Security Tokens: The next big trend which will revolutionize the Private Markets

by Sandeep Kumar | September 24, 2021

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Understanding Security Tokens

Blockchain is one of the most rapidly growing digital technologies in recent history, and its revolutionary decentralized model is being adopted by a wide range of industries. With the total Security Token market crossing $1 Bn in total volumes in July 2021, the discussion around how security tokens can transform and enable access to otherwise inaccessible private markets has been growing. Security tokens are essentially digital contracts that are blockchain-based protocols embedded in the network for fractions of any existing asset, such as real estate, a car, or corporate stock.

When investors use security tokens, their ownership stake is recorded on the blockchain ledger. With their ability to demonstrate value, security tokens have the potential to disrupt traditional financial markets in favor of newer, more hybrid blockchain models. They combine the merits of blockchain technology and regulated securities market, offering a wide range of financial assets including fractional ownership opportunities which allow investors to trade even the most illiquid assets like private shares, real estate, art, and even esoteric assets like vintage cars.

Owing to these benefits, there has been increasing adoption of STO in both public and private markets, so much so that some expect it to even outperform the traditional markets in the next 5–10 years.

Evolution of STOs and their Growth

The idea of STOs evolved from Initial Coin Offerings (ICOs) which serve as utility tokens distributed to raise capital from investors. ICOs may even involve the use of virtual assets that are yet to be built on the ecosystem. Since the launch of Ethereum in 2014, ICOs were successfully issued for several securities till 2016. However, with its success, the number of scams in the ICO market also increased with about 80% of the ICO projects deemed to be a fraud. These issues led to the development of STOs as they provide a shield of compliance, regulation, and tokenization to digital assets transactions.

The roots for STOs were set up in 2017, and it started to gain traction in 2018 with a total of 28 STOs raising a collective value of $442 Mn during the year. As per PWC’s 6th ICO/ STO report, over $4 Bn was raised through 380 token offerings in the year 2020. Tokenization of assets and the subsequent market for STOs is expected to witness exponential growth in the future, growing at a CAGR of 59% during the period 2019–2030.

How Do Security Tokens Work?

Making a security token entails reserving and naming your token symbol, developing a token that can enforce regulatory compliance through programming, and minting and distributing the token to investors. When an off-chain traditional financial asset is represented on-chain, it becomes a tokenized security. Tokenizing an existing share certificate is a good example. An issuer creates a security token that represents a claim to ownership in a company. The issuer then creates a whitelist of wallet addresses (typically Ethereum) of investors who are permitted to purchase stock in the company or invest in the concerned security. All individuals on the whitelist must demonstrate that they comply with the restrictions for that specific security.

If you try to trade a security token with a counterparty, the Issuer will check to see if they are whitelisted. If they are, the transaction is completed. If not, it will display an error message and you will be unable to complete the transaction. This is possible through smart contracts, or autonomous contracts on the Blockchain, which give the ability to be automated and transacted with little cost and in a short amount of time. Security tokens, in contrast to the majority of other crypto assets, are not bearer instruments. Because anyone who obtains your Bitcoin private key has the ability to spend your Bitcoin, it is a bearer instrument.

The security token is an electronic representation of the security rather than the security itself, hence cannot be stolen. No one can transfer a token to their wallet unless it is whitelisted; otherwise, they would have gone through KYC/AML and you would have known who they were. Hence, security tokens are well secured.

Types of Security Tokens and their Acceptability

· Equity Tokens  The ownership of an item, like corporate stock or debt, is represented by equity tokens.

· Asset-backed Tokens — This is a blockchain-based token that is linked to a tangible or intangible object of significant value.

· Utility Tokens — Utility tokens give users access to a product or service at a later time. Companies can utilize these to raise funds for blockchain project development.

· Debt Tokens — Debt tokens are the equivalent of a short-term loan with an interest rate based on the amount borrowed by the company. Example — Steem.

