An in-depth examination of the cultured meat industry, and why now is the time to invest.
*Note, this post was originally written in late July 2020, and will constantly be iterated as I learn more about this awesome space.
To put it simply, cell-cultured (or cell-cultivated) meat are meat products that are identical at the cellular level to their animal counterparts. These products are cultivated from a single cell using a specialized bioengineering process to create a final product with the same sensory and nutritional profile as slaughtered meat. Unlike synthetic and imitation plant-based meat products like Impossible Foods and Beyond Meat, cell-cultured meat is actual animal meat — it’s just grown outside the animal. To put it another way, these meats are made by assembling cells rather than dissembling a carcass.
Moving on, while plant-based meat products have increasingly been adopted by consumers, restaurants grocers and major food chains, these products still only represent 0.33% of market share in terms of pounds sold. A simple explanation is that for many Americans, especially non-coastal Americans, plant-based meats remains taboo.
It is hard to say whether these consumers will have similar feelings toward animal meat grown in the proverbial petri dish. Indeed, a recent survey found that 4 in of 10 consumers think lab grown meat is ‘scary’. While a study from Ketchum found that younger demographics are significantly more willing to try such foods — 77% of Gen Zers were more likely to eat such foods, compared to 67% of millennials, 58% of Gen Xers and 58% of baby boomers — it also found a heightened importance of implementing an effective marketing strategy that focuses on scientifically supported information and pathos-driven narratives to maximize buy-in. (I will discuss an opposing research survey later in this analysis.)
Americans love meat. A lot. It is not hard to believe that the average American consumes more than 200 pounds of animal flesh a year, which is more than the average American’s weight.
Meat has even become a major campaigning point of our current Vice President.
Yet, as I will detail later, the growth of the alternative meat sector is undeniable — and while investors have allocated tremendous amounts of capital into plant-based meat companies, it has not been until very recently that a fraction of the same capital access has been provided to cultured meat companies.
While cultured meat companies are still in their infancy and years away from market, the potential opportunity that this industry presents should not be ignored.
Remember, the plant-based meat industry was once nascent too, and the forward looking (and lucky) investors that capitalized early have reaped astronomical returns. There is reason to believe that a similar opportunity presents itself today.
But first, like most discussions regarding food, let us start with the problem.
The Problem with Good Ol’ Fashion American Meat
For the sake of brevity, I will not comment on the ethical concerns of conventional meat production (this article proves an interesting read on the matter). Instead, let us focus on two areas of importance: sustainability and public health implications.
It is no secret — well maybe it is? — that livestock husbandry comes at a substantial economic and environmental cost. Currently, industrial animal agriculture is the driving cause of global deforestation and biodiversity loss. Furthermore, according to information from the Food and Agriculture Organization of the United Nations (FAO), nearly 77% of Earth’s habitable land and 50% of the world’s agricultural production is used to raise and feed livestock. Indeed, livestock feed accounts for more agricultural consumption than that used for human consumption. Animal agriculture accounts for 14.5% of global greenhouse gas emissions and is expected to account for 81% of the remaining carbon budget under the Paris Agreement by 2050 if current rates of production continue.
Even more harrowing is the resulting caloric leakage that this system produces. The aggregate meat feed conversion ratio is 6.8 — or 6.8 pounds of feed is required to produce 1 pound of meat.
Examined at a macro-level, this implies that 46% of worldwide agriculture production for livestock feed only converts into meat products that provide 7% of available food calories. In other words, only 44% of today’s global agricultural production would be enough to feed most humans (37% + 7%).
The inefficiencies are blatant. Re-examining this system could drastically reduce our environmental footprint. A 1% decrease in meat consumption would conserve over 8 billion gallons of water used for agriculture irrigation and livestock.
Water scarcity is perhaps the most severe humanitarian crisis that many people have little awareness about. 1.1 billion people lack access to water, and by 2025 two-thirds of the population may face water shortages. Consequently, water shortages pose legitimate social and political ramifications.
Cultured meat proves to be an efficient alternative. A research report from Hanna Tuomisto of Oxford University found complete consumption of cultured meats would decreases water usage by 82–96%.
Other environmental findings are just as encouraging. Cultured meats could reduce global greenhouse gas emission by 72% and land usage by 98%. Moreover, its conversion rate is projected to be 6x times more efficient. It also nearly eliminates antibiotic usage compared to current levels, which the World Health Organization has called “an increasingly serious threat to global public health.”
