Initial investigation: combined “impact investing” fund for small investors into plant-based meat

The concept

 

I carried out an initial investigation to explore the extent to which small investors pooling financial resources to invest in plant-based meats might have greater impact than donations to effective charities. My initial investigation suggests that funding does not seem to be a major constraint for plant-based meat manufacturers. This implies that it is unlikely that individuals may be able to increase their impact by substituting donations to effective charities for investments in plant-based meat manufacturers.

There were three main elements to my investigation.  First, I explored the theoretical concept of “impact investing”, and the criteria under which impact investing may be more effective than charitable donations.  I then examined whether investments in plant-based meat manufacturers might meet these criteria.  Finally, albeit separately, I briefly examined the practicality of setting up a vehicle for small investors to make such investments.

In order for impact investing to be effective, it seems that the investments would need to be in areas where socially neutral investors are unwilling to invest, or for investments to be made at concessionary rates.  Investments in plant-based meat companies don’t appear to match these criteria since they don’t seem to face major funding constraints from for-profit investors; the constraints faced by these companies appear to relate to scaling up and distribution. I identified a number of ways in which small investors could plausibly pool resources to make investments.  This could be useful to explore in the future if an exciting “impact investing” opportunity is identified.

This reflection post is intended as an insight into these three issues, and is not intended to be a comprehensive summary of the relevant literature. (Brief explanation: I have decided to use this blog to focus on sharing partially developed ideas and seeking feedback, but then to research them further and write them up more fully, e.g. on the EA Forum, if the topics seems to be something worth pursuing further)

As well as the various resources I have linked to in this post, much of my thinking on this has been developed in conversation with others, whose ideas and comments I have not always referenced explicitly. Thanks to Bruce Friedrich (co-founder and executive director of The Good Food Institute and co-founder and adviser at New Crop Capital) and Sagar Kirit Shah (a public policy economist) for speaking to me about these topics, plus to Matt Ball (senior media relations specialist at GFI) for his feedback on my initial draft. I should also note that I am currently completing an internship at GFI and generally have a very high opinion of their work and importance within the Effective Animal Advocacy movement, which others may disagree with.

 

1) Impact investment as potentially more effective than donations

 

My hypothesis was that investment into for-profit businesses might have a greater impact than donating to effective charities if the loss to Return On Investment (ROI) was small enough to justify the positive externalities generated by the businesses.

The idea of investing in for-profit companies, with the goal of achieving a social impact, whilst still making a profit on your investment, is not new. It is known as impact investing. Brest and Born (2013) define impact investing as “actively placing capital in enterprises that generate social or environmental goods, services, or ancillary benefits such as creating good jobs, with expected financial returns ranging from the highly concessionary to above market” in this article.

Under certain specific conditions, it seems likely that impact investing can increase a donor’s impact.

The conditions in which impact investing might increase a donor’s impact

There are some reasons to think that impact investing can produce substantial positive outcomes for the world which might enable investors to increase their impact overall compared to if they were only donating to charities:

  • Even if there was a loss to ROI compared to other investment opportunities, some impact investing might have a greater impact than donating to effective charities if the loss to ROI was small enough. This is because it could support the companies who were invested in to generate positive social outcomes that they would have otherwise been unable to achieve, if they lacked sufficient funding.
  • Impact investments are still intended to make profits overall, and these profits can be donated to charities later.
  • There may be a number of smaller, private markets where “market frictions” exist that dissuade larger socially neutral investors from investing in a business, but where a knowledgeable and well-placed impact investor might be able to support a company to meet its capital needs. See Brest and Born (2013) – search for the word “frictions” – for further explanation.
  • Brest and Born (2013) note that “fund managers as well as other actors can improve an enterprise’s social outputs by providing a range of nonmonetary benefits”, such as “providing technical and governance assistance to enterprises, and helping them build strategic relationships”.
  • As well as supporting existing plant-based meat start-ups in need of investment, the existence of the impact investing fund might, in theory, help to incentivise the creation of new start-ups in this space, as they would know that it would be easier to find investment than it might otherwise have been. Note, however, that there are already multiple funds fulfilling a similar role, such as New Crop Capital, as discussed more fully below.

