Report: The growing and dominating UK FoodTech ecosystem
The UK FoodTech ecosystem is seeing steady growth, through overcoming certain obstacles, it has the potential to cement itself as one of the world’s FoodTech powerhouses.
This report was developed in partnership with Collective Equity Ownership
FoodTech is steadily conquering the globe. New technologies, business models, infrastructures and perspectives have created a food landscape with diversity and complexity, propelled by numerous drivers and an interconnection of systems that create a highly efficient, global food value chain. At the same time, shifting consumer preferences, centred around sustainability and environmentalism, are putting pressure on the existing business models and approaches of food companies and brands. As Fortune Magazine put it: “Big food is under attack from startup granola.”
The emerging FoodTech industry is capitalising on these factors and the dropping costs of digital technologies and working to revolutionise our food and agriculture systems through entrepreneurship and innovation. But it is not just startups: key stakeholders across the global food system, from corporates to governments, investors, non-profits and academics, are reshaping how we produce, supply, deliver and consume foods around the globe. Although this nascent industry is still the largest within the US, FoodTech ‘hubs’ have emerged globally — Berlin, Singapore, Amsterdam, Tokyo and London. As demonstrated in figure 1 the growth of the sector is evidently clear.
The UK FoodTech Ecosystem:
The UK FoodTech ‘scene’ has seen a strong growth in the number of startups, funding and investors. With London naturally getting the largest attention and attracting some big names, it has the potential to cement itself as a powerhouse for FoodTech innovation within Europe. Some of the actors that have gained international traction include Deliveroo, Hello Fresh and Huel.
UK FoodTech Startup Scene: a snapshot
- 430+ F&B Startups in London (600+ in the UK)
- 274+ FoodTech Startups in the UK
- 53+ FoodTech Startups in London
- Total industry funding £1,776,580,000 (2009–2018)
Sue Nelson, group lead for FoodTech at Tech London Advocates, reflects on the proactive mindset in the growing UK ecosystem by stating: “FoodTech has to be far more important than most of the other ‘techs’ such as fintech, proptech, edtech and retailtech, because the future of food is critical to the future of mankind.”
Emergence of UK FoodTech:
At the time of Deliveroo’s conception in 2013, there was a feeling among some investors that with the success of Just Eat, which went on to IPO a year later, the “FoodTech” market was saturated. However, Just Eat had initially been turned down by multiple VCs. As it turned out, not only was FoodTech anything but done, but London — with its density of restaurants and hard-working professionals — was to emerge as a global hub in this space. In 2017 — just four years after it was launched — Deliveroo raised a Series F investment round of £397 million, valuing the company at £1.48 billion. As of 2019 Deliveroo has secured a total investment of £1.34 billion.
David Buttress, co-founder and ex-CEO of Just Eat summarises the growth of the ecosystem: “Food tech, as it’s now called, has become a sexy thing, but when we started Just Eat back in 2006, I can tell you barely a venture capitalist would have heard of it and probably wouldn’t want to have even met us because what we really were was an online platform for local takeaway restaurants. It was probably, at the time, the most unsexy business in the world, because if you’re a VC, a local kebab shop is not your idea of a sexy industry to be involved in.”
By early 2019, there are over 46 startups solely in the Food Delivery space with a total funding of £1,556 million. A stark difference from the few that existed 10 years ago. In the context of Europe, one can now see the UK’s growing leading position, with over a quarter of all venture capital funding in the UK between 2013–2018 being invested in the FoodTech space.
Figure 3: The top 6 Startups in the UK, from 2009–2019:
The signs of growth are clear, with figure 2 demonstrating the UK has created a solid foundation to progress as a global hub for FoodTech innovation. Nevertheless, in comparison to the US, the UK is still significantly behind in funding, especially with respect to average funding per deal, which might restrict further accelerated development of high-potential startups.
