S4 Ep 41: Tackling the World’s Biggest Problems by Supporting Tech and Innovation with Dr. Matthew Spence
“What we eat is as important as anything else we’re doing.” — Dr. Matthew Spence
Future Food-Tech Alternative Proteins Series Part IV
in partnership with Future Food-Tech Alternative Proteins Summit, NYC June 21 - 22, 2022
The food industry is not just about what we eat. It's also about how we produce it— And that's a big deal!
The world needs a more sustainable approach to feed its growing population, and technology can help us get there. Technology is helping us find new solutions to some of the world's most pressing problems, including those related to food security. The alternative protein space is one example of how innovation can help us meet this challenge. This is where innovation meets sustainability meets deliciousness meets healthiness meets affordability—and it's changing how we think about food as much as anything else we're doing right now.
In this episode, Justine talks with Dr. Matthew Spence, Managing Director of Guggenheim Securities, a global investment and advisory firm that focuses on investment management, investment banking, and insurance services. With the leadership of Dr. Spence, their Food Technology team aims to support innovation that promotes sustainability.
In this episode, Justine and Dr. Spence engage in a broad discussion about the food industry’s role in climate change and how it affects global security, how entrepreneurs can help solve the world’s biggest issues, what investors are looking for in a company, why the alternative protein space is a worthy investment, and how technology shapes major industries.
Connect with Matthew:
Dr. Matthew Spence is a Managing Director at Guggenheim Securities, a global investment and advisory firm known for its innovative solutions. The firm’s primary focus is investment management, investment banking, and insurance services. He leads the company’s Venture Capital Coverage team as well as the Food Technology team.
Dr. Spence is the co-founder of the Truman National Security Project, an organization that aims to provide timely, innovative, and principled solutions to complex national security challenges. He also worked at the White House on the National Security Council as the President’s Special Assistant and has received the Secretary of Defense Award for Outstanding Public Service. He holds doctorate degrees in law from Yale Law School and International Relations from the University of Oxford.
Connect with Guggenheim Partners:
Episode Highlights:
00:52 Climate Change, Global Security, and Food
05:15 How Entrepreneurs Help Solve the World’s Biggest Problems
11:14 Great Investment Opportunities
14:17 What Investors Are Looking For
18:50 Why the Alternative Protein Space is Gaining Traction
Resources:
Article by Dr. Spence:
Tweets:
The food industry is a crucial part of global security and innovation is helping us solve this problem. Hear from @_NextGenChef and Dr. Matthew Spence, Managing Director of Guggenheim Securities. /@GuggenheimPtnrs #podcast #entrepreneurship #impactinvesting #inspiration #EssentialIngredients #futurefoodtech #climatechange #alternativeprotein #foodsecurity #globalsecurity #technology #sustainability #venturecapital #finance #investments
Inspirational Quotes:
01:44 “A big contributor to climate change was actually industrialized agriculture. And if we want to make an impact on some of these long-term issues, we need to start thinking about what we eat every day.” -Dr. Matthew Spence
04:44 “Sometimes the answers to big problems are… great entrepreneurs who are able to raise capital and make a great product and go through a lot of ups and downs, to try to put something together to deliver something new.” -Dr. Matthew Spence
09:00 “What we eat is as important as anything else we're doing.” -Dr. Matthew Spence
12:30 “We need to get to know the companies really well to represent them and stand behind them because life is long, and these are really important decisions to make.” -Dr. Matthew Spence
17:57 “If it doesn't taste good, people don't want to eat it.” -Justine Reichman
20:11 “Technology is creeping on everything and it’s just a matter of time before food and agriculture took that on.” -Dr. Matthew Spence
Transcriptions:
Justine Reichman: Welcome to Essential Ingredients. I'm Justine Reichman, your host. Today with me is Matt Spence, a Managing Director at Guggenheim Partners, a Senior Adviser to the Good Food Institute and a former Senior National Security Official to the White House Defense Department. Welcome, Matt.
Matthew Spence: It's great to be here.
Justine Reichman: It's so good to have you here. This is a special edition for the Future Food Tech Conference.
