It’s safe to say we’re all entering 2023 a wee bit warier about the future of AgriFood and Climate Tech.

We had some big disappointments in 2022, especially after the wild ride of 2020 and 2021. Deals shrank. Big-name superstar startups of years past imploded dramatically (here’s looking at you, AppHarvest) or quietly had parts sold off (Granular Business). Everybody was talking about lay-offs (DoorDash and InFarm), and the high gloss on some previously ‘hot’ sectors (plant-based meat and vertical farms) received some significant tarnish.

But surprisingly, despite all the trepidation, I’m feeling bullish about 2023 and predict we’ll see some big wins over the next 12 months.

1)    ‘Privatization’ is the New ‘Going Public’

The last few years’ Agri-Food Tech startups were bonkers to go public. Where did that get us? Over-valued companies and spectacular crashes.

Public markets don’t care about the potential for future growth. They care about this quarter’s revenue reports and those pesky earnings goals. As much growth potential exists in our sector, we’re still growing these concepts from the ground up. Companies need time, patience and creativity to build out their pipelines. But how do they do that under the unforgiving eye of Wall Street? Well, they stay private. Or, if they went public, they reverse the move.

We saw this most recently with the privatization of AgroFresh. The food waste prevention startup received an immediate value boost (after five years of tanking stock prices) once news broke of an acquisition deal.

Going (or staying) private is increasingly looking like a wise move.

2)    Forget Alternative Protein. Think Alternative Ingredients

One of the biggest bummers of the past few years was the collapse of the alternative protein market.

Original novel innovations, like Impossible Food’s plant-based ‘heme’ technology plus initial consumer fascination, sparked a deluge of new table-ready products. But most were inferior in taste and quality. And consumers willing to give that plant-based burger a try during the Covid-19 alternative-eating frenzy quickly slipped back into their everyday buying habits.

So where to from here? Well, think of ingredients, not branded products, made from precision fermentation.

Take Shiru, for example. They use precision fermentation to create alt-protein ingredients. Their first big win? Plant-based gelatin. Gelatin is traditionally made from animals and is used widely in food manufacturing. Shiru’s animal-free gelatin serves as an ingredient for tastier meatless (or eggless) recipes. Another company in this space is BrightSeed. BrightSeed is all about exploiting plants, microbes and fungi for healthier ingredients. One of their ready-for-market ingredients is a dietary fiber supporting gut health made from hemp hulls.

There’s still plenty of room in the alt-protein market. It’s just going to happen ‘behind the scenes’ rather than in branded, shelf-ready products.

3)    Biologicals Full-Steam Ahead

This one isn’t surprising. I spoke about the significant 2022 gains in biologicals in last month’s blog post. But what might be surprising to some is just how much traction biologicals are getting in edging out old-school, chemical-based inputs in the broadacre ag market.

Not long ago, biologicals were regulated to organic, turf, and ornamental marketplaces and dismissed as questionably effective and over-hyped ‘snake oil.’ But biologicals have grown up. With better products and fertilizer and input prices continuing to be high, farmers are highly motivated to try alternatives. That biologicals are a more sustainable, soil-health-friendly product than the chemicals they replace? Even better.

Expect to see a lot of excitement, acquisitions and impressive funding rounds continue in the biological space in 2023. Case in point, Sound Agriculture’s recent $75 million series D round.

4)    Bio-Manufacturing Builds Steam

A fascinating opportunity building steam in the ClimateTech side of things for 2023 is with bio-manufacturing.

For a long time, bio-manufacturing has been a disaster. Bio-manufacturing startups assumed they could command a green premium. That never panned out. Price points were too expensive to compete, products were inferior to what they were trying to replace, or companies simply failed to scale. But the idea of a ‘bio-economy’ to replace an unsustainable, chemical-based material manufacturing industry has persisted.

But now we’re seeing the results of lessons learned, and 2023 will be a year when bio-manufacturing takes off. For example, check out LanzaTech, a company that uses waste carbon emissions as a feedstock for sustainable fuels and chemical production. Or Sorona, a DuPont-owned company, creating plant-based fabric replacements for traditionally plastic-derived fibers, like Spandex. Or carpet.

Then there’s Lygos. They use natural building blocks to create replacements for traditional industrial chemicals. I’m especially chuffed for their bio-based replacement of malonic acid, a notoriously hazardous chemical produced from cyanide.

5)    Big Solutions Will Make Big Wins

Last but not least, we’ll continue to see an appetite for big, mission-driven solutions with the potential for big wins with a big impact.

Saving the planet and all of us humans residing on it has been the fundamental driving force for funding AgriFood and Climate-Tech startups. Yes, multi-million dollar deals and ‘green-tech’ billionaires burst a bit of our altruistic bubble. But at the end of the day, our planet is facing severe problems. And investors know it.

So, despite the turmoil in the markets, despite the challenge of investments being underwater and over-valued, there is still enough capital and enough interest that the Agri-Food and Climate-Tech sector will continue to grow and develop. And that’s a bet I’m confident will last far beyond 2023. I’d even put a few quid on it!

What Will Be, Will Be!

I’m pretty sure I said this last year, but the only undeniable truth about prediction pieces is that hindsight is always 20-20! And if 2023 is anything like the previous few years, there is something unexpected that I don’t currently have on my 2023 bingo card.

But for now, I’m sticking with my gut! What about you? What do you predict 2023 will look like? As always, my emails are open! S.Leich@cs-partners.net or contact me at CS Partners.