There are also some ways in which the creation of a fund or pool of the finances of small investors for the purpose of investing in plant-based meat might have additional strategic benefits from the perspective of Effective Altruists:

  • People otherwise not involved with the Effective Animal Advocacy and Effective Altruism movements, or people who are unwilling to make substantial donations to charities, might be encouraged to invest in an impact investment fund. This might therefore redirect resources towards the goals of the fund (in this case, reducing animal suffering by supporting people to reduce their consumption of animal products) that might otherwise not have been mobilised for these goals.
  • The creation of an Effective Altruism-inspired impact investing fund for small investors might present opportunities for greater publicity and outreach about Effective Altruism, and therefore support wider goals of Effective Altruism movement building.

Theoretical reasons why impact investing might fail to increase a donor’s impact:

However, there are several criteria required for impact investments to achieve this potential, and to enable investors to have a greater impact than donors:

  • Impact investing will only support a company to generate more positive social outcomes if it provides access to capital that it would otherwise not have been able to have access to. This means that impact investing only leads to improved social outcomes if it takes place in a private market, where the company would otherwise have been unable to access other investment opportunities, or if the ROI is lower than the market rate. In this second scenario, impact investing which actually has a positive outcome necessarily involves a lower ROI than other investing opportunities, otherwise socially-neutral investors (i.e. those not seeking to maximise positive externalities) would use up these opportunities for profit for themselves.
  • This means that impact investing is financially equivalent to giving a grant to the company of the size of the difference between the ROI of the actual investment and the ROI of the most profitable alternative investment. In some cases, it might be better to simply give a grant to the company, worth the same amount as the difference between the ROI they would gain from investing in the plant-based meat company, and the estimated highest ROI they could gain otherwise. This point is argued strongly by Hauke Hillebrandt (unpublished).
  • There may be effective charities who would be able to use a donation to create a greater impact than a for-profit company would be able to with the same amount of money.

Note that “impact investing” is different from other forms of “Socially Responsible Investing” (SRI), through “negative screening”, or “divestment”. These have their own list of pros and cons, but seem less likely to have an overall, counterfactual positive impact; if some investors divest from a company, the price of their stocks will fall, and other investors will step in to buy up the cheaper stocks anyway. This point is argued strongly by Hauke Hillebrandt (unpublished)..

Conclusions

  • There are many cases where impact investing will have no socially positive outcomes.
  • In some exceptional cases, impact investing may be still have a greater positive impact than donating to an effective charity would.
  • Impact investing funds can offer additional nonmonetary benefits to enterprises.
  • A fund for impact investing into plant-based meat companies (and clean meat companies) no longer seems to be one of those exceptional cases, as will be explained in the following section.

 

2) Plant-based meat start-ups as an opportunity for high-impact investing

 

A second hypothesis was that plant-based meat companies might be an example of where additional investment might lead to significant additional positive externalities, by supporting people to reduce their consumption of animal products. This might therefore be a good opportunity for small-scale investors to pool together resource to create an investment fund, which would increase their impact compared to donating without investing. On investigation, however, it does not seem to provide a good opportunity at this time.

