabola as more generalist investors catch the fever and deal sizes inflate.

"This year, there has continued to be a very large amount of capital being deployed, but I'm seeing more big deals that to me just seem like very bad investments. A lot of $25 million to $75 million rounds are not going to do well. That's going to have some negative drag on the space 5-6 years down the line when those companies end up where they end up," Cooney says.

"Are we approaching the peak of the hype cycle? I don't think we're there yet, but there's defiantly a strong element of that right now. To me, that doesn't in any way effect the opportunity in this space. There're still a lot of deals with excellent companies and products, great tech, and deal terms that make sense. You just have to be knowledgeable about the space and disciplined enough to make smart bets."

Lever VC Fund I reached a final close of $80 million last week against an initial target of $50 million, and the momentum has encouraged the firm to fast-track Fund II, which will likely launch early next year. Fund I LPs include meat and commodities companies, a fermentation specialist, two agrifeed businesses, Asian family offices, and high net worth individuals in the US and Europe. About 40% of the overall LP base is in Asia.

There have been 19 early-stage investments to date; 30 are expected in total. Up to a dozen of these will receive follow-on investments. Four companies are located in Asia, including two non-animal dairy players (Singapore-based TurtleTree Labs and Beijing-based Marvelous Foods) and two cultivated meat players (Avant in Hong Kong and Celix in Shanghai).

Lever has been priced out of some opportunities globally due to the recent hype. But it could see relatively higher deal flow in Asia going forward as most global players remain hesitant to plunge into the region's unfamiliar markets. In the meantime, the sector's inherent environmental social, and governance (ESG) and consumer packaged goods (CPG) angles will help offset the tech-boom euphoria.

"It has an ESG-impact component and there are some investors getting into this space in part – and a few of them primarily – because of that reason, which you certainly don't see in a lot of areas of tech. But it also has a high-tech component, where you have, over a longer period of time, the same potential for huge disruption like you have in some other high-tech categories," Cooney says.

"At the same time, we've also got the CPG side of things, the plant-based meat and dairy brands that are very formulation and brand driven – that's growing a lot. All of those are rather different motivations for people to invest and ways to think about the investment, and they will shape the growth of each subsector in alternative proteins in different ways."

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• Topics
• Greater China
• Fundraising
• Venture
• Cleantech
• Consumer
• Hong Kong (China)
• Lever VC
• Food
• Agriculture