“A big contributor to climate change was actually industrialized agriculture. And if we want to make an impact on some of these long-term issues, we need to start thinking about what we eat every day.” -Dr. Matthew Spence
Matthew Spence: At Guggenheim, I focus on leading our venture capital coverage team and co- leading our food technology team. And I have an unusual background from investment banker working in food technology and alternative protein. I came to it because I have this background in national security, which was always my passion to work in national security and in public service. And while I was there, I saw how connected these issues were to the security of our country in our world. So I was at the White House at the National City Council from the first day of the Obama administration. And one of the things we thought about at the time, or what's the impact of a variety of industries on climate change, and everyone thinks about cars and transportation, but we quickly realize that a big part of a contributor to climate change was actually agriculture, an industrialized agriculture in particular. And if you want to make an impact on some of these big long term issues, you need to start thinking about what we eat every day. So began there, and then I moved over to the Defense Department where I ran Middle East policy as the Deputy Assistant Secretary of Defense for Middle East Policy for several years. And as part of the job, I was responsible for Syria, Israel, Palestine, Yemen, Iran, the Gulf states, all these non hotspots, really sleepy countries, they're not going on. And what I realized on my dozens of trips to meet with the leaders of these countries, the leaders genuinely were as concerned with some really basic things. Are our populations going to run out of water? And are we going to run out of food? And they had wealthier populations and grunk populations. Populations get wealthier, they want to consume more resources now from what more meat, and they are really concerned about how we're going to do these things. So I started thinking, I worked for the most well funded, potentially most powerful government organization in history of the human race. The Defense Department has an amazing budget, an amazing military, people brave fighting for these things and huge technology. And so many of these big problems, we just cannot address and became really concerned about, how do we address some of these really long term issues? And there is an interesting technology that can help with that.
Justine Reichman: Wow. So you come to this with a really unique and diverse background. I would imagine that when you're talking to people, they're just wowed by that because I'm listening to you and I'm like, I have so many questions. I don't know where to start because it's not like I'm talking to somebody that focuses on one little niche. You're coming to this from a global perspective, which is so important and so unique, and you have the experience to back it up. And you've seen so many different things that I can't even begin to imagine how it shapes your perspective.
“Sometimes the answers to big problems are… great entrepreneurs who are able to raise capital and make a great product and go through a lot of ups and downs, to try to put something together to deliver something new.” -Dr. Matthew Spence
Matthew Spence: Yeah. I've just been incredibly fortunate to work with some amazing people. And to be at the summit, just a lot of interesting things are happening in the history of our NASTRAN in our country. I think what makes it really exciting to be in the world now, not just to finance but also around alternative proteins is a number of the founders and CEOs of companies I work with are really mission driven. So in a strange way, it's not like we're coming from different worlds. I mean, how do you take someone who worked on war planning in the Middle East works on cybersecurity defense technology, and then working on how you feed the future of the planet. And maybe what they have in common is they're all really hard problems. You're going to fail a lot and be told it's not going to work. But fundamentally, there's a pretty shared conviction that we're trying to deal with a really big problem. And sometimes, the answers to big problems are leveraging our big military, which thankfully, only governments have. And other times, the answers are you find great entrepreneurs who are able to raise capital and make a great product and go through a lot of ups and downs, to try to put something together to deliver something new. It's funny, it seems pretty far off. But actually, the perspective ends up being really relevant, and has really been just a real common thing working with a lot of these--
Justine Reichman: Plates pretty well here.
Matthew Spence: Yeah, it's very different. It's a different piece. And there are a lot of elements to why someone would want to have an alternative protein company, or work on food or agricultural technology. Like, what are some of the biggest problems we face today? Climate change is one. And I think they're kind of like three seats. There's climate, there's chaos, and there's China. These are things that keep people up at night who are in the White House situation and working every day. Climate, it's pretty amazing. We're realizing much more, given the global drought, given the war in Ukraine, given Russia weaponizing food and trying to stop the transportation of Grange. And that's creating a lot of scarcity. But the scary thing is climate change creates this, like the opposite of a virtuous cycle, and we are having less resources. And when we do want to use the resources, it actually is consuming more water and more land, and that in turn contributes to climate change itself. So the climate change risk is enormous. There's a second risk of chaos and a lot of these developing countries where if you look at studies of when populations get wealthier, they want better quality, more nutrient with tastier food, and meat is one of those things that they want.
Now the problem is, if you just do the math, most of these countries don't have the arable land to actually do that, and it is so much less resource, and it's so much more resource intensive to produce meat. And then the final piece with this is China. We are so focused now on how is China taking a technological leap. They're investing in semiconductors, batteries, and rare earths that go into making our phones, and electric vehicles, and wind power, and not even to mention quantum computing and CRISPR technology, and 5g, and we're starting to realize, man, we need to do something to make sure that we still have the technological lead. And in fact, China is already investing pretty significantly in food technology and alternative protein. And if we're worried about it, we don't have the lead and independence on technology on our cell phones, just think about what that means when it's about our food. So to me, it's a pretty deep national security issue, which frames why I'm really passionate about working in this space right now.
Justine Reichman: Yeah. I can tell, I can hear it in your voice, and I can see how it translates as well. I can also see the value that other companies would benefit from having your insight because I don't think that this information is necessarily readily available to everybody unless they go looking for it.
