After Impossible Foods stunned the world with its Impossible Burger, the vegan burger that “bleeds,” in 2016, plant-based meat seemed like the natural next step in sustainable dietary consumerism — one that meat-eaters would happily flock to. Funding to plant-based meat startups between 2016 and 2019 saw a whopping ​​1,110% increase, and that percentage shot up during the pandemic.

Much of that success depended not on vegetarians and vegans, who only make up a small slice of the consumer market, but on omnivores and self-described “flexitarians,” who were looking to plant-based alternatives for the sake of their health and the environment.

But it looks like flexitarians’ attitudes are changing. Inflation, supply chain issues and dwindling customer satisfaction has brought startup investment into plant-based meat to a standstill. Funding went from almost $2 billion in 2021 to around $800 million in 2022, according to Crunchbase data. And these challenges are likely to continue in 2023 as startups work to find ways to deliver healthy plant-based meat products at a reasonable price.

While the outlook for plant-based meat is dismal, the far quieter cell-grown meat industry saw some good news in 2022. California-based Upside Foods got word from the Food and Drug Administration in November that its lab-grown chicken is safe to eat. 

For the first time in years, funding for plant-based and cultivated meat has nearly reached dollar parity. But investors aren’t putting all their eggs into a new basket. It’s clear that meat alternatives have not delivered on their promises to consumers.

“A lot of meat consumption is emotional,” said Lisa Feria, CEO of food venture firm Stray Dog Capital. “And a lot of the plant-based consumption and purchase is rational.”

An unforgiving market

In November, plant-based meat giant Beyond Meat shared some sobering news during its quarterly earnings call: The company posted net revenue of $82.5 million and losses of $101.7 million. The company said it would lower the amount of product it manufactured and revisit its marketing strategy to only certain consumers. 

It’s a sharp descent for a company that went public in 2019 to nearly double its share price. 

Other plant-based meat startups face the same reality, and new innovations in the sector will face more frostbite from the venture market than before. 

“In the past two or three years, a lot of plant-based food companies got funded that should not have gotten funded,” Feria said. “So part of what you’re seeing in the market is an adjustment to that. The products are repetitive and not really great.”

According to a 2021 Good Food Institute report, health is the primary driver for plant-based meat purchases. But it turns out these early movers in ultraprocessed plant-based meat weren’t, on the whole, that much healthier than the real thing. 

Nor were they any tastier, or cheaper. The cost of manufacturing these products has gone up 60% to 70%, and distribution costs have spiked as a result. Everything from plant-based cream cheese to plant-based eggs to plant-based meat have seen shelf prices soar. The GFI report found that more than 60% of consumers would eat more plant-based meat if it was cheaper or less processed.

All of this contributed to the sector’s economic decline in 2022. 

“There was a lot of initial purchase and interest in plant-based meat products, but not as much repeat purchase as was expected,” Matthew Walker, managing director of agriculture-focused firm S2G Ventures, said in an email. “You have a consumer that purchased a product at a premium price and may not have felt that the taste, mouthfeel, or nutrition sufficiently justified making that product a staple item on their grocery list.”

Tall order for 2023

Plant-based meat startups will face a difficult task this year: to create products that taste just as good as (if not better than) the incumbent, while also being healthier and cheaper. 

“The strategy we see as top of mind involves those solutions that make plant-based meats perform better for the consumer, have cleaner labels, and introduce nutritional benefits that go beyond the ‘halo effect’ that this recent wave of products enjoyed but seems to have declined,” Walker said.

Cultivated meat, which uses stem cells to grow proteins streaked with fat and tendons in petri dishes, has emerged as a possible alternative for those discerning flexitarians. But we won’t see them on the grocery shelves any time soon. 

The industry is still working out how to scale its products in expensive labs. Singapore became the first country to approve cultured meat for sale in 2020 with Eat Just’s lab-grown chicken. (The startup has raised $225 million since then.) And following the FDA’s “safe to eat” letter for a lab-grown chicken startup, the U.S. is on its way to seeing cultivated meat reach small-scale distribution levels, like how Impossible Foods opened in a few select restaurants. 

But investors are hesitant to promise too much too fast. Studies show that consumers will be far less forgiving of cultivated meat than they were of plant-based meat. 

