When Perumal Gandhi cofounded dairy producer Perfect Day in 2014, he brought aboard industry veterans who knew how to make and sell food.
But his hires also included people with experience in medicine and biofuels. So instead of using cows to produce milk, ice cream, and other diary products, Gandhi planned to produce food with a much smaller life form: fungi.
This is all made possible through fermentation — a production process that has been around for millennia and is used to make products like beer, kombucha, and kimchi. These products are created using yeast and other common microorganisms. By contrast, Perfect Day, which is dairy focused, uses microbes that have been genetically engineered to produce casein and whey, the two main proteins in milk.
Private investors are currently pouring money into companies that are changing the process of producing milk, ice cream, and even meat through fermentation from non-animal sources, arguing that there are advantages to their approach over solely relying on plant-based ingredients. Some of the companies, many of which are still in the early stages of funding, say that what their microbes produce more closely resembles animal products than existing plant-based options.
Startups focused on fermentation raised $435 million through July 15 this year, according to the Good Food Institute. To be sure, companies making plant-based proteins still attracted the greatest amount of money over that time. However, compared to 2018, funding for fermentation companies has begun to close the gap on the popular alternative protein. Investments in fermentation companies in the first half of 2020 also continued to surpass that of cultivated meat startups like Memphis Meats, which create animal meat by growing animal cells in a lab.
Perfect Day has raised the most of any fermentation-focused alternative protein company so far, according to GFI. It had garnered $360 million from investors, including $160 million alone in July as part of an expanded Series C funding round.
While Perfect Day's primary goal is to supply major consumer companies, it also sells ice cream at US grocery chains including Albertsons under its Brave Robot brand.
"We've sort of crossed the Valley of Death, we've shown that our technology works in the full commercial scale," Gandhi told Business Insider in an interview.
Perfect Day is one of a host of companies focused on precision fermentation that utilize genetic engineering to create ingredients that make up a tiny portion of the final consumer-ready product. Whey and casein made from microbes, for instance, are combined with water, lactose, and other ingredients to make the brand's ice cream.
At other outfits, the microbes themselves become the meal. Startup Nature's Fynd grows its fungi on trays, maximizing the biomass they get. CEO and Co-founder Thomas Jonas said the company plans to launch consumer-ready products in 2021.
The protein that Nature's Fynd produces can be used as the main ingredient for a variety of final products, from chicken nuggets to pork dumplings. "When we're harvesting the microbial biomass, it's literally like a slice of raw chicken breast," he told Business Insider in an interview.
"Then, the process to turn it into a chicken nugget, for instance, would be very much equivalent to what you do when you take a piece of chicken and turn it into a chicken nugget," he added.
Both types of fermentation companies — precision and biomass — have attracted interest from investors, though each involves a different set of costs and payoffs, according to Nate Crosser, startup growth specialist at GFI. While precision fermentation companies generally require more up-front investment, biomass companies have to spend mainly on increasing the scale of their operations.
Fermentation companies, especially those focused on biomass, have some advantages over plant-based protein makers, Crosser said. While Beyond Meat, Impossible Foods, and other plant-based companies rely on a process called extrusion, which adds texture to plants by exposing them to heat, pressure, and moisture, companies like Nature's Fynd raise specific kinds of fungi that naturally create meat-like products.
"That's something we haven't seen the plant-based industry crack quite yet," Crosser said. "That would be like growing a plant that you could pick off the stalk, and it would have the texture of meat."
In other cases, fermentation technology is less of a rival for plant-based proteins and more of a compliment. Precision fermentation is already playing a key role for the most prominent plant-based meat manufacturers. The heme in Impossible Foods' burgers, which replicates the bloody look of animal meat and won approval from the Food and Drug Administration last year, is the product of specially engineered yeast.
Cooperation with other companies is what Perfect Day is aiming for, Gandhi said. In addition to supplying milk proteins to larger CPG firms, the company is trying to win over traditional dairy farms, pitching them on replacing their cows — as each must be raised for years before they produce any milk — with tanks full of Perfect Day's microorganisms, which Ghandi said take less than a week to produce milk.
"We want to license [our technology] and get the industry to join us in this journey," he said.
Microbes quick turnaround time and scientists' ability to readily develop new strains tailored for specific uses are significant advantages over animals and even plants, Crosser said. "Their generational lifespans are days to weeks rather than years, and we have scientific and biotechnological methods for manipulating them," he said. "They're generally more versatile and they're much smaller."
"It just seems like our ability to domesticate these microbes, their fungi species or even domesticate plants in a new way is just going to be totally unprecedented," he added.
Using those new options to create protein is only going to become more important as the world's population grows, Jonas said. "There's going to be enough lipids for everyone, there's going to be enough carbohydrates for everyone," he said. "But the real challenge is on the protein side."
"We are using the animals as protein concentrators, and it is a very fundamental thing to understand because it drives a lot of the economy," he added. "I think that's the thing that investors started to be interested in," over the last two years.