Investment

Fungi and why family offices are getting interested

Unprepossessing in appearance, fungi have taken a billion years for their potential to be recognised by family offices backing their use in alternative medicines, food, fabrics and building materials. Longer term, they could play a role in mopping up environmental disasters and constructing houses on Mars. Family Capital explains why.  

Why fungi matter

Fungi are everywhere, but easy to miss. Their ancestors were the first organism to migrate from sea to land, finding minerals from the ground, going on to nourish algae and facilitate photosynthesis. The root systems grown by plants often retain a symbiotic relationship with fungi, which supplies them with water and nutrients in return for sugar. Compost created from deadwood by white-rot fungi preserves the forest.

Fungi often form a network of similar relationships with plants through the growth of underground threads known as mycelium. The network can carry pulses of electricity and possibly simple messages. The mycelium behind the shaggy ink cap mushroom has the strength to push through asphalt. 

Yeast is a fungus, crucial to the creation of beer and wine. Fungi are used in the production of a range of medicines, although some, like cryptococcus gattii, can cause disease when stressed. A few can break down plastics, oil and radioactive materials.

An intimate relationship between fungi and algae a billion years ago led to their evolution into lichen, capable of living on mountains to deserts. Experiments suggest that some of them can hunker down and survive outer space. 

To reproduce, fungi create 50 megatons of spores across the world each year – equivalent in mass to 500,000 blue whales. They are commonly released by mushrooms – or truffles, a delicacy for animals who carry their spores in their gut for later distribution. 

 VC opportunities

 The best-known application of fungal power has been experienced by psychedelic drugs. Molecular structures generated by fungi lie behind LSD, the drug which influenced The Beatles in the late 1960s, and magic mushrooms, part of the psilocybin species.

For years, they were treated with suspicion due to their “mind-altering” capabilities, best known in the wild for the way they hijack, and kill, the carpenter ant. More recently, however, they have proved effective in treating individuals suffering anxiety and depression. Quite how the chemicals work is not precisely known, but they seem to reduce excessive neurosis triggered by the brain’s default mode network. 

Research by Data Bridge Market Research suggests the global market for psychedelics will hit $6 billion in five years. There are severe regulatory challenges to its development, but Dustin Robinson, a legal attorney for the sector was sufficiently confident to launch his own VC fund, Iter Investments, this summer. The sector has spawned fifty listed companies, although many are small. John Hopkins University and Imperial College in the UK are driving research.

MindMed, valued at $850 million, started by former Uber executive Jamon Rahn and first to list in 2021, just ahead of Cyben, worth $230 million and co-founded by serial entrepreneur Eric So of Trinity Venture Partners. 

Eclectic German billionaire Christian Angermayer has invested in psychedelic companies through his family office Apeiron Investment Group. He owns Compass Pathways through an investment business called Atai Life Sciences backed by Peter Thiel. Atai is perceived by analysts as a go-to stock for investors who want to back a range of opportunities. It is valued at $1.75 billion following its June listing.

Financier Sa’ad Shah built a private equity business that was sold to Carlyle Group in 2014.  He went on to start Grey House Partners and runs Noetic Fund which has invested in a dozen psychedelic businesses. 

Away from psychedelics, Eben Bayer’s Ecovative is investing heavily in fungal futures. Its latest funding round was led by Viking Global, run by Andreas Halverson, a billionaire hedge fund manager from Norway. Other backers include Trousdale Ventures, started by Phillip Sarofim, the son of renowned investor Fayez Sarofim. Investors also include Doug Silverman’s Senator Investment Group and Alpha Impact Investment Management.

Ecovative is out to show that fungi are capable of building materials, as well as breaking them down. Using mycelium as a substitute, it has manufactured building products, furniture, leather goods, lampshades and plastics, drawing on its library of species. The fungi are grown from agricultural waste materials. Ecovative has forged several partnerships with commercial firms like Ikea. NASA and the US military have shown interest in the material, leading to suggestions that it could be used to construct buildings on low-gravity worlds, like Mars. 

Mushrooms and truffles have been on the menu for decades. But fungi are now becoming alternatives to other foods. Atlast, a 2018 Ecovative spin-off, has an operations team led by Steve Lomnes, who used to work for General Electric. It is creating food products by using mycelium as a substitute for meat products. Gary Hirshberg, an investor and global producer of organic yoghurt, is a key adviser, along with Kristine Sanschagrin, ex-Kraft. Viking is an investor along with plant-based investor Stray Dog Capital, led by Lisa Feria, ex Procter & Gamble. 

Myco Technology has worked on ways to use mycelium as a substitute for food additives like sugar, under the lead of Alan Hahn. Its investors include a string of agricultural majors, like ADM’s Cibus fund, Kellogg’s and Bunge, plus TML-Invest, representing the Mueller family office, famed for its dairy products. This August, Sand Hill Angels, a premier group of Silicon Valley investors came in as an additional investor.

Endless West redeploys molecules from yeast to make alcohol- free whisky and wine. Its family office backers include Horizons Ventures and North East Family Office.

Nature’s Fynd uses a fungal protein from Yellowstone Park to create food alternatives. It is backed by Bill Gates’ Breakthrough Energy, Mark Ferguson’s Generation Investment and Charles Heilbronn’s family office Mousse Partners.

Bolt Threads, led by Dan Widmaier, uses mycelium as a material that can be spun, worn and carried. It has formed joint ventures with fashion designer Stella McCartney, Adidas and fashion company Kering, owned by the Pinault family. Its backers include Baillie Gifford, Temasek and Fidelity. The company’s progress suggests that mycelium can provide an effective alternative to animal skin. 

 

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