Lastly, considering that the conventional meat industry has essentially reached its scalable threshold and its cost-price dynamics have settled near equilibrium, we must consider what options we have in terms of maintaining an environmentally sustainable food supply that can keep pace with population growth. This is of utmost importance as humanity will need to produce more food in the next 40 years than we have over the past 8,000 years of agricultural production combined. A study from the Proceedings of the National Academy of Sciences estimates that the current rate of meat consumption would cost the U.S economy between $197 billion and $289 billion each year — and the global economy near $1.6 trillion by 2050.
Moreover, unlike traditional meat products, cultured meat is not expected to have significant price differential depending on the species. If companies can eventually push meat production down to an affordable price point, this can reduce the issue of diet disparity by making high-quality, antibiotic-free meats available to the masses.
While it is unreasonable to expect that cultured meat will ever constitute 100% of human food consumption, the findings of these studies is a compelling illustration of its environmental benefits.
Industrialized Pork or Lipstick on a Pig?
Moving on, COVID-19 has brought the public health implications of industrialized meat production to the forefront. Many authorities on the matter agree on the potential consequences. “Another influenza pandemic occurring at some stage of the future is exceedingly high,” said Richard Webby, professor of infectious diseases at Memphis-based St. Jude Children’s Research Hospital and director of the World Health Organization’s Collaborating Center for Studies on the Ecology of Influenza in Animals. “The chances that it’ll come from some sort of farmed animal — my personal opinion is, that’s high as well.”
Pigs, particularly, are the animal-equivalent of the Y-combinator for viruses. Unlike other animals, pigs can incubate multiple viruses from different species (birds, humans, etc.). When this happens, these viruses swap genetic material and morph into a novel strain that contain swine, human and avian genes, with the potential to infect all three species.
This biological accelerator is amplified in the context of the modern pork industry. Long gone are the days that a little girl can plead for the life of a piglet on her family’s farm (but hopefully literate barn spiders are here to stay). Instead, three-quarters of US hogs are raised on the 3,600 largest operations, each averaging more than 14,000 animals according to the 2017 Ag Census.
This produces “an explosive evolutionary accelerant”, according to Rob Wallace, an evolutionary biologist with the Agroecology and Rural Economics Research Corps and author of Big Farms Make Big Flu.
While the US hog industry is self-proclaimed to be “really good” at detecting and preventing the spread of diseases thanks to stringent protocols such as being “encouraged” to wear personal protective gear like masks, in reality they are chasing a shadow. The majority of their protocol relies on testing pigs for potential illness. But as we have learned with COVID-19, humans are very capable of hosting viruses without showing signs of symptoms. This means that the workers who tend these pigs are capable of moving the virus into their local communities. Even more worrisome is the fact that pork has become an essential product of international trade. “The United States and Canada, the largest exporters of hog, are also the largest exporters of swine flu,” Wallace said. Viruses can spread rapidly across the globe, not only with the potential to affect human, but also with the ability to decimate pig populations as well, as we have seen in China over the past few years.
In a COVID-19 world, the degree of contact between man and meat requires extra scrutiny. In this context, the fact that cultured meats are entirely handled by robotic instruments throughout the production process should be acknowledged with greater substance.
As the world is forced to confront the terrible social and economic impacts of a pandemic, now is the time to consider how to prevent the next one. A prevailing train of thought is to rethink how we produce, and even sell, meat.
Enter cultured meat.
Trust the Process
Before we continue, it is important to understand how exactly cultured meats are produced.
A simplified explanation of the process works as follows.
A stem cell is extracted from the muscle tissues of an animal. From there, it is added to a bioreactor and fed cell-culture media to proliferate at an exponential rate (a single sample yields trillions of cells!). The cell-culture media is a formulation of dozens of ‘ingredients’ including glucose, amino acids, ions, pH buffers and (most importantly) growth factors.
You can think of this process almost like a biological version of the Gemino curse inside in Bellatrix LeStrange’s vault from Harry Potter and the Deathly Hallows Part 2.
Back to the matter at hand.
After the proliferation process produces a desired number of cells, a change in culture conditions cause the cells to differentiate into muscle, fat and connective tissues. The cells then contract to form primitive muscle fiber. The fibers are then attached to a sponge-like scaffold that floods them with nutrients and mechanically stretches and ‘3-dimensionalizes’ them. Because of these tissues natural tendency to contract, these fibers begin to bulk, until they grow into a small piece of muscle tissue. This technique can be replicated to produce over one trillion strands of muscle tissue. Lastly, these muscle strands are scaffolded with other muscle and fat tissues to create the final meat product.
