You gotta start somewhere
There is a lot of excitement around the potential of the seaweed industry outside of Asia. Phyconomy was started at the end of 2020 to track this evolution.
In this first annual State of the Seaweed Industry, we shine a light on the trends and events of the past year in Europe, the Americas and Oceania. Doing so, we consciously ignore the vast majority of seaweed production in Asia and East Africa, focusing instead on the innovators in these new markets. As our dataset grows, we hope to capture the full, global extent of the industry in the coming years.
A growing awareness
In 2021, seaweeds rode a wave of positive press. Many publications wrote in glowing terms about seaweed’s potential, from the New York Times and the Washington Post to Vogue and Cosmopolitan, leading some seaweed old hands to fear for a repeat of the short-lived seaweed hype of the 1980s. In particular, feeding seaweed to cows to reduce methane emissions was a story that captured editors’ imagination.
A growing number of health-conscious, ecologically aware consumers found out about the benefits seaweeds offer. As a result, in 2021 seaweeds started to move out of the Asian aisle to capture shelf space in other parts of the supermarket.
Investors took greater interest, too, with funds focused on food systems, the ocean and the climate pulling the cart. Investment deals doubled in 2021, and the total disclosed investment amount grew by 36% to $168 million. While Europe is leading in the number of startups, it is American companies who find it easiest to attract capital.
Philanthropy has taken notice as well. Kelp forest restoration projects attract the most grants. However, seaweed aquaculture in low-income countries is gaining traction with charities as it ticks off many SDG’s at once. WWF and The Nature Conservancy are the 2 main champions of this approach.
Growth and constraints
More startups entered the field in the past 2 years than ever before, both upstream and downstream, although the midstream of the value chain is still underserved: processing and distribution is a field that is lacking innovators and entrepreneurs. Meanwhile, seaweed bioplastics startups are springing up like mushrooms: we have counted more than 35 so far.
Although harvest data shows that seaweed growers in the new territories are still in their infancy, we predict several of them will grow with leaps and bounds in the coming years as the market is no longer their main constraint. Although wild harvesting reached a ceiling back in the 1960s, it is getting a second breath now with several Caribbean startups already harvesting thousands of tonnes of noxious Sargassum, and looking to scale up quickly.
Governments are happy to support the fledgling industry with grants, but regulations to encourage the growth of the seaweed industry outside its traditional stomping grounds are still lagging behind.
In 2021, seaweed investment deals doubled
The seaweed industry is young and immature outside of Asia, and for now, investments are minimal compared to those in finfish or shrimp aquaculture (where in turn, investment barely registers compared to land-based agriculture). However, investments are growing.
Investment trends
Looking at our records of seaweed investments for 2020 and 2021, we notice an uptick in investor interest.
The number of deals doubled from 17 to 34 this year. The median deal size stayed roughly the same at a modest $2.3 million, reflecting the fact that most money is raised in pre-seed and seed rounds. The total invested amount grew by 36% to $168 million. Keep in mind that some deals are not disclosed, so this number remains an underestimate.
We noticed an increase in seed rounds in 2021, and a jump in the number of early venture capital rounds compared to 2020, which shows the seaweed industry is beginning to break out of its hatchling stage.
Who invests?
While about half of investors don’t have a specific investment focus, or limit themselves to local companies (like many government funds), it’s interesting to have a look at the investors that do have a specific thesis. Funds and accelerators focusing on food systems, the ocean and the climate are pulling the cart.
Leaving aside business angels and incubators, what type of investors are finding their way to the seaweed industry?
While corporate and VC investments naturally dominate the space, the number of family offices, nonprofits, government funds and impact investors is notable. On the one hand, this reflects the impact community’s belief that sustainable seaweed production can contribute towards the SDGs.
On the other hand, it indicates that traditional VCs have not yet discovered the seaweed industry, or find the risk-reward balance unappetizing compared to other options in the market.
What part of the value chain?
A majority of the companies that have raised money are already vertically integrated to some extent: most seaweed producers are also processing their own crops into finished products. While there are only a few companies building biorefineries to level up the processing step, they have been able to attract considerable investment.
When it comes to the type of applications, food, feed and bioplastics have seen the most deals in 2020 and 2021.
Who attracts capital?
Europe leads in the number of startups, and also in the number of deals and the amount of money invested.
Having said this, our data shows that North American startups have an easier time attracting capital. North American companies raised more than half the rounds of their European counterparts and 40% of the money, with only a quarter of the startups. Not that this is surprising: the greater risk appetite and looser purse strings of American investors are well documented across all industries.
When it comes to the leadership teams that capital favours, the number of deals is too low to draw any conclusions. However, what is noticeable is the amount of female-founded startups entering the seaweed space. It will be interesting to see in the coming years if investors can overcome their bias and back female CEOs.
Seaweed startups in 2021: an ecosystem emerges
Seaweeds are attracting more attention, be it for their myriad of uses, their potential to mitigate climate change and ocean eutrophication, or as harmful algal blooms that need to be captured and processed before they suffocate the world’s beaches.
Surveying the landscape
Broken down by founding year, it’s clear that the number of seaweed startups is growing – as evidenced by the autumn 2021 cohorts of various ocean startup accelerators. The inflection point was 2016.
The seaweed industry is a fledgling industry outside of its traditional stomping grounds of Asia. That is obvious when looking at the big amount of pre-revenue startups (research or pilot stage) compared to scaleups (validation and scaleup stage).