How are security tokens transforming the private markets?

Due to limited access, opaque pricing, intermediaries, high minimums of $100K+, limited liquidity choices, time-consuming and burdensome legalities, and other factors, non-institutional investors are unable to have easy and direct access to high-quality private market investment possibilities.

Security tokens allow investors to buy, sell, and swap rights to shares of private corporations using digital tokens, overcoming the problems in the secondary market for private equity. It’s critical that it records, issues, and validates sales all at once. This benefits both existing secondary market investors and makes secondary markets more accessible to a wider group of investors. It ensures transparent ownership and pricing.

A digital token would allow an investor to sell security far more readily than actual shares in a startup (which require notarial acts or intermediaries). We’re talking about a type of investment that combines the safety and security of reality — owing to a stable value represented by a real asset — with the investment simplicity of the blockchain world, which requires no notary deeds or lengthy processes to manage securities, but only a digital wallet! Investing in private markets is as easy as in public markets.

Benefits of Security Tokens

· Improves accessibility to real-world digitized assets

With a total of $256 Tn in real-world assets available globally, asset classes such as fine arts and real estate have numerous opportunities to open up trading spheres and be traded easily and quickly with STOs.

· Enabling Fractional ownership

Security tokens can be used to raise cash for large-scale investments. The value of a costly art collection can be split down into fractions and distributed to a large number of investors using security tokens. The security token investors would benefit from the increase in the value of art collectibles. People can build their portfolios without having to spend a big sum of money since security tokens allow investors to acquire fractions of fine art or collectibles. However, semantics, such as dividing the value into fractional ownership, must be addressed.

· Provides Increased Liquidity

Liquidity is determined by the number of traders (sellers and buyers) in a particular market. Accelerating transactions and fractional ownership through asset tokenization has the potential to increase liquidity by allowing more people to enter the investment space and buy/sell at higher volumes. Security tokens increase liquidity by making it easier to buy and sell in a market or underlying asset that is not available or difficult to buy or sell. Security token offerings are a win-win situation in terms of overall liquidity when it comes to asset classes that were illiquid in nature.

· Transparency

The status of a security token transaction can be tracked from start to finish, and all parties involved have access to an up-to-date golden source of truth on-chain. With an up-to-date record, it reduces record-keeping disputes and the need for parties to reconcile.

· Reduces Cost

Security tokens aim to eliminate intermediaries and simplify investing for investors. Chainiumu, a crowdfunding platform, was created with the sole purpose of connecting investors to investors without the use of go-betweens. In the long run, this will increase accountability and transparency. With an STO, businesses can enable investment through tokenization. Because smart contracts can embed trading restrictions into a token, the cost of an IPO or other securities trading can be significantly reduced.

Major projects in the STO space

· Tezos

BTG Pactual, Latin America’s third-largest investment bank, and Dalma Capital, a Dubai-based asset manager, announced plans to launch security token offerings on the Tezos blockchain in 2019. According to a press release, the banks hope to “address a deal pipeline of more than $1 Bn for existing and prospective token issuances.”

· TZero

tZERO is a technology company whose mission is to democratize access to private capital markets. It is a subsidiary of Medici Ventures, Overstock.com, Inc.’s blockchain-focused wholly-owned subsidiary. tZero was created to provide more legitimacy and oversight to initial coin offerings (ICOs), as well as to allow businesses to create and issue tokenized assets for investors. tZero, unlike other decentralized blockchain platforms, has been designated as an alternative trading system (ATS) and is regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

· Polymath

The platform’s primary goal is to assist traditional financial securities in integrating with blockchain technology. Polymath is based on the fact that tangible assets are being drawn towards being a part of blockchain technology, which is primarily powered by its native token (Poly). Polymath is made up of four core layers that define token creation and adherence to the operating guidelines. These include the Protocol layer, Application layer, Legal layer, and Exchange layer.