“What we eat is as important as anything else we're doing.” -Dr. Matthew Spence
Matthew Spence: I think it's a really important part of the story. I think a group of people really understand, but hopefully, it's expanding. And I think why it's really a fascinating time to be an investment banker working with alternative protein, food technology and agriculture technology companies, it tells into a really interesting trend in sustainability. So you can't swing anything around and not hit something that talks about ESG or sustainability. And if you look at just investor trends, there is so much well deserved interest in power, and energy, and green power, and electric vehicles, and battery technology. But that is one very particular type of investment. There's a whole other type of investment. Look about, how do we make the way we eat more sustainable? So to me, which makes it exciting in space as you combine two really interesting things, that the natural imperative that I think what we eat is as important as anything else we're doing. And then second, how do we think about what are really great investment opportunities? Because investors are coming in and they want to do the right thing for the planet. Some of them do at least, but they wouldn't be putting billions of dollars of capital in if they didn't think they'd be able to keep the doors open as an organization. And there was $5 billion in venture capital funding in the alternative protein space just last year. I mean, that is real significant money. You read about companies, each raising rounds of 2, $300 million. The investors who are leading those rounds are some of the best, most successful, most well respected investors around the world. These are people that our pension funds and our university endowments are investing in, and then putting money into this, which I think is a really interesting thing.
Justine Reichman: When you look at these alternative proteins, and you look at it with your background and the lens that you have, because it's unique, what are you looking for as an investor? Not just as an investor, though, given your background coming from the defense fund coming with this background of looking at in a global way, I should say.
“We need to get to know the companies really well to represent them and stand behind them because life is long, and these are really important decisions to make.” -Dr. Matthew Spence
Matthew Spence: Yeah, it's a great question. I approach these companies through the lens of an investment banker. And what investment bankers do is they help companies determine what are their next steps financially. So investment bankers will advise Google, Facebook, and Oatly, when should you IPO? And how do you go to the public markets? An investment banker will advise a company and say, Disney is trying to buy you, this is a good acquisition to make. And here's what the right prices are. They'll advise a company and say, you've raised 40 to $50 million in venture capital funding. Now, when you want to accelerate your mission, you want to raise 100 to $300 billion. Let us help you tell your story. Identify your financial models so investors can kick the tires and understand if they'll make money. And let's put you in touch with investors will be good partners for you, and they'll make money. So that's what bankers do overall. And the interesting thing about where I am at Guggenheim is we're putting the same resources into sustainability and technology as we do Disney, and Verizon, Pfizer, and Merck, are what are really household names. And so I think when I'm looking at companies that we choose to work with, we're not investing capital, but we need to get to know the companies really well to represent them and stand behind them. This is a great company because life is long and these are really important decisions to make. So I look at a few things.
If I look at, of course, the quality of the product. I taste these products and I really care about the planet. But there are lots of ways to save the planet. Eating lousy food isn't one of them. One of them, it tastes well. You want to look at the quality of the leadership team, and with the vision and the (inaudible) entrepreneurs who will get knocked down will keep coming up. And then really, you want to look at how good the technology is, and what we think of as their technological moat. The really exciting thing about some of these companies is that we think of them as food companies, but many of them are fundamentally technology companies, or synthetic biology companies. Have some of the most cutting edge science that happens to be delivering what you're doing through food, which is a really interesting way. And then finally, of course, you look at the finances of the business. At what point is the business going to be profitable? How much should they sell each unit for? How much capital do you need to raise? How much does the equipment today have? And those are all the parts of telling a great story. And I've been really fortunate to be able to work with some great companies. We've been in a position to also be choosy and selective in which companies we want to work with because all companies don't cross that bar, and aren't really ready to go into sort of the broader investor market to ready to become triple global companies at this point.
Justine Reichman: What are some of the things that you look for in a company when you're deciding to take them on? Let's just say. And equally, what are some of the red flags that would have you say no?
Matthew Spence: So we really do a lot of diligence and spend a lot of time in the inside. And the part of the reason a company chooses to work with an investment bank with the raising capital is it really is critical to have an outside in view of the nuts and bolts about how to do that. So you're going through that. So I think, again, some of the things that we're looking for is, what is the grunk part of the market that they're able to address? An alternative protein, as everyone knows, it's basically forms of protein made either through plants or fermentation, or through cells, or combination to them. You want to understand what part of the marketing thinks they can actually go after? And what's realistic? And how fast does that market grow? Because that will be tied to how fast the revenues are growing.