Looking at the seaweed value chain, more than half of all startups and scaleups are transforming seaweed biomass into higher-value products. Growing and harvesting the seaweeds is also well-represented (about one-third of high-growth companies are vertically integrated to some extent).
Processing the seaweeds is often done by the growers themselves for now. It is an area that needs a lot more innovation, as this is currently the most energy-intensive, most costly part of the value chain. However, dedicated processing facilities require high upfront costs and need scale to become profitable. That scale can only happen once the price to grow seaweed comes down, making this a chicken and egg problem that has proven hard to solve so far.
Distribution is another clear gap that needs more startups, especially knowing the many inefficiencies that make it difficult for seaweed producers to sell their crops at market value.
Food is the most common application measured by the number of startups working on it – as you would expect. Surprisingly, bioplastics comes in second place, before more traditional seaweed applications like animal feed, cosmetics and biostimulants.
Europe produces the most startups, followed by the US and Australia.
A string of startups has popped up in the Caribbean as a response to the Sargassum tides. In Southeast Asia, innovators are often trying to improve the existing seaweed farming systems of smallholders supplying the world’s big hydrocolloids producers.
We have a limited knowledge of what is happening in China, Japan and Korea. Feel free to get in touch to let us know what we are missing.
Government regulation lags grant policies
Grant funding
We tried to establish an overview of the seaweed grant funding landscape. It’s not an exhaustive summation, but with more than 275 grants from the era 2015-2021 in the dataset, we hope to give a sense of where the priorities sit.
The general trend is one of more grant money for seaweed research and capacity building, with a step change in 2018.
For the past 5 years, the main focus for governments in seaweed aquaculture’s new territories is the development of the knowledge and infrastructure necessary to support large-scale seaweed mariculture. A secondary focus is on conservation and seaweed applications research.
Policy and permits
Across the globe, people are urging policy makers to pay attention to the seaweed industry. In places where seaweed aquaculture is new, the focus is on getting lawmakers to reduce the burden of regulation to start an aquaculture operation.
To this end, an avalanche of reports was produced in 2021, trying to bring home the benefits of seaweed aquaculture in for instance Australia, New Zealand, Europe, Alaska, Kenya, Ireland, for restoration projects and investors.
Some progress was made in 2021. In the United States, seaweed aquaculture was legalised in the state of New York, and a bill was introduced to aid kelp forest restoration with $50 million per year. In 2022, the adoption of the EU’s algae initiative might prove a step forward.
For countries where seaweed aquaculture is an established industry, like Indonesia, Philippines and Tanzania, the opposite is true. Here, 2021 saw an urgent appeal for these countries to tighten up biosecurity policies and improve genetic diversity.
2021 seaweed harvest data
We collected harvest data from more than 200 companies. Due to a lack of information, we decided to leave out the companies from the traditional heartlands of seaweed cultivation in Asia (China, Japan, Korea, Indonesia) for this first edition. Consider this a benchmark for the new geographies of the seaweed industry.
A lot of aquaculture farms are in the “not started yet” bucket, pointing to the enthusiasm around seaweeds, as well as the problems in securing permits and the lack of knowledge around setting up an aquaculture business. Most of the wild harvesting companies that haven’t started yet are focused on harvesting Sargassum and other harmful algae blooms.
In the lower ranges up to 100 tonnes we find a lot of small-scale farms, co-ops and family-run harvesting businesses. Most of these are not growth-oriented, looking to supply only local markets or very high-end buyers.
Startups seeking scale
A number of startups looking to scale 100x are currently in the 100-1000 tonnes range. As market demand is no longer the big bottleneck it used to be and mechanized harvesting technology takes off, industry insiders expect the first mariculture harvests over 1000 tonnes to happen in the next years in Europe and North America.
The wild harvesting businesses in this segment are a mix of smaller established wild harvesters, alongside Caribbean startups harvesting Sargassum. If the latter can refine their operations and find bigger markets for their products, or start sinking seaweed in large quantities, we expect them to move into the tens and hundreds of thousands of tonnes in the coming years.
Established players
Excluding the prolific Asian and Tanzanian growers, companies that harvest more than 1000 tonnes of wet seaweed per year are almost exclusively wild harvesters for now. These are established companies that have been operating for decades. They are vertically integrated and produce either fertiliser and animal feed for agribusiness, or hydrocolloids for the global food industry.
Civil society takes notice of seaweed’s potential
Philanthropy
Philanthropy has taken notice of the desperate state many natural kelp forests find themselves in, as well as the restorative power of seaweed aquaculture. There is a steady trend towards more grants and more grant money, especially since 2019.
The sharp uptick in funding in 2020 is due to the $100 million grant from the Bezos Earth Fund to WWF, one third of which WWF plans to dedicate to capacity building in seaweed aquaculture.
The focus for philanthropic grants is on conservation and restoration of kelp forests, capacity building in low-income countries and techniques to combat climate change (livestock methane reduction and carbon sequestration) and restore ocean health (bioremediation).
Social license
Even though seaweed mariculture has not yet started in earnest in Europe and the USA, the first protests have already appeared in Belgium and France.
As seaweed farms scale up, negative aspects will become more noticeable, and resistance against seaweed farming at scale will grow. Rather than dismiss protesters as NIMBYs and misguided romantics who fail to see aquaculture’s potential, it will be key for future large-scale growers to build social license through inclusion, education and dialogue with residents to pre-empt protests.
Educational community projects like Denmark’s HavHøst or Wales’ Pebl can play a role in raising awareness, while crowdfunding can give stakeholders a sense of ownership. Governments can play a role by making social licenses a mandatory part of each seaweed cultivation site license.