“[For plant-based meat], I’m going to give some space for that because I want a trade off, which is nutrition and health,” Feria said. “When it comes to [cultivated] meat, because you’re trying to deliver the same product you have to deliver the same experience or better.”

Illustration: Dom Guzman

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Industry experts expect a continued softening of the fundraising market in cyber — despite 2022 easily being the second best year ever in terms of raising venture capital in the industry.

“I think we are going back to normal,” said Alberto Yépez, co-founder and managing director at Forgepoint Capital — which specializes in cybersecurity and infrastructure software investments. “You are already starting to see that.”

2021 set a record for the sector, with more than $23 billion raised by VC-backed startups in network, cloud and cybersecurity, per Crunchbase data. While 2022 will only see around $16 billion, that is still nearly double from 2020.

“Across the board, you are just seeing much more realistic valuations,” said Stephen Ward, managing director at Insight Partners, who invests in cybersecurity. “I think in 2023 you will see the same type of thing we have been seeing the last six months.”

Not 2021

The days of a cybersecurity startup generating less than $1 million in revenue seeking a $300 million pre-money valuation are over, said Yépez. The market is normalizing, he said, especially as more “tourist investors” — those who do not focus on the sector — have left.

That is not to say funding is not available.

“Good companies will get funded,” Ward said. “They always do.”

Dino Boukouris, founding director of San Francisco-based financial advisory firm Momentum Cyber, said while considering VC funding in general it is important to remember there is a record high amount of dry powder — estimated at more than $300 billion for U.S. VCs alone — that needs to be deployed.

“Additionally, cybersecurity spending and budgets continue to rise, even in the midst of a recession,” he said. “As such, given the underlying strength of the industry, coupled with an accelerating amount of dry powder, I expect to see much stronger investment activity [in 2023] as this capital is deployed.”

Looking for an exit

For those cyber startups that have trouble raising cash, more exits may become available, but maybe not the much-dreamed-about IPO.

“With the overall deterioration of the economy — interest rates, supply chain issues, etc. — I don’t see the IPO market opening soon,” said Yépez, adding it could be in late 2023 at the earliest.

However, Boukouris said he believes as soon as the public markets recover, the IPO window will naturally reopen.  

“We’re already hearing of companies who are prepping filings for 2023 in anticipation of a market recovery,” he said.

While companies like Snyk, Netskope, Arctic Wolf and others are at the top of the list for IPO hopefuls, a number of them have run into trouble during 2022, with mass layoffs, and other challenges maintaining growth.

“It will be interesting to see which companies will resume IPO preparation and which may seek other alternatives,” Boukouris added.

That alternative could be M&A. 

“Right now people have money because of what they raised in 2021,” Yépez said. “But you will see an increase in M&A. Right now, acquirers are sitting on the sidelines … as startups have trouble raising, you will see them act.”

Drivers

Some of the same things — or offshoots of them — will continue to drive cybersecurity trends in 2023, experts say.

“I think data is the next frontier,” Yépez said. “People do not know where their data even is.”

Startups that can help with assessment, security posture management and data rights and privilege will continue to be looked at by investors, he said.

Also, while the term “shift left” — the practice of moving testing and performance evaluation up in the software development process — will continue to be in vogue, so will “shift up.”

Shift up is the attempt to streamline protections of your clouds, containers, laptops and servers all on one platform. Doing so allows companies to move from more siloed cyber tools and lets them apply rules, privileges and entitlements across the whole operation.

Yépez invested in one such startup — Massachusetts-based Uptycs. There likely will be others that join the market, including larger players like CrowdStrike and Palo Alto Networks.

In general, chief information security officers want fewer single-use tools and more platform plays as they try to stretch their dollars further in a slowing economy, said Ward.

“Tool fatigue is a very real thing,” he said. 

“Companies have to ask, ‘What do CISOs want?’ “ he added. “They don’t want long six- to 12-month rollouts. Companies need to be able to show their value proposition quicker.”

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Advances in data science, quantum computing and biology have collided to transform how we treat illness. Just as we decry bloodletting today, one day future scientists will laugh at how we prescribe medication based on “symptoms” and “weight” and not genetic data. 

