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AgFUNDER 2018 China AgriFood Startup Investing Report Summary

Core Content

AgFUNDER, a global venture capital platform, focuses on investing in bold entrepreneurs transforming the food and agriculture system. In 2018, despite a cooling Chinese economy, agrifood technology startups saw significant growth, with total investment reaching $5.8 billion, a 222% increase from 2017. The report highlights the evolving landscape of agrifood innovation in China, emphasizing the expansion of both upstream and downstream categories, the emergence of new business models, and the role of major internet players in shaping the sector.

Main Points

1. China's Economic Context

• China's GDP growth rate dropped to 6.6% in 2018 from 14.2% in 2007.
• Retail consumer goods sales growth fell below 10%, marking the first time since 2003.
• Venture capital investment in early stages decreased by 10.8% in deals and 3.4% in total investment year-over-year.

2. Consumer Market Divides

• Top-tier cities saw increased demand for premium food and dining experiences, with investment in premium branded foods and restaurants rising by 172% to $769.8 million.
• Lower-tier cities witnessed innovation targeting budget-conscious consumers, with the IPO of Pinduoduo and the success of Six Walnuts (a plant-based beverage company) as examples.
• The divide reflects a growing income and consumption gap between urban tiers, with lower-tier cities representing 77.73% of China's population.

3. New Business Models

• The community-based eGrocery model emerged, leveraging WeChat for group buying and bulk discounts.
• Central kitchens for online restaurants and meal kits gained traction, supporting the growth of digital food services.

4. Cross-Border Investments

• Chinese investors increasingly backed international agrifood startups, particularly in Israel, India, Singapore, the US, and the UK.
• Notable investments include Swiggy (India) with a $1 billion late-stage round and Impossible Foods (US) for alternative proteins.

5. Notable Exits

• Five IPOs and 14 acquisitions occurred in 2018.
• Meituan-Dianping led in food delivery, achieving a $52.8 billion valuation after its Hong Kong IPO.
• Alibaba acquired Ele.me, a food delivery platform, increasing its stake to 43% and valuing it at $9.5 billion.

Key Insights

1. Upstream Growth

• Upstream agrifood startups (closer to the farmer) saw an 806% increase in investment, contributing 16.6% of total funding.
• Meicai raised $450 million in Series E, and Jiuye completed a $14 million Series C, showcasing the rise of agribusiness marketplaces.

2. Downstream Dominance

• Downstream categories, such as eGrocery, Restaurant Marketplaces, and Premium Branded Foods & Restaurants, dominated deal activity, accounting for 81% of all investments.
• Restaurant Marketplaces led in total investment with $33.8% of the total, driven by Meituan-Dianping’s $1.5 billion Series F raise.

3. Ecosystem Expansion

• Alibaba and Tencent played pivotal roles, with combined early-stage investments totaling $2.7 billion.
• These giants are using the agrifood sector to enhance their data and traffic capabilities.

4. Deal Size and Activity

• Median deal sizes are more representative of typical investments than average deal sizes, especially in later stages.
• Seed stage deals saw limited growth, while Series A and later rounds experienced significant activity, with Luckin Coffee becoming a unicorn within its first year.

Investment Breakdown

Top Categories

• Restaurant Marketplaces: $33.8% of total investment
• eGrocery: 40% of the category's activity
• Agribusiness Marketplaces: $812.6 million in 2018, up from $42.9 million in 2017
• Premium Branded Foods & Restaurants: $769.8 million in investment

Notable Startups and Deals

• Meituan-Dianping: Raised $1.5 billion in Series F, became the largest agrifood unicorn.
• Meicai: Raised $450 million in Series E, leading in Agribusiness Marketplaces.
• MissFresh: Raised $200 million in Series A and B, drawing interest from Goldman Sachs and Tencent.
• Luckin Coffee: Raised $200 million in Series A and $200 million in Series B, becoming the fastest unicorn in China.
• Xiaoqule, Songshupinpin, Shihuituan: Leading in community-based eGrocery.

Sources & Methodology

• Data sourced from AgFunder, Crunchbase, 36kr, itjuzi.com, Zero2IPO Group, and direct industry input.
• 283 financings were curated, with 125 having undisclosed amounts.
• Multiple financings for the same company were counted as separate rounds if they were distinct in funding stage or asset class.
• The report includes international startups receiving Chinese investment.

Conclusion

2018 marked a pivotal year for agrifood startups in China, with a 222% increase in total investment and a notable shift in focus towards upstream supply chain innovations and community-based models. The role of internet giants like Alibaba and Tencent was instrumental in shaping the investment landscape, while consumer segmentation and digital transformation became key drivers of growth.