Sustainability in Focus as Two VCs Build Industrial Biotech Funds

18/11/2021 - 4 minutes

As this month’s COP26 United Nations climate summit highlighted the climate change emergency, venture capital fundraises from Sofinnova and the European Circular Bioeconomy Fund have led the push for industrial biotechnology to further shift the global economy away from fossil fuels.

Yesterday, the venture capital (VC) firm Sofinnova Partners raised €150M for an early-stage environmental impact fund called Sofinnova Industrial Biotech II. The Paris-based investor targets companies that harness biotechnology in a way that promotes environmental sustainability.  

Also in the game is the European Circular Bioeconomy Fund (ECBF), which was launched as part of the European Green Deal last year. Last month, the ECBF completed its fourth closing, bringing its total to more than €200M out of its €250M target. The amassed funds will be invested in 25 disruptive European companies to scale up technology that could reduce society’s reliance on fossil fuels. 

Both funds will focus on industrial biotechnology, which uses plants, microorganisms, enzymes, and other renewable biological resources to produce food, chemicals, and materials with a lower carbon footprint than traditional production methods.

This is really something that Sofinnova wants to push — industrial biotech and sustainable investment — because most probably in the 10 to 15 years to come, this will be at the forefront and on the top line of everyone’s agenda,” predicted Michael Krel, Partner in Industrial Biotechnology Funds at Sofinnova.

Michael Brandkamp, General Partner at ECBF, added that “the transformation from a fossil-based linear economy to a bio-based circular economy is leading to very promising investment opportunities. Innovative technology companies have the opportunity to define and implement new technologies, sustainable products, and entirely new value chains.”

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Industrial biotech is one of five parallel investment strategies for Sofinnova but still only represents around 10% of all the investor’s activity, with the remainder focused on healthcare. The amount raised for the firm’s latest environmental impact fund is dwarfed by a €472M early-stage healthcare VC fund announced last month. However, the amount raised is €25M larger than Sofinnova’s previous industrial biotech fund, and the first one to focus solely on environmental impact.

This was raised 100% during Covid times, which was not that easy,” said Krel. This is really now in a way putting sustainability and industrial biotech on the forefront of the agenda of Sofinnova as a whole.”

The urgency of the push for sustainability was hammered home at the 26th United Nations Climate Change Conference of the Parties (COP26), which wrapped up earlier this week. The conference achieved only mixed results: many countries made or reaffirmed pledges to become carbon neutral, but experts see the carbon reduction policies as insufficient in preventing the climate crisis. Industrial biotechnology could prove key for ushering in a more sustainable future. 

The industrial biotech sector has been through tough times in the past. In 2017, the European Investment Bank reported that three-quarters of projects developing sustainable food, chemicals, and materials faced issues accessing private capital.

There are still other major hurdles for the industry to cross, including the tricky transition of technology from a laboratory scale to an industrial scale, economic short-sightedness that has focused on the cheapness of fossil fuels, and low public awareness. 

However, the field is making strong progress. One example is the stratospheric rise of meat and dairy alternatives. Companies in this sector raised a colossal €2.6B in 2020, triple the total from 2019. 

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Additionally, carbon capture plants are mushrooming. A Novo Nordisk Foundation Carbon Dioxide Research Center set up this autumn to investigate how to capture and reprocess the greenhouse gas. The EU also voted this year to approve yellow mealworm as the first insect-derived food product for human consumption, opening the field for edible insect farming.

Nonetheless, European regulations can make it difficult for industrial biotech products to gain a foothold. In particular, regulations around genetically modified organisms (GMOs) such as crops are much stricter than in countries such as the US or Israel.

When it comes to GMO crops, we cannot do anything in Europe. Full stop,” Krel told me. “We can invest in European companies because there is very strong and advanced science but the market… in the short- to mid-term, it will be the US and South America.”

Nonetheless, he added the company had two investments that it would be announcing very soon, one in crop enhancement and the other in crop protection. 

Industrial biotech is not the only one, but it’s one of the major strategies that can help mitigate, or help solve, climate change. People are realizing that and they will invest more and more,” Krel added. “I think COP26 is one of the proof points that it is at the top of the agenda.”

Cover image from Elena Resko

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