In general, the protocol layer is in charge of all platform computation. The application layer, on the other hand, allows users to generate their security tokens. Those who want to create tokens on the forum can get help from the legal layer. Finally, the exchange layer functions more like a closed-end KYC/AML accreditation, providing users with instant liquidity for their assets.

Developments that needs to be catered in the long run

· Wider acceptability

STOs will take time to gain trust due to the poor reputation of ICOs in the market. To be accepted by the mass, major financial institutions must vouch for STOs. This would take some time, even with the security of regulatory requirements. The time has come to impose regulatory requirements that will act as an excellent first line of defense and protect investors.

· Integrating systems and requirements

Companies will be responsible for developing data transport protocols and interfaces, as well as writing and maintaining the existing system architecture. This may necessitate the use of specialized skill sets, which will increase costs in terms of both human resources and system enhancements to interface with SSTO-specific blockchain technologies.

A glimpse of the future

It is clear that significant changes are already taking place in the realm of finance and investing, and many of them have the potential to be beneficial. This is especially true for people who are enthusiastic about blockchain technology and the opportunities it provides. Security Tokens combine blockchain technology with the requirements of regulated securities markets to facilitate asset liquidity and financial accessibility. These tokens are regulated securities that are issued in the form of digital tokens in a blockchain ecosystem. Through automation and “smart contracts,” the blockchain environment promotes securities regulatory objectives of disclosure, fairness, and market integrity, as well as innovation and efficiency. The security token market cap increased by more than 500% in 2020, and the best is yet to come for security token offerings. Securities, which are traded financial assets such as equities, debt, and more, can become even more effective by employing blockchain as a foundation.

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This article has been co-authored by Sayan Mitra and  , who is in the Research and Insights team of Torre Capital.

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Understanding how the pandemic has fueled the growth of the Secondaries Market

by Sandeep Kumar

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Secondaries Market and its Performance during Pandemic

The buy-and-sell of pre-existing investor commitments to private equity and other alternative investment funds is referred to as the private-equity secondary market. Transferring interests in private equity and hedge funds can be more complicated and time-consuming due to the lack of established trading venues for these interests. Private equity has traditionally been an illiquid sector, with institutional investors acquiring buyout funds and waiting more than ten years to enjoy the rewards. Private Equity was designed for investors who preferred to buy and hold assets rather than sell them for a quick profit.

Market downturns have historically had a short-term impact on secondary markets. The Covid-19 pandemic has brought about an evolution in the financial world and a similar change has been witnessed in the private equity secondary market. Through this article we will understand how the secondaries performance has fuelled post the onset of pandemic.

Historical Returns in the Midst of Pandemic

Market downturns have historically had a short-term impact on secondary markets, reducing transaction volumes, delaying realisations and distributions, and placing downward pressure on price. Secondary markets have usually returned from market downturns with significant activity, and have presented excellent possibilities for investors with available investment money once volatility has subsided and stability has been restored.

During the pandemic, due to great degree of uncertainties and subsequent volatility, investors in the secondary market grabbed the opportunity by buying the dip and securing their positions by purchasing at greater discounts. According to Greenhill’s Report, greater interest has been seen particularly in COVID-proof” sectors, newer vintage funds and more concentrated exposures, which are easier to diligence and underwrite. The secondary market experienced large volume growth in the second half of 2020 and into 2021. In 2021, we can expect secondary transaction volume to hit new highs. Secondaries may find more enticing pricing as a result of the market’s uncertainty, resulting in increased prospects and profitability.

Why the secondaries market are attractive?

· Recent Vintages (post-2015): Recent vintages with unfunded capital have become more attractive to investors in the present circumstances. Investors get insight into the portfolio and platform investments, as well as assurance that the increased cash available may be used offensively as well as defensively. High-quality GPs with ample money who are seen as capable of handling market disruption are especially appealing.

