Can VCs expect a lot from the new protein industry in China? Bits x Bites is the first venture capital corporation to focus on agriculture and food technology in China. Joseph Zhou, the company’s managing partner, shared how Bits x Bites has proven the answer to that question a resounding “yes!” Investments in China’s emerging protein industry are indeed proving to be lucrative and beneficial on many different levels.
Since its establishment three years ago, Bits x Bites has focused on investments in sustainable agriculture, animal and crop health, human nutrition, and alternative protein. It has collaborated with companies such as Tyson, the largest meat producer in the U.S., to invest in seed and Series A funding rounds from Israel-based start-ups to produce cultured meat.
Zhou also shared his insights into the opportunities and strategies of investing in alternative proteins, including plant-based, cultured meat, and meat substitutes with fermentation technologies.
A Window of Opportunity
Investors tend to look back and learn from history. As Zhou noted, lessons from investment experience in digital technology in the past few decades have been the key. Zhou also believes that the future of alternative protein based in synthetic biology and microbial fermentation will be the next main investment in the world following the mobile internet.
Thanks to breakthroughs in synthetic biology, the core technologies used in alternative protein including gene sequencing can now be accessed quite affordably. Additionally, advancements that allowed for structural cost reduction also laid the foundation for industry development.
On behalf of his company, Zhou stated, “If we enter now, we will soon see rapid development.” This comes from Zhou’s 12 years of experience in corporate banking, investment banking, and private equity.
Since its establishment in Shanghai in 2017, Bits x Bites has invested in 14 projects, half of which are in China. Last year, Zhou’s company received 200 pitches; 40% were from China. Zhou predicted that this year they would see the number doubled, and next year quadrupled.
From the production side, China has the most mature technology for fermentation production in food processing. Seventy percent of the world’s fermented products are, in fact, produced in China. Should companies, including the top synthetic biology companies from the U.S., want to expand their production capacity, they will inevitably have to come to China.
Though still in its infancy, the industry will march into the mainstream market within three years as the breakthrough of biotech evolves through the efforts of synthetic biology and machine learning improves. However, this will be under the condition of regulatory support.
As a VC, Zhou and his team invest in projects at the early stage. From the Pre-A round to the A and B rounds, they are more inclined to invest in the middle-and upper-stream of the industry. The middle and upper-streams include patents, technological R&D, and innovation projects. Additionally, collaboration with large companies or “unicorns” help empower start-up companies.
According to data collected in China, there is probably more than $500 million USD worth of investments, and about 83% of it lies downstream, which means it goes more toward branding, products, or businesses models.
Zhou stated, “The food or agri-food industry is, at its core, driven by technology. We have been looking for the technology-driven projects that push the entire industry into 2.0 or even 3.0. But it will take some time to implement the know how needed for adapting it to the market.”
In Bits x Bites’ mission statement, the company expresses its belief that people are the future of good food. In Zhou’s words, “We invest in disruptive technologies, but we very much hope to bring such disruptive technologies to partners in the midstream and downstream of the industry to help and empower them.”
Good talent with great innovations must be properly funded at all stages by a plethora of investors in order to best contribute to the establishment of the entire ecosystem. By now, there are about 50 investors from VCs, PEs, and family funds worldwide that are stakeholders. While rounds A and B are more funded, the later rounds C, D, and Pre-IPO are largely dependent on the VCs, family funds, and CVCs of large companies.
Starting from investments in the organic farms in the north-western and north-eastern parts of China, Zhou’s company invested with the hope and belief of a sustainable future for generations to come. In previous interviews, Zhou once said the primary purpose of investing in the food industry is for his young son to grow up with an abundance of safe and nutritious food options.
Zhou stated with conviction that investment in the food industry is not about quick money, but the sustainability of that investment.