I’m talking about the “omics”: transcriptomics, metabolomics, proteomics and (everyone’s favorite), genomics. We’ve only recently begun to tap into this set of sciences to create tailor-made medicines and treatments for each person instead of one-size-fits-all drugs. 

The omics is a booming industry in biotech, garnering more than $2.4 billion in venture funding as we entered December 2022, according to Crunchbase data. Since 2019, funding has nearly tripled for startups parsing through the intricacies of cells to understand the sources of diseases on a molecular level, and how to manage or eradicate them. The pandemic sparked advances in omics in the form of rapid diagnostic tests and the mRNA COVID-19 vaccine. 

Even Amazon Web Services got involved in November when it introduced Amazon Omics.

Many of these startups can turn a profit long before they actually make and sell a drug, simply by licensing out their platform to other biotech companies and employing a fee-for-service model. At a time when venture firms are pulling back on funding, the omics are likely to see far more investment from biotech-minded VCs. 

“From an investor standpoint, they’re derisking their business model and they may not need as much money. All of these go hand-in-hand with genomics and bioinformatics,” said David Crean, a longtime biotech investor and managing general partner at Cardiff Advisory. “You have to have a good database to profile all this stuff and that ultimately drives personalized medicine. 

You’re going to see investors putting money in that.”

What are the omics?

Seemingly every day a new kind of omic is popping into the life science lexicon, but let’s focus on four: genomics, metabolomics, proteomics and transcriptomics. 

You may have heard of genomics, the mapping of every strand of DNA that makes up a person. Genomics can allow doctors to predict what kinds of diseases a patient will get long before they present symptoms, staving off chronic illness.

We’ve talked about metabolomics before and how it can be used to tailor medicines to properly work in the human body. Using metabolomics, pharma companies can see how drugs metabolize in the body and change them so they work faster, better and safer. 

Then there’s proteomics, the study of proteins, where most diseases are manifested. Drug development has a 90% failure rate, due in part by the fact that most drugs are built to latch onto targets in the body that aren’t successful. Protein study is the key to unlocking new targets in the body for drugs to swim to. 

Transcriptomics, which studies RNA, can help scientists tap into which genes are working, and links the genome and proteome together. 

“It’s simply a march toward having a truly multi-omic ability with biology,” said Jack Geremia, co-founder of metabolomics startup Matterworks. “I would say that probably one of the biggest advances of the last part of the last century and the beginning of this one was rapid, efficient, effective sequencing for DNA. Those tools had to be built.”

Why does this matter?

There’s a guiding principle doctors use when prescribing medication called the five rights: the right patient, the right drug, the right route, the right dose and the right time. 

If you’ve ever been prescribed medication, you’ve seen the process play out: A doctor prescribes a cocktail of drugs, often at an amount set by middle-of-the-road standards, and then spends every month with the patient tinkering with dose adjustments or cycling through different medications, weighing efficacy against side effects until the right combination works.

But identifying what “right” looks like will be very different in a world governed by omics, where scientists will be able to spend more time looking at each patients’ individual cells rather than making guesses based on blood pressure or body temperature. 

Here’s the thing: We don’t know where many diseases come from. We can’t predict them or spot them until they’re already present. Many of our treatments today are playing catch-up to ailments that are unpredictable and evolving. 

Venture is pumping money into omics to solve these problems. Cellarity raised $121 million in October for its ability to use genomics to create cancer treatments. Transcriptomics startup Vizgen raised $85.2 million in June to advance drug discovery, and expect far better returns on investment than traditional biotech startups. 

By mapping out every molecule, gene function and cell in the human body, scientists can find patterns that may allow them to predict what diseases will occur, how they will progress, and how to make effective treatments to lower pharma’s dismal 90% failure rate, allowing pharma companies to rake in more money.  

This vast data would be useless without advancements in machine learning and computing to swallow this bulk of information and spit out useful insights.

“Genomics was the first omic to really be popularized. That’s actually just one data stream. But it turns out biology is crazy complex, therefore it makes sense that we would need other omics to really understand biology,” said Sara Choi, a Wing VC partner investing in data-heavy biotech companies. “So it’s not just genomics that matter, but it could be transcriptomics, it could be metabolomics, proteomics. And so I think that the very basic data collection was just not there.”

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