As VC cash tightens, biotech may soon eclipse digital tech
2021’s biggest biomaterials funding round went to fermented textiles startup Bolt Thread. The $253 million Series E boosted its valuation to over $1 billion.
One of Bolt Thread’s most prominent recent investors is Temasek Holdings, a Singapore-based venture capital firm. It first backed the bio-textile company in 2018 in a $213 funding run.
Bolt Threads is just one of Temasek’s recent ventures into biomaterials, a niche but growing sector attracting increasing venture capital flows. Drawn by its potential to accelerate multi-sector decarbonisation, big investors are moving into the space to pad out their climate tech portfolios.
Bloomberg NEF’s taxonomy slices the burgeoning climate tech segment into eight applications areas: the energy transition, transport and new mobility, agriculture and land-use, climate and forests, decarbonising industry and buildings, and the circular economy and new materials.
Biomaterials can directly serve three of these: the energy transition (through biofuels), to agriculture and land use (through new bio-based farming inputs), and new materials (such as Bolt Thread’s platform for lab-cultured clothing textiles).
Although climate-specialised venture capital start-ups like Prime Mover are springing up to back young biomaterial companies, more established (and significantly wealthier) investors are also profoundly shaping the future of the industry. The multi-billion dollar Temasek is one, but juggernauts like BlackRock are also active investors, having earmarked serious amounts of capital for climate solutions.
Temasek’s Biomaterial Assets
Bolt Threads is Temasek’s latest biomanufacturing venture but Impossible Foods, a multi-billion dollar alternative protein brand, has also received their backing. Temasek’s biomaterials portfolio reaches into the agritech with Apeel, a US-based startup making edible coatings for perishable produce.
At the producer end of bio-agritech, 2022 saw Temasek increase its stake in Pivot Bio, which custom-engineers soil microbes that fix atmospheric nitrogen to make the nutrient more available to crops.
It has also invested in aquaculture feed companies InnovaFeed and Calysta using cellular agriculture to make more sustainable fish farming inputs.
Temasek cemented its status in the climate tech investment sphere in 2021, when it jointly established Decarbonization Partners with BlackRock. The new entity is a late-stage venture capital and early growth private equity that supports companies capable of helping meet 2050 net zero goals. In 2022, Decarbonization Partners selected mycelium leather startup Mycoworks as the target of its first investment. The series C has been 2022’s biggest biomaterials investment of the year so far.
Decarbonization Partners have committed $600 million, and aim to raise a further $1 billion, to nurture companies that promise a path to 2050 global net zero. Their wide remit covers the energy, mobility, manufacturing, construction, and materials sectors.
Established venture capital in the bioeconomy
Over the last thirty years, Temasek’s portfolio value has seen an inexorable rise. Any dips have tracked the expected global downturns: the SARS Epidemic of 2003, the 2008 financial crisis, and the Covid 19 Pandemic. After each decline, however, Temasek’s finances only redoubled. In March 2020, at the start of the Covid pandemic, its portfolio value was 306 billion. By March 2022, it had climbed to $403 billion.
Large global investors are critical to the future of the bioeconomy because they have the large finances to bolster scaling. Achieving economies of scale is the overriding priority for the bioeconomy now as this will lower the green premium still inhibiting wider adoption of its products.
The fact that firms like Temasek are placing organic materials front and centre of their investments augurs well for the bioeconomy’s long-term viability. Founded in 1974, Temasek’s earliest ventures were companies like Singapore Airlines and DBS bank – entities intimately entwined with Singapore’s early industrialisation and which remain economically successful today.
From Big Tech To Climate Tech
Of course, venture capital’s forays into the bioeconomy could be nothing more than a passing fad. Yet the recent interest might well be a sentinel for more profound shifts in the global economy.
Temasek’s rapid accumulation of bio-based climate tech assets chimes with a moment when cracks are starting to show in the two-decade-long love affair between digital tech and corporate venture capital.
The 2010s, dominated by a business model perfected by Amazon, Facebook, Meta, and Alphabet, was the golden age of platform capital. The reign of digital tech however may now be starting to wane.
Although segments like digital healthcare and grocery delivery continue to draw serious investment, venture capitalists are increasingly nurturing a new bio-platform capitalism concerned with tangible goods from biological resources.
Under bio-platform capitalism, profit does not inhere in bits, nor computational techniques that alchemise them into consumer insights. Instead, it is drawn from proprietary rights around novel manufacturing processes or materials that draw entirely on organic inputs.