As previously outlined, media plays a crucial role in the cell-cultivation production. It is also a delicate input that is incredibly expensive and far from efficient.
Cell culture media is the most significant cost driver in the production process. The current formulation for muscle cells is at a cost point that is prohibitive on a large scale. More specifically, the major production expense is the growth medium (which represents 98% of the production cost), which historically could cost approximately $400 per liter. To put this in context, a standard bioreactor requires up to 200 liters to produce 1 pound of meat.
Since the historical demands for growth media specific to food production and bioreactors were limited, there was no downward pressure on suppliers. As a result, manufacturer produced low quantities at expensive price points, specifically tailored for expensive therapeutics and medicinal purposes. Consequently, the supply chain is relatively immature and requires time to recalibrate for the desired output.
But, fear not.
Incredible bandwidth and capital is being spent to reduce these costs or find sustainable alternatives. The results are promising. In fact, over a five year period companies were able to reduce the cost of production 99.4%, and counting. Mosa Meats, the Dutch company that made the first lab-grown hamburger in 2013, even projects to reduce the cost of producing a burger to $10 in the next few years. While the majority of cultured meat products are still at a cost point that isn’t commercially viable, the exponential reduction in production costs suggest that it isn’t far away.
Alongside optimizing the medium growth expense, a major emphasis on future growth will be focused on PP&E — particularly building large production facilities and acquiring (or developing) bioreactors at scale. Yet, as I will discuss later, this is already underway.
The thesis for alternative meat products has crystalized over the past six-months. As the link between deadly viruses and industrial meat production becomes more widely accepted, and meat supply chains continue to be disrupted by labor shortages and plant closures, the demand for alternative sources of protein continues to grow.
Looking at the demand for plant-based meat products as a proxy, the results are encouraging. According data from Nielsen, US sales of plant-based meat substitutes increased 200% in the week ending April 18 compared to the same period the year before, and surged over 265% over an eight-week period — six times faster than conventional meat sales over the same period. SPINS data compiled by GFI shows that retail sales of plant-based meat increased 18% in 2019, which is over six times faster than sales of conventional meat and nine times faster than total U.S. retail food sales.
The Times They Are A-Changin’
Currently, plant-based meat products are the only alternative meat products available to consumers. But now more than ever, it’s important to adhere to the great Bob Dylan — the the times they are a-changin’.
Indeed, the same tailwinds that are driving interest in plant-based meat companies are billowing the sails of their more “cultured” competitors.
The cultured meat industry is at a pivotal inflection point in terms of capital access and commercial maturation. According to the data firm IDTechEx, cultured meat start-ups raised over $125 million from 2015–2019. This is a drop in the bucket compared to the approximate $15 billion of capital investors have pumped into U.S plant-based meat companies since 2009, with a staggering $930 million in investments during COVID-19 alone.
Yet, we are seeing similar investor enthusiasm for cultured meat start-ups during the same period. The cultured meat industry counted $189 million in new investments during the first quarter of 2020, more than the industry’s entire previous funding history combined.
Perhaps more importantly, these investments are from both institutional investors like Softbank and UBS, as well as legacy meat and biochemical companies such as Cargill, Tyson, Merck and PHW Group. This signals an important vote of confidence for the space. Additionally, it establishes strategic partnerships that can provide expertise in biotechnology and supply chain scalability, as well as an increasingly incentivized potential customer base.
In parallel to capital access, more intellectual horsepower is being devoted to scaling the industry. By the end of 2019, 55 new cultured meat companies launched worldwide, representing a 57% increase from the 35 total cultured meat companies in operation in 2018, and a 91% increase from 2016.
Even more, as companies like Memphis Meat, Mosa Meat, and Future Meats (at least you know what they sell) raise new rounds of financing in 2020, they do so with the aim of developing production facilities in order to enter the next phase of their growth.
In January 2020, Memphis Meats raised a $161 million Series B round to build a production facility to make meats from multiple species at scale. Mosa Meat raised £4 million in July 2020 to also construct an industrial production plant. Similarly, Future Meats plans on using its $14 million capital raise in October 2019 to build its first manufacturing facility.
The goal of all of these companies fresh financing is to substantially advance their production scale in order to reduce cost and achieve parity with the greater meat market. Moreover, at a micro-level, the underlying motivation is clear: be first to market. From there, as costs continue to reduce and scale increases, many companies hope to reach market by sooner rather than later.
By Popular Demand!
