Searching for the Next Unicorn? It May Be Time to Look UnderwaterBy Ross Gordon | Wed, 12/29/2021 - 11:15
Everyone is looking for a unicorn. When you begin to ask around in search of an answer to the question: “What are the features of a unicorn?” you can get answers varying from a vague “disrupting an industry” to an even more ambiguous “high tech.” It really seems to be a revolving door, leaving no clear distinction between what is in and what is out, lacking a lucid illustration of the features that make up a unicorn. One feature that investors can agree on is a data-backed, observable trend toward economic growth. This doesn’t necessarily mean that there has to be an existing demand for a defined product, but rather an unmet need.
If we broaden our view and look at food production industries under this lens, we can use the same criteria to assess which industry presents the greatest opportunity for investors. A unicorn industry perhaps? There is an increasing demand for food around the world; furthermore, high quality food needs to be environmentally sustainable and generate consumer confidence that their diet consists of renewable resources. The food production industry has seen consumer preferences gravitate toward a diverse spectrum of high quality, healthy, sustainable, and reliable options over the last couple of decades; moving away from the fast food, disposable packaging options that are perceived as harmful for the environment and continued degradation of our planet. According to a recent report by Business Wire, the global health foods market has a projected 4.8 percent CAGR for the next six years, reaching a value of US $1.1 trillion by 2027.
Taking a closer look at the food production industry, searching for this elusive unicorn, we find that compared to other animal proteins, such as beef, poultry, and pork, aquaculture-raised seafood have a significantly lower demand for resources: water, feed, and land, as shown by reports from Global Salmon Initiative. Additionally, aquacultured fish have a much better Feed Conversion Rate than their terrestrial counterparts, achieving a 1.5 FCR on average compared to an average FCR of 2, 5, and 10 for poultry, pork, and beef, respectively. This equates to higher protein yields from seafood with reduced pressure on diminishing artisanal resources.
Naturally, we can see that aquaculture is the unicorn industry. It is the only food production industry that meets all of the market’s contemporary needs.
Interestingly, investment into aquaculture has been slow in comparison with other industries, such as tech, into which venture capital firms have been pouring money at a rapid rate. Aquaculture investments have largely been out of sight for VC investors. This is primarily due to the youth of the industry combined with the amazing capital returns achieved in tech industries during the emergence of the internet.
There are often concerns about how to invest in a growth industry and how to do due diligence on it. This is a particularly interesting conundrum due to the fact that aquaculture is one of the most technologically advanced food production sectors in the world, being an early adopter of many early-stage technologies that monitor animal health, environmental conditions and water quality; in general, optimizing resources and assisting in controlling costs.
This gap between investors and the aquaculture industry is slowly being bridged as ESG (economic and sustainable growth) investments have gone from being an “interesting” topic to being an essential component of a healthy portfolio. Aquaculture isn’t considered part of a conservative investment strategy due to insufficient historical analysis and because investors are hesitant to analyze industrial processes against other traditional commodity-based protein productions.
Aquaculture’s economics are straightforward: primarily maintaining animal health to increase production while controlling operational costs. An interesting business ecosystem has developed over the last decade between the tech industry, incorporating artificial intelligence and computer vision, and aquaculture where the latter’s needs for real-time data management, FCR optimization, genetic augmentation, and system automation are being addressed both by tech startups and legacy enterprises. The surge in AI and robotic automation and the desire to adapt sustainable aquaculture to the deep blue ocean through innovation in the industry are signs of a promising future and investment growth.
Having a sound economic model and healthy unit costs are dependent on a unique mix involving the selected site’s production capabilities, its proximity to markets and skilled labor as well as the chosen species’ FCR, resilience to disease, and creating market demand. It can sound like a daunting task; just like a veteran Formula 1 driver leads his team to victory through proven accolades, an experienced industry adviser knows that there is no need to reinvent the wheel, selecting the ideal site, a profitable species, and fine-tuning the methodologies. From there, it is simply a question of implementing the right farm practices and integrating the necessary technology to lower operational costs. In my 25 years of working in the industry, I have seen the demise of more than a handful of investments because of one misaligned decision. Each of the variables need to be well analyzed and conceptually planned prior to assumed feasibility.
Aquaculture is not challenging once the key methodologies are implemented during the startup phases. Previous aquaculture mistakes that are often made by unguided startup ventures should reassure new investors that mistakes won't happen twice. The industry is evolving rapidly via learning curves in a world of fast transformation.
Oftentimes, what we most seek out is right in front of us, and this case is no different. Aquaculture is an industry that checks off all of the market’s needs, and ticks off the most important feature for investors: achieving strong economic growth. Creating the site-species-market demand-production model match is essential for an investment to reach its potential; fortunately, countries like Mexico and other Latin American countries have all of the dials tuned to the right settings. It’s just a matter of connecting them.