The opportunity

  • Better provision (and marketing, distribution etc) of alternatives to animal products will facilitate a move away from animal product usage. In one example, an estimated 70% of the consumers of the Beyond Burger (a plant-based burger created by the company Beyond Meat) are not vegetarian or vegan (see more examples on this 2018 post on GFI’s blog). This suggests that successful, well marketed plant-based products will support omnivores to eat fewer animal products.
  • To quote Sentience Institute, “It might be prohibitively challenging to convince others to make a significant change like switching many of the foods they eat or adjusting their identities to become antispeciesist, so what’s most needed could be to make going vegan or opposing harm to animals require less of a transition cost for people (e.g. with better plant-based meats).” You can see their full summary of the debate for whether to focus on food technology or social change here. Traditional animal advocacy – including organisations considered to be effective in terms of “bang for your buck” – seem not to be not working as quickly as we might have wished for, in the sense that the average number of animals consumed per capita is still rising internationally. In more recent years, there has been a slight decline in average total weight of meat consumed per capita in the USA and UK – in 2013, the figure is 81.48kg per person, per year in the UK, and 115.13kg in the USA, compared to 85.7kg and 125.53kg at peak consumption in 2006 for the UK and USA respectively. Nevertheless, these figures are far higher than in previous decades, and globally, per capita meat consumption has increased by around 20 kilograms, 1961-2013. In particular, the consumption of poultry has increased the most – from 862 million chickens in the USA alone in 1961 up to 2.23 billion in 2014, and with global production of poultry meat growing more than 12-fold between 1961-2014. This is especially concerning, given that factory farmed chickens suffer far more than many other farmed animals to provide the meat people eat. See here for a comparison of the suffering caused by different animal foods. These statistics are all available at Our World In Data, and are based on data published by the Food and Agriculture Organization of the United Nations. This all suggests that traditional animal advocacy and vegan outreach has not led to hugely significant victories in terms of reducing demand for animal products, even if the situation would likely be slightly worse without their interventions. Efforts to support adjusting the supply of animal products and protein, such as by supporting the development of plant-based meat (and clean meat), might therefore be more effective in the long run. It should be remembered that these non-profits have had other forms of successes, however, especially in terms of welfare reforms.
  • Many interventions in reducing animal suffering seem to have very large uncertainties over their long-term implications. For example, welfare reforms might encourage complacency in people’s use of animal products (see here for Sentience Institute’s summary of this particular issue).

Why this might not be needed currently

  • Plant-based meat start-ups appear to currently be well-funded, and therefore (following the theoretical arguments outlined above) impact investment in this area might have no positive counterfactual impact. This was the impression of both Bruce Friedrich and Sagar Kirit Shah, as well as the Open Philanthropy Project report (2015). Impossible Foods has more than $200m in venture capital investment total for example (Shapiro, 2018).
  • This is partially because socially neutral investors consider them to be good investment opportunities. Large, international companies have bought up small plant-based meat companies: Kellogg bought Morningstar Foods in 1999; Pinnacle Foods bought Gardein; Monde Nissin Corp. bought both Quorn and Cauldron. Meat companies have also sought to diversify and to become shareholders in alternative sources of protein, such as Tyson investing in Beyond Meat and both Tyson and Cargill investing in clean meat companies.
  • Perhaps more significantly, plant-based meat companies have also already been funded by large impact investors with relevant knowledge and experience in the field. Beyond Meat has investments from Bill Gates and Leonardo DiCaprio, to take famous examples. Perhaps more importantly, there are several impact investing funds and individuals looking to fill any funding gaps that arise for plant-based meat or clean meat companies. These include New Crop Capital and a network of other investors and funds, such as Stray Dog Capital, Fifty Years and VegInvest – see this 2017 article on the latter three. Friedrich’s impression is that these investors are already filling the funding needs of plant-based meat companies. He believes this to the extent that New Crop Capital no longer really acts as an impact investment fund, but more as a vehicle to make profitable investments, the profits of which are then invested into effective animal advocacy groups (with 50% going to Mercy For Animals). Clear Current Capital has similar goals, having been set up, largely to fill any gaps left by New Crop Capital. Although filling funding gaps is certainly not inevitable or automatic, these various impact investors seem consistently interested in the area and are therefore well-placed to meet further funding gaps as they arise. These investors and fund managers are also likely well-placed to provide any nonmonetary benefits that the manager of a pool of funds from small investors might be able to provide.

Casting the net more widely – restaurants? Distributors?

Although there doesn’t seem to be an opportunity to pool additional funds to support the technology start-ups which are developing the field of plant-based meat, it seems important to consider whether there might be other opportunities to achieve the same goals by investing in different levels of the supply chain. There do not seem to be many good opportunities here, either, however:

  • Distribution of products and especially product placement are extremely important issues for plant-based food companies. When the Beyond Burger got placed in meat aisles, its sales skyrocketed, according to Friedrich (I couldn’t find stats on this, but if anyone has any, please let me know!).
  • For a new company to break into the market as a successful distributor would be a very difficult task, however, especially in order to specifically promote plant-based meat options; they would be competing against national and international competitors, but without the advantage of the market-disrupting new technology or unique selling point that many plant-based meat start-ups possess. These challenges would also make a new company a much worse investment opportunity, with likely far lower ROI.
  • It seems like this particular problem is more likely to be solved by building strong relations with both distributors and retailers. This is up to the plant-based meat start-ups themselves and possibly to GFI.
  • Restaurants and a variety of other smaller scale businesses working with plant-based meat, dairy and egg products are much more likely to be in need of investment than plant-based meat technology start-ups, since the latter have access to multiple sources of funding (as seen earlier in this section) that the former do not.
  • On the issue of investing in restaurants, Friedrich was not optimistic, saying that “my understanding is that the vast majority of them fail”. In one example of a study into this, a survey from Restaurant Startup & Growth magazine indicates a “23%” first year restaurant failure rate. Another analysis suggests that a similar rate for turnover, which includes changing ownership, as well as closure. This would make restaurants poor choices for impact investment, as the money invested would have a strong chance of being lost. Friedrich noted that New Crop Capital had seen pitches from about 20 restaurants, and they hadn’t accepted any of them. He noted that many of these pitches came from charismatic founders, with a clear vision, but that it is nevertheless hard to tell how likely the restaurant is to succeed.
  • A vegan restaurant would have a direct effect on reducing animal suffering by helping its customers to reduce their consumption of animal products and by supporting veg*ns to avoid recidivism. It would also have an indirect effect beyond its customer base by changing people’s perceptions of veganism and therefore (depending on the impression that this conveys) making a vegan diet seem more or less appealing and more or less difficult to stick to. However, for a restaurant to have a significant impact on reducing the consumption of animal products anywhere near comparable to the impact of plant-based meat technology start-ups, it would probably have to be so wildly successful that it would gather huge amounts of media attention, which would enable it to have a much larger indirect effect, since its direct effect is likely to be limited to a few thousand individuals. This would be even less likely than the initial profitability and success that would be required for a decent ROI.

Casting the net more widely – clean meat?

Clean Meat (also known as cellular agriculture, cultured meat, or in vitro meat) is real meat which is developed in a fermenter or a brewery, without (much) direct use of animals. Investment here faces some of the same issues as plant-based meat, as well as some separate issues:

  • The start-ups working in this space are also well funded by both impact investors and socially neutral investors – in many cases, the same individuals, funds and companies that are investing in plant-based meat. See Shapiro’s Clean Meat (2018), Open Philanthropy Project’s 2015 report and the various updates to GFI’s blog for details on this. Indeed, one of the main advantages that for-profit clean meat start-ups bring, compared to non-profits working in this area, is their ability to attract funding. As Matt Ball from GFI advised me, “in just their initial round of funding, Memphis Meats raised more money for this field than had gone into all academic research before.”
  • Since the technologies of cellular (and to a lesser extent, acellular) agriculture are still in development and not yet cost-competitive with the industries they are trying to disrupt, there is even more scope for supporting researchers and effective non-profits than there is for plant-based meat. Furthermore, research in this area is not well-funded, since the field is so new and since it lies in between the more established fields of food science and medical research – see New Harvest’s post on this for more. On research funding opportunities, see the section “Interventions to reduce cost and scale-up production of ground meat” in Open Philanthropy Project’s 2015 report  but note that the OPP report is slightly outdated, and that for-profit start-ups have made significant progress since then; Memphis Meat has been created and led breakthroughs, such as this. The opportunities for giving towards non-profits in this space are largely to New Harvest (see contrasting reviews here and here) and to The Good Food Institute (see the summary of their work here and their review by ACE here).
  • There is comparatively less scope for for-profit start-ups to make a difference in the short term.
  • Note, however, that there are contrasting views on how money would be best used to advance clean meat. Isha Datar of New Harvest argues that research is the priority: “start-ups keep their intellectual property private… at this point in time, open-source academic research will do a lot to advance the science of cultured meat. Once the base technology is advanced enough, then we can get into competition.” In contrast, Bruce Friedrich argues that “cellular agriculture has been exclusively the province of the academy for more than a decade, and it seems to me that leaving it there will guarantee that we don’t have a product on the market for at least another decade” (quotes from Shapiro, 2018, pp. 53 and 85). My perspective would be that supporting start-ups might help the field to progress faster, but might lead to loss of control over a coordinated market entry strategy for cellular agriculture technologies as a whole. It seems important that the introduction is managed and marketed very carefully so that consumer acceptance is high, and competition between different start-ups might pose a slight danger to this. In any case, the decision is largely outside the control of individual donors, since these start-ups are being funded; it is GFI and New Harvest that still have room for more funding.