Second big piece is, how do they differentiate themselves from their competition? Right now, the competition between a lot of these companies are not really with each other. Two or three companies that may make a plant based product, it's more between a plant based burger and a burger that you made from slaughtering a cow. And so what is your competitive advantage against that? And then, at least for me, personally, I get really fired up about working with entrepreneurs and CEOs of these companies who have a strong mission and have a vision. I think I just have a lot of integrity to think about the long term. Because when you find a relationship working together, it's sort of like that scene from Jerry Maguire, you're really in it together. And I think because of the background I come from, I deeply care about what we're doing in a broader mission. Now, of course, Guggenheim Partners is not a nonprofit. We are a successful investment bank that has a firm bottom line. And I think I feel really fortunate here because we're leveraging a lot of resources that we can put in to really think about what you're doing with the types of companies you're working for.
Justine Reichman: And I think that there's so much going on in this alternative protein space now. And I'm curious, why now? Why do you see it's so prevalent now?
Matthew Spence: It's a great question. And look, for me, my grandfather was a fisherman. Moved from Norway, emigrated right before World War II, was a fisherman first in New York, and then in New Bedford, Massachusetts. And I remember my mom telling me stories that he really cared about sustainability of the oceans. And this was like in the 40's, 50's so no one thought about this. What did you say?
Justine Reichman: I think he was very forward thinking.
Matthew Spence: You would think so. But I think what's happened now is the taste and quality has gotten better. I think all of us have this experience either in your college cafeteria, your friend who is vegan or vegetarian and you're getting this kind of lousy burger that you feel like you're having some cardboard and like, it feels great to save the planet. But like, just don't drive your car. You don't need to be cardboard. So I think the technology has gotten better so that you can dig into the stuff like, oh, actually, this is some that's pretty good. I think that's one. And then the other piece is, I think there's been this broader sense that people care about what's going on in their body. Part of that is health. And part is thinking like, where does it come from? Is there GMO? What's the treatment of things? And then I think there is the sustainability area. I think sustainability actually matters more for why capitalists poured into the business less so than white people are eating. People say they care about the planet and they want things, but you actually measure what people eat. It really tends to be taste, cost, and increasingly health.
“If it doesn't taste good, people don't want to eat it.” -Justine Reichman
Justine Reichman: It doesn't taste good, people don't want to eat it regardless.
Matthew Spence: Nor should they, right? I mean, in the same way, all of us know what happens when you're dealing with a lousy cell phone or computer that you can't work and you don't want to say, oh, well, I'm so lucky to use technology. Say, no, I want an iPhone, I want something newer and great. It took us a while to get the Zoom setup because cameras on computers are still pretty lousy. For the most part, we want something that works well, and that's the same way that we want something that people can eat that actually really tastes good.
Justine Reichman: Yeah. And even go further in that conversation beyond all protein, it seems that people are investing in things that are better for the planet or more sustainable. What do you think it was that created that shift in that paradigm? And why people are really focusing on investing in that?
“Technology is creeping on everything and it’s just a matter of time before food and agriculture took that on.” -Dr. Matthew Spence
Matthew Spence: Oh, it's a really great question. Because you're right, we've been talking a lot about all proteins just given the topic of the future of food tech, but they're almost like many expanding rings of concentric circles. So it is not just all proteins, but it's broader food technology. See technology, automation, robotics, its agricultural technology, everything from regenerative farming to vertical farming, to other pieces to broader sustainability. What do you think about cars that don't pollute in the way that our parents' cars polluted? And I think there are two things that have led to that trend. One is just a broader trend of combining technology and established industries. But some of the most interesting questions are, well, what do you do when an industrial manufacturing company actually becomes a technology company? What do you do when Archer Daniel Midlands, or Tyson, or JBS, or Cargill, some of the biggest meat producers on the planet have a big technological piece because they gotta produce things cheaper, they're gonna get with future trends, you know. What do you do when basically a car is not an industrial combustion machine, it's basically a computer with four wheels. And in fact, a supercomputer that does more things we couldn't dream of. So there was this broader trend that technology is creeping and everything. And I think it was just a matter of time between before food and agriculture really took that on. So that was just one big macro trend.
And the other one is the sense that a lot of consumers are voting with their dollars saying, what I care about investments may not be in gas, coal companies, and these things which are doing bad things for the planet. And when you have more people who want to invest dollars, investment firms are realizing, we need to be accountable to our investor base. And you have things like the securities and exchange commission wanting to have regulations that will detect how many emissions you use. And when you're doing that, companies are forced to not just cut their fuel. If you're a company that's an airline company, you can think about what your carbon impact is. But if you're at a lot of other companies, you really need to think hard. And thinking about how you use, who definitely creates like another type of customer for a lot of these companies.
Justine Reichman: Well, a lot to think about, a lot to uncover, and I think a lot of these people that are building their companies to consider as they're going out there so I really appreciate you joining me today.
Matthew Spence: Just really enjoyed it. And I think it's a really exciting time and moment. I'm really, really fired up and privileged to be a part of it.