· GP-led Transactions: The number of tail-end funds and older assets appears to have risen with the possibility that the COVID-19 epidemic would further delay exits. High-quality general partners have continued to use the secondary market to maintain high-performing firms while also providing current limited partners with a liquidity alternative. With a number of secondary deals started this summer, the GP-driven market has led the resurgence in secondary transactions.

· Single Asset Transfers: As the frequency of single asset transactions in high-quality firms increases, general partners keep seeking for methods to keep their best companies. Diversifying among funds is one method secondary investors may reduce concentration risk. Single asset transactions are especially desirable in the COVID-19 environment since it is easier to assess the impact of COVID-19 on a single firm than a large mix of portfolio.

· Dry Powder Advantage: These days, investors are demand more liquidity and the ability to rebalance their portfolios across asset classes. Due to this demand, a secondary market has emerged where investors may sell or buy private equity commitments rather than just waiting for a return. The seller of a PE share can access liquidity in the secondary market, just as in the normal stock market, while the buyer receives access to private equity funds and diversification.

It has been estimated that in the year 2020, players in the secondary market have enjoyed high levels of dry powder that is ready for deployment. They are in a position to enjoy profitability by buying in at above average discounts to lock in greater appreciation. With the current trends, it is estimated that the transaction value for secondaries will exceed $100 Bn by the end of 2021. The growth trend is not expected to end anytime soon as markets are now more liquid than ever due to technological innovations in the field and the growing acceptance of digital assets and tokenization.

Source: Acuity Knowledge Partners

Secondary Buyouts

Since 2006 to 2019, SBOs have witnessed a growth of 5.2% per year. This option has been experiencing rising popularity due to better liquidity options and lower risk staregies. Study conducted by Deloitte estimated that more than half of the investors surveyed expect SBO funds will offer one of the best opportunities for returns over 2020–2021.

Source: Deloitte Insights

The Way Forward

As a result of the current market dislocation, protracted volatility, and ongoing pandemic, the secondary market has seen lower pricing and more opportunities in younger assets. Financial decisions made by investors in the secondary market may be influenced by structural changes caused by economic crises, and failing to account for these fundamental breakdowns in the market may result in investors making incorrect interpretations and portfolio selections. However, secondaries are still, absolutely a great place to put your money. In the second half of 2020 and into 2021, the secondary market saw significant volume growth. Secondary transaction activity is expected to reach new highs in 2021.

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This article has been co-authored by Tamanna Kapur and Sargam Pallod , who is in the Research and Insights team of Torre Capital.

The state of European Fintech and with the explosive growth and maturity, who are here to stay?

by Sandeep Kumar

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Overview of European Fintech Market

From payment processing to insurance and wealth management, the digitisation of the financial services has led to a massive growth of the fintech market all across the world. In this article we will be focusing on the European region in particular, where the fintech market is growing so rapidly that the fintech adoption in the region has surpassed that of the USA. At the start of the year 2021, Klarna was the only fintech decacorn in the region and now Revolut and Checkout have also joined the club. The year saw a record growth in the number of fintech unicorn additions as 19 startups were promoted to unicorn status.

Source: Crunchbase

Surge of Fintech Funding in Europe

Overall funding to European fintech scale-ups reached €4.55 Bn in 2017, but fell to €3.52 Bn in 2018. However, in 2019, European fintech businesses, particularly those in the growth and late-stage stages, witnessed a massive increase in fundraising rounds, culminating in a total of €8.81 Bn in fintech funding, a 150% increase over the previous year and nearly double the number in 2017. Around €4 Bn was raised by European fintech businesses in the first half of 2020, already more than in the full year of 2018, but lagging behind the trend of 2019, when more than €8.8 Bn was raised.

Fintech Investments size in European Funding Round till H1 2020

Regulatory Environment

The rise of non-financial companies into the tightly regulated financial sector has resulted in a rising need for regulators, the fintech community, and the financial services industry to properly engage with developments in this space. The vast bulk of financial services legislation and regulatory norms predate rapid technological advancements and consumer demand for change. While governments in a lot of nations want to be viewed as promoting innovation, the law has been slower to catch up.