A comparison of the sub-categories, outlined in figure 5, also shows a clear divergence in the growth of the US ecosystem against the UK. The UK only leads the funding in the Surplus & Waste Management and Food Delivery category (here largely due to Deliveroo).
Despite the strong and dynamic landscape, the UK FoodTech sector is obviously still lagging behind the American ecosystem. Why is this the case?
UK (and European) FoodTech startups evidently struggle to secure funding at later stages, as demonstrated in Figure 3. Only three UK startups have successfully secured over £50 million compared to the 20 in the US. Maarten Goossens from the Dutch AgriFood Tech fund Anterra Capital points out that “Europe does have a problem when it comes to later stage capital, specifically for Series B to D funding rounds when larger amounts of capital are required while the risk of failure is still significant; there’s a gap in those investment stages across all tech industries.”
When comparing the UK to the US, it should be noted that there is 14 times more capital available in the US for startups in their later stages (scale ups) than in Europe. Goossens states “If you compare Europe and the US relative share of global VC funding — 15% vs 45% — you’d expect that to be a factor of three. The lack of later stage capital will remain an issue until bigger pools of capital turn their eyes to Europe.” Although later stage funding is now more prevalent in other tech sectors, such as FinTech, FoodTech still captures only a low percentage of the total amount invested in UK startup companies, which was over £7 billion in 2018.
Overall, this seems to be a broader challenge with European venture capital. PitchBook expressed in their Q3 report: “The major difference (with the US) is a current lack of widespread VC support or ability to do €100 million+ deals. This has become a staple of the US VC playbook but is still relatively rare in Europe.” Digital Food Lab speculates that this might be because investors are “less inclined to trust Europe’s startups with a few million before they have proven their worth,” and this definitely plays a role. A deeper look reveals a difference in the styles of the investment ecosystems. U.S. startups promote the “fail fast” approach, taking bold risks with big gains, or failures. In contrast, UK and European startups and VCs are generally more cautious, raising and investing money more gradually.
The UK FoodTech scene is well-positioned in multiple aspects. Firstly, there are no shortcomings regarding talent. The UK may be standing in the adversity of Brexit, with many questions unanswered, however with London at the center, it remains a cultural powerhouse with a thriving startup environment. Already boasting 274+ companies, with many still undiscovered, the UK startup ecosystem is one of the most mature in Europe, with the potential to become a major player globally.
2019 has already seen investments skyrocketing in the UK tech sector, with Dealroom claiming the UK has become the world’s hottest tech hub this year. Investment in UK tech has increased by 43% when comparing Q1 & Q2 of 2018 vs 2019. Moreover, larger global investors from the US and Asia are increasingly interested in the UK startup scene, with a +147% rise in the capital invested in UK startups by US and Asian investors. In addition, the UK is attracting much stronger investors, compared to the rest of Europe, putting it in a very beneficial position when looking to the future. Figures 6 and 7 demonstrate the growing UK startup scene.
Figure 6: The rising UK startup scene
Figure 7: The UK compared to the rest of Europe
2019 has already seen a large growth in startup investment across the UK tech sector. With one of the top deals this year already being in FoodTech (Deliveroo), the UK is poised for significant growth within FoodTech. In addition, 2018 already saw an increase in the number of larger funded deals, with 2 out of the 3 £50+ M, deals being completed the same year.
Figure 8: Forward Fooding’s summary of the Top Deals in 2018 for AgFunder News
However, as outlined above, the UK ecosystem is still lacking maturity in comparison to the US. Nonetheless, through fostering communities to empower companies, corporates, investors and institutions to collectively get behind the opportunities that lie in devising tech-centric solutions for bettering our food system. In addition, through a more high-risk, high-reward investment strategy, London has the potential to be Europe’s engine for FoodTech innovation.
While Silicon Valley may still remain the current epicenter for FoodTech innovation — with its sizeable funding power to back it up — US investors should now keep an eye on what is happening across the Atlantic.
Written by Armaan Dobberstein — Marketing Associate at Forward Fooding