AgTech

Prime Future 91: Red meat & venture capital don’t go together

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Riddle me this: why are there multiple venture-backed poultry production companies, but zero venture-backed pork, beef, or dairy production companies?

Kicking that around raises questions about potential disruption in meat and livestock.

Venture + Poultry

According to Crunchbase, Shenandoah Valley Organic (Farmer Focus brand) has raised $24.2 million in venture capital to “revolutionize the industry by creating sustainable, innovative partnerships between SVO and family farms. These partnerships allow farmers to retain ownership and grow profitability while also providing traceable, organic meat.”

Meanwhile Cooks Venture just closed $50M in debt financing, after raising ~$75M in venture capital to fund “building an alternative to America’s meat industry, to deliver great food from independent, regional farms. Our core values include a commitment to true transparency, and prioritizing the health of the land and the well being of our workers.”

And then there’s Pasturebird, a pastured poultry + poultry tech company, which was acquired by Perdue Farms early in the company’s growth, but otherwise would likely have gone down the venture-backed path.

So that’s (almost) 3 venture backed production companies in poultry.

Yet we haven’t seen a single venture backed production company in beef, pork or dairy. Why?

Two potential reasons:

  1. The venture model is inherently more compatible with poultry production than the other proteins. We will not see venture backed production companies in beef, dairy, or pork.
  2. The other proteins have not yet found the right production model that is compatible with the venture model. We will see venture backed production companies in beef, dairy, and pork….it just hasn’t happened yet.

Note that I am specifically raising the question about companies actually producing beef, pork, or dairy. Currently the venture backed companies in beef, pork, and dairy fall into the overly broad categories of (1) solutions & tools for producers, or (2) meat & milk alternatives.

The caveat to this discussion is that venture capital is simply a financing tool – one of many. It’s not better or worse than debt financing or bootstrapping a business. It’s the right tool only when it’s the right scenario.

Also, keep in mind that venture capital is one of the highest risk asset classes. Really high risk only makes sense when there is potential for really big rewards. Venture capital is the most effective when it is funding companies that are:

  1. High growth
  2. Low CapEx

Said differently, venture capital most effectively fuels asset-light, high-growth companies. That’s why VC’s love to love software companies.

As a reference, consider three comparisons of asset intensive vs asset light business models:

  • Hotels: Marriott (asset-intensive with ownership of individual hotel properties) with Airbnb (asset-light with regular people renting out their homes)
  • Rental Cars: Hertz (asset-intensive with ownership of cars) with Getaround (asset-light with regular people renting out their cars)
  • Education: brick & mortar universities (asset-intensive with campuses) with BloomTech (asset-light with online only delivery)

Venture capital loves asset-light, high-growth companies. And it’s hard to imagine a more directly opposite business model than that of livestock production.

Production requires livestock inventory, land, and facilities. I think we can all agree that red meat & milk production is an incredibly asset intensive business. So….asset-intensive, (generally) low-growth. Probably not a fit for venture.

Not to mention, read meat & milk producing livestock naturally tie up cash for longer periods than poultry. In the Future of Ag podcast episode, Paul Grieve from Pasturebird talked about when they were starting the company that he would put the cost of purchasing chicks on his credit card and by the time the credit card payment was due, he had income from selling the birds for meat. That’s not really an option for red meat or milk production.

It’s why Bo Pilgrim & John Tyson were able to scale up their vertically integrated poultry model so quickly in the 60’s and 70’s, yet not only did beef never vertically integrate, what integration did exist has been undone as the packers sold off cattle feeding.

But back to our two options. Is the venture model just not a fit for red meat & milk production, or have we just not seen the venture back-able business model yet?

The most reasonable answer is that a venture backed beef/pork/dairy company isn’t a viable thing for the same as the reason that vertically integrated cattle production isn’t a thing – the asset-intensive nature of the business.

However the techno-optimist in me thinks that there is some future business model that will leverage technology and aligned supply chains in an asset light, scalable way that will benefit livestock producers, and packers, and consumers.

What is the future business model for livestock production that is asset-light, high-growth, and compatible with venture capital? I don’t know. But the most interesting companies are the ones that make previously held assumptions about what won’t work, look obvious in hindsight that it will.

This topic gets all the more relevant if let’s say, oh idk, the plant-based meat category fizzles and sends investors on a search for ways to disrupt animal protein from within. But more on that next week…

For you:

Let’s say you had $15 million to start a business to produce pork, beef or milk.

There are no other constraints but the business has to produce one of those 3.

What would the business model be?

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