Regulatory authorities across Europe, including the European Central Bank, the FCA in the United Kingdom, the AMF and ACPR in France, the AFM and DNB in the Netherlands, the European Commission and Parliament, the BaFin in Germany, the CSSF in Luxembourg, and the European Securities and Markets Authority (ESMA), have publicly stated their support and launched new regulatory initiatives to encourage innovation, along with the European Commission and Parliament, the European Central Bank, and the European Securities and Markets Authority (ESMA). The EU Commission has started a study on technology and its influence on the European financial services industry as part of its customer finance action plan, which is expected to have a substantial impact.

Growth in Europe’s FinTech Deals

With about a third of the region’s unicorns belonging to the fintech sector, companies have attracted the interest of the investors. With a collective valuation of $178 Bn, the market has raised more than $11 Bn in the present year. In the first half itself, the market had raised funding that was 1.5x of the previous year. While the number of deals in Q2- 2021 fell sequentially by 8%, the investments have grown by 30%. This has resulted in hitting a quarterly record of $7 Bn which was facilitated by megarounds of Klarna, Trade Republic, SaltPay, etc. The recent focus of investors as observed has been on wealth management and insurance tech.

Source: Crunchbase

Record Year for Fintech Exits

The growth of European fintech has also facilitated the rise of fintech exits in the region. The first half of 2021 witnessed about $26.5 Bn (or €22.6 Bn) worth of exits. This has been a record high in the exit scenario, and gives high hopes to investors, particularly after less than $2 Bn worth of exit activity in 2020.

The most successful one this year has been the public listing of Wise — a London-based money transfer company. The company went for direct listing in the London Stock Exchange which increased the company’s valuation to over $13 Bn as of August 2021. Apart from this, Tink and Currencycloud were strategically acquired by Visa for $2.1 Bn (€1.8 Bn) and $960 Mn (£700 Mn) respectively.

In total, fintech exits banked VCs $70 Bn during the period from January till July. Of the total figure, about 20% of the exit figures have come from Europe.

How are Different Segments Faring?

The use of technology in financial services is vast and gives rise to various segments including payment processing, neobanks, insuretech, crypto-exchange, wealth management tech, etc. Let us have a look at how some of these sectors have been performing:

 Payment Platform — With the digital payments sector expanding across the globe, this segment has benefited from a high proportion of funding received over the years. This is evident from the success stories of Klarna and Checkout. The pandemic has further accelerated the potential of the sector. Looking at the top 10 VC backed fintech exits in the region, more than half of the companies belong to the payments and money transfer segment, these include WorldPay, Wise, Adyen, etc.

 Insurtech — This segment has been witnessing greater attention from investors since 2020. In the first quarter of 2020, insurtech comprised about 20% of the total fintech rounds in Europe. The sector’s combined valuation for the year amounts to over $23 Bn. Insurtech funding in Q2 of 2021, has increased by about 403% on just Quarter on Quarter basis.

 WealthTech — Wealth management technology companies, or simply the WealthTech sector has also led growth along with the insurtech sector, witnessing an increase in the investor preference. While the number of deals for the segment increased by only 9%, the funding in Q2 of 2021 grew by 272% on Quarter on Quarter basis.

 Cryptocurrency and DeFi — Cryptocurrency and Decentralised Finance (DeFi) are gaining momentum in the finance world. With great buzz around crypto, the funding in such companies has jumped 300% from what it was in 2019, amounting to $1.4 Bn this year. Some examples of companies in this segment include — Elliptic, Blockchain.com, Copper, etc.

 Other Segments — Looking at the Quarter on Quarter funding rounds, funds in fintechs involved in the banking segment as well as capital markets rose by 70% individually and digital lending by 64%. On the other hand, QoQ investments in real-estate fintechs fell by 87%.

