How well have alternative-protein companies done in the past year? It depends on who you ask.

The industry has had an interesting go of it between the U.S. getting comfortable with cultivated meat production, layoffs and countries banning production. Yet, startups and investors are hanging in there.

To get the pulse of what’s germinating in this fast-rising industry, TechCrunch+ surveyed five investors, all active in various areas of investment in alternative protein, and they had a lot to say on the subject.

Nate Cooper, managing partner at Barrel Ventures, bluntly pointed out the valuation mismatch that startups in the sector enjoy, saying too many “food tech” companies are today valued as if they were pure technology plays. “At the end of the day, they are selling a CPG product and should be valued as such,” he said. “Until this stops, there are unfortunately going to be a lot of investors and companies left holding the bag, and a lot of companies that, realistically, will never grow into the private valuations they were given.”

Many of the startups tackling food are doing so to help improve the Earth’s climate and change the dependency on animal-based foods. Rosie Wardle, co-founder and partner at Synthesis Capital, said it is also driven by consumer demand for the same.

“Shifting away from animal proteins and toward alternative proteins will be necessary for governments to address climate impacts and to reach their net-zero targets,” Wardle said. “To this end, we are already seeing alternative proteins highlighted by governments across the world as a key solution to the climate crisis, and we expect this focus to grow in the coming years.”

However, more infrastructure is needed to ensure alternative proteins can be produced at levels that will make an impact. While venture capital is helping here, companies are getting creative when it comes to additional funding sources to build manufacturing plants, said Alice Brooks, principal at Khosla Ventures.

“It’s likely that startups will need to fund their first plants largely with venture capital,” Brooks said. “However, we are seeing companies using creative ways to fund their buildouts with partnerships. We encourage startups to prove their unit economics and scalability with the minimum size plant possible so they can get out there and test with customers.”

Read on to learn how companies can get more consumers on board with eating plant-based alternatives, where the gaps are in the mainstream manufacturing of alternative proteins, and who they think are some of the “bright spots” in the industry so far.

We spoke with:

Alice Brooks, principal, Khosla Ventures
Nate Cooper, managing partner, Barrel Ventures
Peter Herz, general partner, 1cc VC
Johnny Ream, partner, Stray Dog Capital
Rosie Wardle, co-founder and partner, Synthesis Capital

(Editor’s note: The following responses have been edited for length and clarity.)

Alice Brooks, principal, Khosla Ventures

Beyond Foods and Impossible are clear incumbents, but both cited declining sales last year as the reason for their layoffs. How can alt-protein companies reach more people and earn greater customer acceptance?

The market is still early for plant proteins and we are seeing them being adopted across a range of products. Any big change, like this one, takes years for customers to adopt. For new entrants, the key to a good product is taste and cost. Can it be as tasty as the conventional option? Can it be comparable in cost?

Have valuations in the alternative-protein space compressed in line with what we’ve seen with Beyond on the public markets? How has the changed investing landscape impacted your strategy in the sector?

In the past year, given recent economic conditions, the bar is higher for fundraising. In the food tech space, we have not seen valuations soar as much as they did in other areas, but we’re still advising our companies to focus on de-risking the most critical technical and commercial milestones with each financing.

The days of growth at all costs are abating, and there is now a greater focus on demonstrating valuable commercial proof points earlier in a company’s life.

VCs remain confident alternative protein has a real future despite public-market woes by Christine Hall originally published on TechCrunch