Investors "don't necessarily" understand Africa, says co-founder of alt-dairy startup De Novo Dairy

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Cape Town-based De Novo Dairy is looking to raise between $3m and $4m in a seed round, as it gears up to bring its precision fermentation-made “nature identical” milk proteins to market.

Being a South Africa-based alternative protein firm has its advantages (relatively cheap “talent” and R&D costs, for example) but one potential downside is a lack of investor awareness of the market, explains doctor Leah Bessa, co-founder and chief strategy officer of startup De Novo Dairy.

“I think the risk is that a lot of investors don’t necessarily understand the African landscape and are a little bit hesitant to put money in at an early stage,” Bessa tells Future Food Finance.

“I think later stage we have a lot of successful biotech companies. I think [for] local investors, the risk appetite is very low.”

Cape Town-based De Novo Dairy (de novo translates “from the new” in Latin) is looking to raise between $3m and $4m in a seed round, as it gears up to bring its precision fermentation-made “nature identical” milk proteins to market.

The startup wants to put Africa on the FoodTech map by grabbing the accolade of being the first African company to make animal-free dairy that tastes and contains the same nutrition and texture as traditional dairy.

Hottest FoodTech area

Precision fermentation is a cellular agriculture technology which is gaining a lot of heat- and investment attention- at the moment. 

In 2021, precision fermentation topped the FoodTech investment charts, with $750m invested in precision fermentation firms, according to industry data.

In 2020, Perfect Day launched the first commercially viable product using milk-identical proteins via precision fermentation and big hitters including Kraft Heinz and Fonterra have invested in companies in this area.

While leveraging the same precision fermentation technology as Perfect Day, De Novo Dairy uses yeast to produce its milk proteins via fermentation, unlike Perfect Day which uses fungus.

And Bessa says that De Novo Dairy focuses on scarcer, higher value proteins, unlike the low margin, bulk proteins focused on by Perfect Day.

Benefits of precision fermentation

Alongside animal welfare and environmental benefits, Bessa explains another benefit of the precision fermentation technique used by Do Novo Dairy.

She said: “There are certain elements of animal protein which are really important from a biological standpoint and those things are very hard to replicate with plants. 

“You can use precision fermentation to bring that nature-identical biological functionality to consumers without it actually coming from an animal. 

“So you can enable the plant-based space to actually be nutritionally equal to meat or dairy.”

As an example, she cites precision fermentation's ability to ensure the protein’s ability to carry iron correctly which helps facilitate iron delivery and prevents humans from getting anaemia.

B2B route first up

First up, De Novo Dairy is planning to go down the B2B route, selling its animal-free dairy proteins as ingredients in infant formula to food producers.

But they can also be used in dairy mainstays like cheese and yoghurt as well as across sports nutrition and nutraceuticals, and even fortifying plant-based meat

She explains: “Because we are working with quite emotional products, like infant formula, sports nutrition and nutraceuticals, it is much better to go through a trusted brand because consumers buy according to brand and who they believe to be reputable, especially with infant formula.”

Allied to that, Bessa believes that the startup should focus on its “core competency”, which is science, and not be distracted by selling the product to consumers.

The US- where the startup is talking to a big dairy ingredients firm about a commercial deal- is likely to be its first market, with ambitions to get its first proteins on the market in two years. In Europe, it has a partnership with Spanish dairy firm Calidad Pascual.

Proteins are GM-free

The use of Genetic Modification (GM) continues to be a controversial subject in markets like Europe, which is largely anti-GM.

But in De Novo Dairy’s case, GM is used in the process, but its actual proteins are GM-free.

Bessa explains: “Our production does require genetically modified organisms, but our protein is secreted so it basically leaves the host, so it’s no longer attached to the genetic material. 

“Whereas if you look at a crop and you process the whole crop, you will still be in contact with the genetic material, so it would be genetically modified. Our protein isn’t genetically modified because the host pushes it out.”

She adds: “In terms of production, we would have to produce in countries that regulate genetically modified organisms, but in terms of sales and distribution the actual protein is not genetically modified.”

Building up team

Do Novo Diary was set up in June last year by a quartet of thirty-somethings-an engineer, food scientist (Bessa), protein biochemist, and a business person.

Two of them, Bessa and co-founder Jean Louwrens, were behind ice-cream FoodTech Gourmet Grub- but have now decided to pivot to this new venture. The plan is to hire aggressively from the summer this year.

They have now teamed up with Richard Grives and Joni Symon and the startup works with universities in South Africa helping out with research.

Investment and setting up overseas HQ

Bessa believes their relative youth plays to their advantage, citing them all being “motivated” and “flexible” and not “wet behind the ears”.

She adds: “I think a lot of the biotech companies coming out are all very young".

Investors to date include VC funds Angels Capital, Big Idea Ventures, Kale United, and Prithi Ventures.  

The startup has not only had to sell its technology and also its team but also South Africa as a place to invest to potential investors.

The latest funding round, in which the startup is currently “securing a lead”, will be used to help fund manufacturing and produce samples to show customers.

Although they want to stay wedded to the South African market for R&D purposes (they also have two African investors)- they are contemplating setting up HQ outside of South Africa to “derisk” the business by making it easier to access new funds and talent, in either the US or UK.