The influx of investments and start-up formation coincides with increased interest from consumers for “clean meat.” A survey done in early 2018 from Surveygoo found 40% of Americans are willing to try lab-grown meat. Months later, a study done by Kadence International showed 66% of consumers would be willing to try lab-grown protein.
Consumer preference in the two largest markets — India and China — are even more open-minded. In February 2019, a global survey funded by the Animal Advocacy Research Fund revealed that 29.8% of U.S. consumers, 59.3% of Chinese consumers, and 48.7% of Indian consumers would be very/extremely willing to regularly purchase cell-based meat.
By Popular Demand?
Yet, cell-cultivated meats (as well as plant-based meats) still have a long way to go in terms of developing a taste profile that can compete with conventional meat products. According to a 2019 nationwide taste-test survey of approximately 1,800 U.S. consumers, holding price constant, 72% of consumers preferred farm raised beef, 16% plant-based (pea protein) meat alternative, 7% plant-based (animal-like protein) meat alternative, and 5% lab-grown meat.
While I applaud Mr. Lusk (one of the paper’s authors) for his research, I do believe it has certain limitations. Big farming has had over a century to perfect their product by iterating livestock diet and lifespan, optimizing lean-to-fat percentages, incorporating the controversial usage of antibiotics and hormones, and endless market research. Conversely, plant-based animal-like protein products such as Impossible Foods and Beyond Meat have only been available to consumers for approximately five years, while ‘lab-grown’ meats have yet to go to market. Looking closer, there is clear correlation between time on market and consumer preferences, and a survey weighting this variable could have more evenly distributed findings.
Lusk and his co-researchers acknowledge a previous study conducted by colleagues (Wilks, Phillips) in 2017 that found 31% of U.S. consumers definitely would and 34% of U.S. consumers probably would be willing to try lab grown meat. Bear in mind, this study was published in February 2017, so it safe to assume that their research was conducted throughout 2016, when only five lab-grown meat companies existed, and the global industry raised less than $38 million of funding in 2016 and 2017 combined. To put it simply, the industry was a step-above non-existent. Consumers had extremely limited knowledge of the space and practically zero anchoring. Given these factors, the encouraging results of this study should be considered with greater substance.
I recently had the pleasure to speak with Jayson Lusk about his research. I found his skepticism about meat-alternatives apolitical and evidence-based, and he was open-minded to my perceived limitations of the study. Particularly, we examine two aspects in greater detail.
As Lusk mentioned, the most crucial element of these types of surveys are how the questions are framed. While Wilks & Phillips’ survey asked binary questions on preference, Lusk’s survey focused on questions that required a trade-off in order to simulate the buying experience.
I believe, in general, Lusk has a more effective approach. However, in the context of cultured meats, I questioned Lusk on the ability to simulate the buying experience for a product that has never been on the marketplace. I expressed concerns regarding the structure of the survey and the resulting empirical evidence due to this implicit bias against cultured meats. In a trade-off scenario, it would impossible to hold all variables constant and eliminate exogenous factors. When a consumer is presented with 3 options that he/she has confronted during prior buying experiences and 1 option that he/she has never confronted, the research conditions are not controlled. The consumer will be inclined not to choose cultured meats, not because of their preferences (the purpose of the study) but because of the inability to psychologically place these products in the context of a previous buying decision.
As a result, I believed Wilks & Phillips’ study provides a more accurate representation of consumer preference toward cultured meats. Their study eliminates the aforementioned exogenous factors and does not place culture meat within a context that immediately puts it at a disadvantage. Instead, the questions of their survey solely focused on consumer’s preference towards culture meat and thus prove to be a more compelling discovery for this particular product.
Lusk appreciated my observation and agreed with the validity of my concern. However, he pointed out, Wilks & Phillips’ survey used language that induced positive responses. He is correct, Wilks’ & Phillips’ questioning — “definitely would be willing” and “probably would be willing” — exclusively asks about positive preference toward cultured meat (as well as no preference) and so it is safe to assume their findings were inflated.
But Lusk, much to his credit, also pointed out a similar limitation in his research. By using the term “lab-based meat” to refer to cultured meats, he acknowledged, the survey most likely deflated findings. If it used terms such as “cultured meats” or “clean meats”, the survey would most likely find cultured meat to capture greater preference share than recorded.
Lusk contends that a major obstacle for cultured meats is the absence of fat in the development of their products. While it is clear that he is behind on the current state of the industry (he is focused on beef products in particular, so the development of pork products rarely comes on his radar), it is insightful in that it suggests that the cultured meat has cleared a major obstacle.
