Why partnerships between established companies and startups are on the rise?

FoodTech startups are having a rough time. Investments decreased by 72% between 2021 and 2033 (and 2024 will not be better). We could assume that large companies would simply withdraw and stop investing. However, if they invest less cash, they multiply their involvement through partnerships.

Why are we seeing more partnerships now?

Partnerships between startups, with all their disruptive innovations and agility on the one hand, and on the other, leading companies should be something obvious. However, if you think about it, it is hard to mention many successful examples in the food industry. Indeed, for years, we mostly saw what we could call “PR collaborations” or announcements of partnerships with a startup for the sake of communication without any real intention of any meaningful follow-up.

But now, things are changing on both sides. First, startups have much less access to capital, so they should prove to potential investors that they can create commercial traction and deliver on their tech with real clients. Then, for large companies, there is a growing understanding that open innovation should lead to measurable results.

1 - Using startup ingredients to boost innovation

That is the most obvious collaboration… and the most complicated. To be a success, the requirements are quite strong. The main challenge is that the startup needs to have an ingredient that can be used at a reasonable scale for a commercial experiment. However, in recent months, many FoodTech startups have just reached this level of maturity, and that’s why we have seen so many experiments, product launches and announcements:

• Nestlé and BEL launched products using Perfect Day’s precision fermentation whey in the US.
• Ajinomoto is making snacks in Singapore using Solar Foods’ protein (made by capturing CO2 from the atmosphere).
• Unilever announced that it will use Every’s egg proteins, made with precision fermentation, in its plant-based products.

2 - Startups providing a co-development service

A growing number of FoodTech startups are leveraging artificial intelligence (AI) to create better foods. They scan nature and identify proteins with exciting properties. These can range from sweeteners to new fats. These startups also look at how to produce these proteins at scale, often using biotechnologies such as precision fermentation.

For large companies, these “designer proteins” are highly promising. They can gain access to ingredients that are both natural and 100% designed to answer specific needs.

In recent months, leading players such as Fonterra (the largest dairy cooperative in the world) and Ajinomoto have announced partnerships in that space.

3 - Production and commercialisation of a startup’s technology

Another application of AI is for startups to identify how to combine existing ingredients to create alternatives to existing food products. While a few years ago, these startups would have probably tried to go all the way to the final consumer; now, they focus on partnerships with established brands to do so.

Recently, Voyage Foods, a US-based startup developing sustainable alternatives to chocolate and nut spreads, announced a partnership with Cargill. The commodity giant will offer the ingredients developed by the startup to its clients. Similarly, Climax Foods, a US startup using AI to create plant-based cheeses, is working with BEL to create a plant-based babybel.

The Future of FoodTech Partnerships

For established companies, partnering with startups offers a risk-limited opportunity to infuse fresh thinking and agility into their operations.

Looking forward, the trend of partnerships between startups and large companies is likely to continue and evolve. As funding dries, more collaborations will keep happening. It has become commonplace for investors to require proof of interest from large companies before committing their money.