Casting the net more widely – effective non-profits

This post has been framed as an exploration of whether donors might increase their overall impact by engaging in small-scale impact investment as well as their donations to non-profits. It seems likely that donating to effective non-profits will be a better use of money for small investors/doors at this time.

  • Whilst funding is overall not a significant bottleneck for plant-based meat start-ups at the moment, they do face internal issues of scaling up their production, Friedrich advised me. To some extent there is an inevitable time delay in this process. Shah believes that these companies are more in need of strong advocacy on their behalf, in terms of lobbying for favourable legislation and regulation and of bringing together interested parties. This is part of the work that The Good Food Institute is already doing in order to support plant-based meat companies, and so a donation to them is more likely to help overcome the bottlenecks to development that the plant-based meat industry is facing.
  • There are a variety of other effective animal advocacy organisations whose impact would likely be greater for an equivalent donation than the plant-based meat companies would be from a grant. Organisations like The Humane League and Animal Equality directly reduce animal suffering in the short term through encouraging changes to corporate welfare policies, through publicising investigations of farms and through general advocacy and outreach (see ACE’s reviews here and here).
  • These same organisations make the adoption of plant-based meat products (and clean meat products) more likely as they are developed, through increased concern for the wellbeing of animals, and increased anger at companies for the treatment of animals. It may well be that those who are aware of the problems of eating animal products, even if not currently persuaded to go vegetarian or vegan are still more likely to reduce their consumption of animal products as new plant-based products are developed. There is a variety of theoretical and social scientific evidence to suggest that this might happen. In one study, for example, “participants who rejected the human values of power and dominance over others generally rated the vegetarian option as tastier than the beef option, even when they had been misinformed about what they were eating” (study by Allen, Michael W., R. Gupta, and A. Monnier, quote from the Faunalytics summary of it).
  • Effective animal advocacy charities such as The Humane League, Animal Equality, The Good Food Institute will not have their funding needs met by any means other than through donations, although the Open Philanthropy Project is now a major donor in this area (see a list of their grants here). Such opportunities are therefore likely to be more neglected, and it makes sense for people who care about farmed animals to use their resources to support these more neglected opportunities.

Conclusions

  • The fact that funding isn’t a bottleneck for plant-based meat start-ups means that a combined impact investing fund for small investors into plant-based meat isn’t necessary at the moment and would not be helpful.
  • Given that a loss to ROI from money invested is to some extent inevitable, it is likely that, even if funding were a bottleneck, that a donation towards effective animal advocacy organisations, especially GFI, might do more to advance the field.
  • If the situation changed and funding became more of an issue compared to other needs of these companies, then an increased level of impact investing, supported by a fund of small investors, could theoretically become useful again. I have not come across anything to suggest that this is likely to happen soon, however.

 

3) The practicality of creating a fund for smaller investors

 

If you agree with my conclusions so far, then there is no need to set up a combined impact investing fund for small investors into plant-based meat at the moment. The following suggestions would therefore only apply if my reasoning is shown to be flawed, or if the bottlenecks to the development of plant-based meat changed significantly, for example if funding gaps developed again.

There are a variety of ways that smaller investors might be able to contribute towards a combined impact investing fund for small investors into plant-based meat:

EA Funds sets up an impact investment fund

EA funds currently offers philanthropic funds for small donors, managed by experts in the field; in the case of the animal welfare fund, this is Lewis Bollard, the Program Officer responsible for farm animal welfare at the Open Philanthropy Project. Since EA Funds already accept donations from small donors and act as a larger, knowledgeable donor on their behalf, it seems easy to imagine that they could set up a similar concept but for impact investment.

New Crop Capital (or other, similar group) could set up a fund representing smaller investors

New Crop Capital currently already invests in ventures within the fields of plant-based meat and clean meat that it expects to have a good ROI. Currently, they use funds from larger investors, rather than from smaller investors. It seems easy to imagine that they could set up a similar fund which represented smaller investors, or broaden their current fund to accept smaller investors too.

