Kite Hill, a maker of plant-based dairy alternatives, has closed $18 million in Series B funding led by General Mills' investment unit, 301 INC, and CAVU Venture Partners. This brings the company's total financing to more than $25 million.
Founded in 2011, the San Francisco Bay Area company is part of a growing number of startups focused on the benefits of a plant-based diet. Using its patented biochemistry process that enables milk from a plant to form a curd, Kite Hill has developed a line of artisanal nut milk cheeses and yogurts that approximate the taste and texture of dairy products more so than other vegan offerings on the market.
The adoption of alternative dairy has been on the rise in recent years, and the market is projected to reach $19.5 billion by 2020. In particular, the fluid milk market has been able to gain steady market share, but other segments of dairy have failed to flourish in the same way.
"It is much more technically difficult to make cultured cheese, yogurt or butter," said Matthew Sade, CEO, Kite Hill. "As a company we have invested a significant amount of time and energy, and for the first time we created really wonderful tasting products in those other three segments."
The company's unique method for developing cultured nut milk products was discovered by Patrick Brown, a former biochemistry professor at Stanford University. He is also the brains behind the plant-based meat company, Impossible Foods, which has attracted $183 million in venture capital.
At present, Kite Hill offers more than a dozen products consisting of artisanal cheeses, cream cheese, yogurts and ravioli. The full line of products is sold through Whole Foods Markets nationwide, and with this latest round of funding it plans to expand distribution to natural and specialty retailers across the country. And as plant-based diets becomes more prevalent among Americans, Sade believes large grocery store chains will follow in the next 12-24 months in order to keep pace with demand for dairy alternatives. "Consumer preferences are changing, and it is not unique to the natural industry," he said.
Kite Hill's funding comes at a time when venture capitalists have pumped the breaks on investing, and food tech startups have been hit hard. Companies in the space raised $684 million in Q1 2016, a 67 percent drop from the $2.1 billion raised in Q4 2015, according to data provided by CB Insights. Despite the market pullback, Sade said that the company had a lot of interest from investors. "We are pretty far down the path, and it is not in a conceptual stage. We have proof of concept, and we have showed that we can scale the product from a manufacturing standpoint."
John Haugen, vice president and general manager of 301 INC, was not deterred by market conditions when evaluating the opportunity to invest in Kite Hill and a high growth category. "You are always going to have different market dynamics. We always vote on the consumer, and we have certainly seen the excitement in the marketplace for what we think is truly a remarkable product."
But Kite Hill might have an uphill battle as it takes on the powerful dairy industry. Last year, it was revealed that the American Egg Board had been plotting a takedown of Hampton Creek, the maker of plant-based products like its eggless mayonnaise, Just Mayo. A David versus Goliath battle leaves little concern for Sade.
"There is a tremendous amount of opportunity to build a marketplace for plant-based dairy products. Eventually, the products we make from plants will be virtually indistinguishable from those made from cow's milk. And that is an undeniable truth."