Indeed, many cultured meat startups like Mission Barns and New Age Meats are at entering a stage where they can sample their products with consumers and iterate the taste profiles of their meats based on consumer preferences. The development of cultured fat and high fat products will allow these products to be more palatable. As a result, I expect the findings of this survey to become more equitable each year.
While the road to commercial viability (let alone profitability) is going to be long and capitally intensive, investors should not lose conviction. Instead, they should look to cell-culture’s plant-based cousins for inspiration.
The impossible Burger required over 80 scientists and cost close to $80 million to develop, and took over 5 years before it reached the plate of its first consumer at David Chang’s chic Momofuku Nishi enclave. Over that period of time, it raised more than $150 million. That patience and wherewithal requires some serious gumption (or “chutzpah” as Mommom would say) on the part of investors.
But it’s paid off — and then some. As March 2020, Impossible Foods was valued at $4B and has raised $1.5B to date. Furthermore, Beyond Meat (it’s arch-nemesis) has seen its share price rise 500% since it’s May IPO, bringing its enterprise value close to $8B!
That’s not to say that the path to success isn’t littered with corpses. Many cell cultured meat startups will fail. But, VCs are presented with a rare opportunity to invest in a category in its relative infancy, at a stage where the majority of companies are still in the seed and series A rounds. Which begs the question, who will be the winners?
You Play to Win the Game
There will be some headwinds. Cell cultured meat companies will be heavily dependent on the success of their biologists to optimize cellular growth structures, cell nutrition, gene editing capabilities and fermentation. Additionally, they will need to build out their engineering team in order to ensure that these processes are developed commercially rather than academically. This will mean determining ways to improve yield, utilize cheaper growth factors, and developing ways to recycle spent media.
New Age Meats CEO Brian Spears sounds up for the challenge. “At this point, it makes sense for us to focus on the full stack,” he said in an interview with AgFunder. As the industry matures, he said, he might be more open to see where other companies can slot into their vertical integration to make life easier.
One such company that seems to do just that is Future Meat Technologies, which is developing and licensing a line of proprietary bioreactors and fibroblast — rather than stem cell — cell lines that they believe will can produce a greater yield of muscle tissues at a cheaper production cost. Another is Canada’s Future Fields, which is formulating and licensing a plant-based alternative to specific fetal serums (that are both expensive and controversial) that are still a commonly used growth media ingredient.
On the technical side, there is a tremendous amount existing genome research regarding pigs, much of which focuses on xenotransplantation. For those of us who live under a rock, xenotransplantation is the process of growing human organs and cells inside another animal (for the most part pigs) through genome editing, with the end goal of using these organs for future transplants.
Moreover, as discussed, the public health implications of the industrialized pork industry can no longer be ignored. Pigs are virus incubators and have the potential to produce the next pandemic. Furthermore, pig-derived animal to animal disease, such as the African Swine Flu, continues to disrupted supply chains, with the potential to cause catastrophic declines in pork populations that can result in the dislocation of global commodity markets and widespread malnutrition and starvation. Consequently, the need for an alternative to the world’s most consumed form of protein could not be more pressing.
Yet, the access to pork cell lines and genetic information creates less barrier to entry compared to seafood products like salmon. Inversely, seafood products require more investment into the earliest stages of the production process and essentially building a cell lien for scratch.
It is difficult to determine which meat product will be the ‘winner’. In fact, it is unwise. The industry is too large to view it with a winner-takes-all approach, and a consumer does not need to substitute one product for another. They can coexist. I may eat pork on Monday and salmon on Wednesday.
Instead, cell cultured meat should be examined across the value chain, with particularly focus on the strength of the operators and why they are best suited for the challenge. The science will continue to evolve and mature. This will foster greater optimization and efficiency, which will permeate across the bioprocess as it is inextricably linked.
As such, at least at this point, I would advise investors to invest in platforms, not products.
While VC markets have surprisingly remained active during 2020, volume has decreased as late-stage companies drive deal flow. VCs are allocating an outsize proportion of capital to well-established companies, taking an understandably risk adverse approach in the current economic environment.
However, I might argue that for VCs focused on asymmetric returns, now is the time to take a contrarian approach to capital allocation. The cultured meat industry is entering a new pivotal stage of growth, yet the industry remains nascent and potential investments are still cheap. A black swan event has disrupted the general VC industry’s allocation strategy, yet this too shall pass, and capital allocation will return to the mean.
Strike while competition is low.
Invest while companies are still cheap.
Be a part of the future that aims to help the greater good.