If platform capital struck gold over the 2010s by manipulating information flows, bio-platform capital is primarily concerned with intervening in energy flows. Its products promise to sustain ecological health by rectifying the destructive imbalance we see today between the matter and energy that capitalist economies remove from the environment and the rate at which can be replenished by the earth system.
This is, in theory, the draw of sustainable biotech. The renewability of organic resources combined with the complex functionalities we find in living matter will bring growth, shareholder profit, and technological innovation within ecological limits that have historically been transgressed by these three hallmarks of capitalist economies.
Temasek is illustrative of this trend. Before its plunge into green biotech, it held a glittering portfolio of public holdings in digital platforms like Facebook and AliBaba. Yet more recent financials indicate that when pressed, Temasek may begin to prioritise biotech above the media platforms that were its bread-and-butter a decade ago.
Since 2018, Temasek’s public holdings assets in the life sciences and agri-food sectors grew more as a share of its whole portfolio than any other: from 6% in 2018 to 10 in 2021. In that period, telecommunications, media and technology remained stable at 21%.
In 2022, when transportation and industrials leapt ahead to 22% percent of the portfolio share, life science dipped by only 1 percentage point while telecommunications, media, and technology dipped by 3.
From data to matter
There is no denying that 2022 is seeing reduced private capital flows. Crunchbase estimates that August 2022 saw the lowest monthly venture funding amount since August 2020, 52% down year on year.
The downward trend is reflected in biotech and pharma too, which saw a boom in the depths of the pandemic. In early September 2021, when Europe faced a fresh round of lockdowns and China’s showed no signs of easing, the NASDAQ Biotechnology Index hit a 5-year peak at around 5449. This is compared to 3212 in the same period in 2019.
This burst of 2019 to 2021 is now tapering as government responses to the pandemic draw down. Publicly listed biotechs are not on track to attract the estimated $29.3 billion they did in 2021: by June 2022 Crunchbase had released figures that suggested the full year would bring in only a third of the investments of the year before.
Climate-tech investment is also suffering from the economic downturn but the picture here is more ambivalent. In 2021, it is estimated that climate tech startups raised a record $32 billion, 4.9 times more than in 2016. While the third quarter of 2022 saw global levels of venture capital ease back to 2020 levels after a pandemic boom, climate tech continues to profit, primarily driven by the alternative energy sector.
Venture capital firms continue to give the same relative importance to climate technology investment as they did before the geopolitical and economic shocks of 2022. Climate tech funding represented more than a quarter of every venture dollar invested in 2022, matching broad trends since the start of 2018.
Yet although the share of total venture capital funding going into climate tech has been surprisingly resilient, absolute funding figures this year have certainly tracked wider market jitters: the amount of funding for climate tech in cash terms for the first three quarters of 2022 is down compared to the same 2021 period, according to PWC.
The more sober post-2022 climate may prompt a reorganisation of any tech financing that remains in favour of biomaterials thanks to its relevance for climate goals that are still finding favour among investors. Early bio start-ups may also sidestep much of these impacts compared to mature companies on the cusp of going public.
The 2010s saw the Big Four tech companies emerge as some of the most profitable and powerful entities in corporate history. Now, there are early signs of a shift away from digital service platforms and towards physical manufacturing that turns around biological mechanisms and organic feedstock.
83 % of all “deep tech” ventures, according to a report by BCG and Hello Tomorrow, are focused on making a physical product, particularly biological products. This is in stark contrast to the number-crunching tech that generated stratospheric profits for Alphabet, Amazon, Apple and Meta over the last decade.
This does not mean venture capital will abandon the computational advances that the Big Four both profited from and advanced. Nonetheless, technologies like artificial intelligence and machine learning will increasingly be regarded as means to more tangible ends: tools for building novel configurations of matter, rather than as metric processors that turn a profit by transforming numbers into actionable inferences.
Computation technologies may increasingly be assessed by investors for their capacity to generate novel composites that improve the mechanical performance of biomaterials or for identifying optimal environmental parameters for enhancing yield to input ratios in bio-reactors.
The fact that the bioeconomy cuts across two key investment segments may see it through the worst of the incoming recession. It lies at the intersection of climate tech – which has sustained investor interest through the difficult first half of 2022 – and bio-tech, an emerging area for venture capital. At a moment when big tech is falling out of favour with investors and consumers alike, a significant restructuring of capital flows towards sustainable biotech may be in order over the coming decade.