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Emerging Signs of Life in the Natural Products Investment Sector

It is still premature to announce, “They’re back.” However, following a period of disinterest from investors in the natural and organic products industry, there is a renewed focus on the sector. While the shift from vibrant to subdued in 2022 has not completely reversed, indications suggest that the situation may have bottomed out earlier this year. Industry leaders observing capital and deal flows note a thawing in previously cold attitudes and actions.

Could this signal the arrival of a new season?

Tim Avila, the president and founder of Systems Bioscience Inc., a consultancy providing investment guidance, remarked, “The pendulum always swings back.” He believes that the industry might be on an upward trajectory now, citing the activity at Expo West in March as evidence. There is a noticeable uptick in interest in acquisitions and other ventures. Angel investors, for instance, are showing a renewed willingness to invest.

Avila also highlighted the surge in investments during the COVID-19 pandemic due to heightened consumer focus on health. However, in 2022, as the Federal Reserve raised interest rates and money became costlier, the once bright landscape dimmed. This shift was particularly stark in the supplement sector, which had its peak performance in 2020.

“Supplements may not see the exceptional growth of 2020 and 2021 again,” Avila acknowledged. “And that might be for the best. Let’s aim for steady, sustainable growth.”

According to Mike Dovbish, a founding member and executive director of New Hope’s Nutrition Capital Network, the first quarter of this year saw a decline in transactions by 17% compared to the same period in 2023. However, signs of recovery began to emerge in March. Nutrition Capital Network reported:

  • Health and nutrition financings saw a 5% increase in March 2024 compared to March 2023.
  • Food and beverage transactions rose by 7% in March year-over-year.
  • Agtech/Foodtech/Biotech sector experienced a 7% growth in the first quarter of 2024 compared to Q1 2023.

Dovbish expressed optimism for the coming months, mentioning three significant tech deals and indicating a positive trend:

  • Protein Distillery secured $15 million in seed capital.
  • Pacifico Biolabs launched with $3.3 million in pre-seed funding.
  • Heura Foods announced $42.9 million in Series B financing.

Avila noted that investments in fermentation technologies might face a slowdown as investors recover from past setbacks. However, he highlighted a surge in interest in mycological products, particularly in companies like Meati Foods, known for creating plant-based meats from mycelium.

Moreover, companies such as Jack & Annie’s, utilizing jackfruit for plant-based meat products, are gaining attention for their simplicity and focus on regenerative agriculture practices. Avila emphasized the cyclical nature of trends, citing Gen Z’s interest in creatine as an example of how old concepts resurface and attract investments.

As the industry adjusts to the changing financial landscape post the era of “free money,” Avila emphasized the need for companies to work harder to secure capital. This shift, he believes, will foster a more robust and sustainable investment environment, encouraging innovation and consumer satisfaction.

“In the midst of these changes, consumer demand remains strong,” Avila concluded. “The vibrancy and innovation showcased at Expo West reflect why investors are increasingly drawn to these product and ingredient companies. There is a palpable energy in the air.”