How has the Pandemic Impacted the Market and What is the Way Forward

With the onset of the Covid-19 pandemic, there has been greater reliance on digitization of various operations across different industries. This has facilitated the growth of the fintech sector post-pandemic as businesses are working to adapt to the new normal. The regulatory environment has also supported the growth process in the European region, so much that it is now performing better than North America. Particularly, the payments segment has always been investors’ favourite, however, the post-pandemic focus of investors has shifted towards insurtech and wealth management tech firms.

We believe the current boom of the fintech market in the continent is to be continued in the coming years. This is evident from the significant growth in the VC funding in recent years, with the overall funding round size average increasing by over 100% compared to three years ago. Investors are expected to gain huge returns from the growing valuations of some unicorns and their great successful exits.

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This article has been co-authored by Tamanna Kapur and  , who is in the Research and Insights team of Torre Capital.

Reinventing meat and cultivated proteins: Gauging the investor’s interest through sustainable investment products

by Sandeep Kumar

Keep up to date with the latest research

Overview and Evolution

The popularity of alternative meat products from Beyond Meat (NASDAQ: BYND) and others, as well as early regulatory permission for some cultured meat products, has sparked a flurry of investment in this nascent business.

Despite this enthusiasm, the business is still in its early stages and is mostly pre-revenue, with a number of growth obstacles ahead, including the need for clear legal frameworks, more economically viable products, and scalable technologies. As the traditional cattle industry tries to defend its market share from produced protein sources, providers will almost certainly encounter greater lobbying attempts.

Even while widespread adoption may be several years away, improving consumer sentiment, together with increased demand for more sustainable food choices, will undoubtedly boost investment in grown protein products.

The key industry drivers for alternative meat products industry

· Antibiotics and hormones-free: Industrial farming conditions can be unsanitary, resulting in sick animals who are frequently treated with antibiotics. Hormone injections can also help to promote muscular growth or, in the case of dairy, milk production. These therapies may have an impact on human health, such as the transmission of animal hormones to people or the development of antibiotic-resistant bacterium strains. Cultivated proteins are made in sterile conditions without the use of antibiotics or hormone therapies.

· Free of zoonotic diseases: Zoonotic diseases, such as COVID-19, can be transferred to humans through animal meat intake. Because it is produced in a controlled, sterile setting, cultivated beef is deemed safe from this risk.

· Ability to design and change nutrient profiles: Cultured meat manufacturers can change inputs to generate products with better nutritional value, such as proteins, amino acid composition, vitamins, and minerals.

· Food security: Cultivated proteins offer a potentially large new food source that isn’t constrained by livestock’s significant land, water, and food requirements. This is especially essential in light of expected worldwide population growth and corresponding food demand.

· Environmental advantages: Some people believe that produced protein is a better option for the environment than conventional animal production. According to a 2011 study conducted by the University of Oxford and the University of Amsterdam, cultured meat may be produced with only 4% of the greenhouse gas emissions (GHGs) and 2% of the area required for conventional meat production, while requiring 45 percent less energy. 16 Critics have noted, however, that the energy required to create grown meat may originate from fossil fuels, resulting in worse environmental repercussions than animal agriculture in some ways.

 Ethical ramifications: Some consumers, such as vegans, avoid eating meat because of animal welfare concerns. Because no animals are injured in the manufacturing of cultivated meat, it is considered an ethical advance.

The environmental and ethical advantages of cultivated meat are based on a one-to-one substitution for traditional meat. On the other hand, a single cow can provide hundreds of distinct products. For example, if cultured beef totally replaced conventional ground beef, demand for steak, leather, gelatin, and steric acid would remain unchanged, meaning that cattle demand would remain steady, albeit ground beef demand might shift to new markets.

