Investment perspective

Sector has seen explosion in start-ups but they must focus on how to create returns

CHRISTIAN Rangen of X2 Labs is focused on people first, and companies second. In fact, in his venture builder accelerator, he said there are no companies but a lot of people. ‘We take them through a very dedicated programme and the best ones survive to become start-ups,’ he explained at the conference, during an early stage investment panel that also included Mattias Hofer of CAH Capital, and Joost Matthijssen of Nutreco NuFrontiers.

But Rangen said that the aquaculture sector needed more accelerator programmes, and more value creation – ‘We need 20 times as much money as we have’.

‘As a community, we’re not focused on how we create returns for investors. Imagine we’re at a party, and the party really takes off at midnight. We’re probably at five or six in the afternoon.

‘We need to get more people with more money to get the party really going. Hopefully, that’s what we’ll be doing in the next couple of years.’

Rangen suggested that those already in the industry should have podcasts and live twitter feeds, where they talk about the industry secrets and their expertise so more people tap into that knowledge.

Hofer, previously with pharmaceutical companies Elanco and Novartis, said when he first worked in the industry 15 years ago, there were hardly any start-ups and most innovation was done internally, by the biggest 10 or 15 companies.

‘Today, there are probably more start-ups getting headlines than the big companies. I find it amazing. I never thought that would be possible even five years ago. It has changed so much.

‘We estimate there are about 600 start-ups active in this space, compared to a few dozen maybe 10 or 15 years ago. Keep it coming entrepreneurs!

‘Most of the big players in animal health – MSD (Merk), Elanco, Zoetis – are active in this space. That will generate more – Cargill is active too. I think the party has almost started!’

The panel was asked a series of questions from delegates, who represented aquaculture companies and existing and potential investors.

Q. Which sub sector within aquaculture gets the best return - health, nutrition, digital, or technology?

Joost Matthijssen of Nutreco said: ‘Precision feeding and alternative farming systems, such as land based RAS systems – we’d like to play a role in that and develop our feed capabilities specifically tailored to those kind of farming systems.’

Hofer said he liked the field of nutritional health because two industries are coming together, the animal health industry and the nutrition industry.

‘There is a space in the middle which has very strong nutritional health products, that’s a very cool space.’

Q: Are investors missing out on other opportunities in the aquaculture sector because of all the investment in salmon technology, as seen recently at Aqua Nor?

Matthijssen said: ‘Salmon is an attractive entry point for technology in this space. It’s a concentrated, large market. The dynamic is very different for other species.

‘But there is a lot of potential in developing technology for other species – salmon is a small part of the total biomass being farmed.

‘Shrimp is a key species for us and there is lots of potential for growth in that sector, and a lot of impact you can have in terms of increasing performance.

‘In salmon, the performance in the sector is already very high, it is a very sophisticated, professional type of farming, whereas if you look at other species, the potential to increase that performance is far more significant, and so technology could have a higher added value.’

Hofer said ‘we would lose out if we didn’t look at other species’ but it was harder to get returns in less developed sectors.

‘At Novartis, we looked beyond salmon; there is a lot of growth happening in other species, but the problem is we couldn’t see how you could easily generate a return.

‘Salmon is very established and the profits are good, and health care is at a very high standard, so you can add to that in a very meaningful way.’

Rangen summed up the dilemma: ‘Should Volkswagen care about scooters, or should Shell care about renewable energy, that’s the question you’re asking.

‘If you take the average successful Norwegian fish farm they have a very healthy business, extremely high margins and very focused investors, who invest in salmon.’

In answer to the question about investing in other species, he concluded: ‘So it’s an obvious yes, but a really difficult how.’

Q: What can we learn from structure and funding in terrestrial species?

Hofer said: ‘In many respects, the salmon industry is ahead, in technology usage and even in consolidation, compared to, say, the cattle industry in the US. In that respect, the other species can learn a lot from salmon health.’

Matthijssen agreed that livestock farming could learn much from the ‘very advanced’ salmon sector, and there were limited lessons to be learned from livestock farming.

‘But the more interesting parallels for aquaculture are from crop farming, especially in terms of digital technology, which is five or even 10 years ahead of anything happening in animal farming.

‘There are lots of service models with a strong digital component being deployed, with successful business models. We haven’t yet seen that in agriculture but we’re getting closer, especially in salmon.’

Rangen said it was at the end stage of food production that lessons could be learned from more established industries.

‘How many burger joints exist globally? Tens of thousands. Millions. If you look at the land based value chain, a lot ends up, regretfully, as burger joints.

‘In this space, how many seafood fast food joints are there? Yo Sushi, and Mowi’s proposed chain in China and Taiwan, with 2,000 fast food fish outlets to test the water, maybe expanding to 20,000 and even that isn’t scratching the Chinese market.

‘There is a lot of possibility for innovation in that last consumer space. If we’re going to really shift food production consumption, we’re going to need not just innovation at the biomass and technology level, but at the final consumer stage level.’

Q. How do start-ups catch your attention? Hofer said: ‘It’s about the people, everything you do in business is about the people and we look very strongly at that aspect, and the team, their experience, and enthusiasm.

‘And we like technology that’s low risk, so if it has already been proven in a target species, that’s great.’

Rangen said: ‘A lot of the start-ups I meet in this space are a little bit like Jamaicans competing in ski world championships.

‘They show a lot of energy and a lot of enthusiasm, and practise hard on the beaches of Jamaica but they’ve never seen snow and when they get out in the real world they realise, we haven’t prepared for this.

‘We need more scale up capabilities, to go beyond the science, the product and the market…if you can build a company rather than a technology then this is going to be much more attractive.’

Matthijssen said Nutreco NuFrontiers invested on the basis of ‘what we can learn from start-ups, in terms of capabilities, that we could never learn in-house’.

Q. How can fish farmers take a lead in creating more opportunities for more innovation?

Rangen said the aquaculture industry could follow the example set by the oil and gas sector in its early days.

‘Outside investors are not really what we need. This industry is making a tonne of money, and it is projected to continue making a tonne of money. But they are not spending or investing that money optimally in building a bigger and better supply chain.

‘The oil and gas industry realised around the 1980s that they weren’t getting enough innovative solutions to their problems, so the big companies came together and said let’s build a supplier innovation development programme.

‘They put people, time and funding in place to allow a new generation of companies to grow up and eventually become a strategic fix/fit, but that would take 10 to 15 years.

‘The fish farmers could build a suppliers innovation development programme and we could funnel hundreds of companies through that.’

Hofer mentioned the Global Salmon Initiative (GSI), which already includes around 50 per cent of the world’s salmon farmers, and said this ‘could be a fantastic tool to promote innovation from a farming perspective’.

But Matthijssen felt that the onus should not be on the farmers to adopt technology for the sake of technology.

‘The onus is on the suppliers of technology to address demand that the farmers have and give them innovations that make their jobs easier and more profitable.’

“Imagine we’re at a party, and the party really takes off at midnight. We’re probably at five or six in the afternoon”