An independent group (not affiliated to the Effective Animal Advocacy or Effective Altruism movements) or fund manager could set up the fund, with advice

Small investors are currently able to invest their own money into a variety of impact investment funds. In some senses, a combined impact investing fund for small investors into plant-based meat need not be very different from these other examples. Interested and knowledgeable individuals (such as those at Open Philanthropy Project, New Crop Capital etc) might be able to provide advice to the fund manager.

Considerations which would affect all of these options

  • Each of these options could simply be evaluated on the standard criteria for seeking a good ROI, but only consider start-ups working to develop plant-based meat (or clean meat).
  • Alternatively, they could make explicit calculations and trade-offs between estimated/projected impact of the start-ups being invested in and ROI. In other words, in some cases the fund managers might accept a lower ROI on specific investments, because they thought that the estimated positive externalities of those investments was sufficiently high to have greater impact than a grant of the equivalent amount would. This may be incredibly difficult and time-consuming (unless the fund manager was willing to place lots of trust in the estimates and calculations provided by the start-ups seeking investment) and so is unlikely to be worth it in individual cases.
  • Early stage investment into start-ups, such as seed funding, angel investing and series A funding, is different from other investing. Firstly, there is a greater risk than usual of the invested money being lost. Secondly, for each investment, there is a relatively high chance that the invested money may be locked away for quite some time before it starts generating any returns. Sophisticated, larger investors tend to understand these risks and requirements, but smaller investors tend to expect to be able to access their invested money whenever they like. This means that investing in the fund might be less appealing for small investors than the sorts of investment funds that they are used to dealing with, which may reduce the amount of money actually invested. Indeed, Clear Current Capital write publicly that they are “open to accredited investors only, as Seed/Series A investing is a high risk/high return proposition”.
  • Additionally, these above differences might create communication difficulties. Start-ups often share sensitive information with their early investors, which they may be unwilling to share with a large number of smaller investors. Whilst they might be happy to share this information with a fund manager who was acting on behalf of lots of smaller investors, this may mean that smaller investors would have to be content with receiving relatively little information about their investments, which, again, might make investing in the fund less appealing.
  • Soliciting investment in the fund would inevitably require using time, resources and money. It is easier to publicise and advertise to a smaller number of informed investors than to a larger number of potential small investors. These publicity and advertisement costs might outweigh the benefits gained.

Conclusions

  • It seems theoretically possible that a combined impact investing fund for small investors into plant-based meat could be set up, even if there are some difficulties and costs which would need to be considered.
  • There are several organisations which might be well placed to do this.
  • This is all simply theoretical, as there is no need for such a fund at the present time.

 

Final thoughts

 

  • Even if a combined “impact investing” fund for small investors into plant-based meat is not required at the moment, it is possible that it could become useful in the future. The same is true for clean meat.
  • There may be cases in other key cause areas for Effective Altruists where a combined impact investing fund for small investors might still be useful. As one theoretical example, to address global poverty, a fund could be created for investing in new technologies or in technology which is available in the developed world but hasn’t had enough investment in cheaper alternatives and equivalents to make it usable in the developing world. For dealing with the risks from artificial intelligence, a fund could be created for investing in machine learning products and development which are seen to likely be safer, but otherwise potentially less profitable than alternative technologies, or which is struggling to attract funding for some other reason. This would clearly be different from safety research itself, which is where charitable donations in this area tend to focus. Both of these examples are hypothetical, and I haven’t considered the pros and cons of each, or read into whether similar things exist.
  • In the meantime, people looking to use their money to reduce animal suffering are probably best off donating to the most effective animal advocacy organisations. For the basics on how to do this, read the reviews created by Animal Charity Evaluators. There may be better ways to use your career to reduce animal suffering than seeking to maximise the amount of money you donate to this cause, however. If you have not already done so, you will likely find the advice and tools from 80,000 Hours (free and available online) useful.
  • Accredited investors who still think that impact investing presents an opportunity to increase their impact might like to contact Clear Current Capital, who are inviting investors to contact them.

2 thoughts on “Initial investigation: combined “impact investing” fund for small investors into plant-based meat

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