Competitive Landscape and Market Mapping

Source: PitchBook

Investors’ Trust Growing with Market

Compared to the initial years when alternative meat was first introduced to recent years, the market has witnessed steady growth in VC funding from a single $25 Mn deal in 2012 to a total of $303 Mn invested across over 30 deals in 2020. While the annual deal count has nearly tripled in 2018, the average deal size decreased. However, it is expected that the fundings will increase in tandem with the growth in the industry. The first five months of 2021 have seen a surge in investment with over $772 Mn recorded. With this pace, it is expected that the funding activity will triple this year, as compared to 2020.

Source: Pitchbook

Investment trends suggest that the cultivated protein providers have received the largest share of VC funding. Those among the top recipients include UPSIDE Foods, Eat Just, and Modern Meadow. Each of them have received more than $100 Mn funding, individually. Besides receiving funds from VCs, cultivated meat producers have also started to gain trust of investors like impact investors such as AiiM Partners, impact angel investors including Richard Branson, and even large corporations such as Cargill, Tyson, etc. These large companies have started to realise the importance of the alternative meat and are engaging through strategic investments.

How are Incumbents Reacting to the New Alternative Meat Market?

Combining the benefits of plant-based proteins along with cultivated proteins have proven to have cost and scale efficiencies, without leaving a significant impact on nature. Apart from health benefits like low cholesterol and with a taste similar to real meat, the alternative meat sales reached over $1.4 Bn in 2020. This growth in demand justifies why the existing food companies are venturing into this domain.

Based on location, Singapore is emerging as a hub for cultivated meat and is attracting many companies primarily due to ease of access to funds and required talent, attractive regulatory environment and significant market opportunities in South-East Asia. Companies like Avant Meats, Shiok Meats, Aleph Farms, etc. are considering to set up production units in Singapore.

Challenges Faced by the Culture Protein Production

The alternative meat market is yet to realise its full potential. Despite its wide range of benefits, there are certain roadblocks that are restricting the fast growth of the market. The Cultured protein market has three stages of production — developmental scale, pilot sale, and commercial scale. Most companies are yet to access the commercial scale. Once it is able to attain commercialization scale, plant-based meat will be available at a cheaper price compared to traditional options. It is estimated that cultured protein would be 5x cheaper by the start of next decade.

Currently, these options are not widely available to the customers and still require further advances in R&D processes to ensure the growth of the sector. Food Tech startups are continuously evolving to generate cost-efficient alternative meat. It requires huge amounts of investments and specialised workforce to experiment with different techniques from the use of AI, to bioprocessing and 3D bioprinting. This can be taken care of through greater funding from investors. The median funding for early stage VC rounds in cultivated meat startups have gone up from $4 Mn to $9.5 Mn in the last three years. Companies are trying their best to make the alternative meat very close to the traditional meat in taste and texture so that they are able to fully replace the animal meat in the coming years.

A Nascent Industry with Great Potential

Environmental concerns with the regular meat industry, change in food preferences, health benefits, cost efficiencies are some reasons that are facilitating the growth of the alternative meat market. It is estimated that the market for cultivated food, including meat, seafood, dairy, eggs, etc., would reach close to $18 Bn by the year 2035, with a consumption of about 6 million metric tons. While this may be just 1% of the total protein consumption in the future, the market may witness high growth.

Currently, a huge part of the alternative protein production goes into research and development. However, as the market enters commercialisation scale, costs will come down. Studies suggest that by 2035, cell-based and plant-based meat alternatives will be 10x cheaper than the traditional animal products, and will allow families to save over $1200 in food costs. It is also expected that by next decade, companies’ revenue will also increase 100x for plant-based meat.

Although the overall consumption of plant-based meat is currently very less, the market shows no sign of slowing down. The sector is still in its nascent stage and companies can gain from grabbing the opportunities early, which would be possible only through sufficient funding support from investors.

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This article has been co-authored by Sargam Palod and Tamanna Kapur, who is in the Research and Insights team of Torre Capital.

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