From Lab to Consumer Goods: New Ventures Open New Paths to Scale for Startups

When Ravi Jhala joined Perfect Day, the company had only six employees. As a dairy industry veteran who had worked with large consumer goods companies like Chobani and Wells Enterprises, Jhala deliberately chose a small startup.

Now, as Perfect Day's global head of commerce, Jhala says he sometimes has to pinch himself to confirm that Perfect Day is growing into a supplier on par with some of the companies he previously worked for.

"We are acutely aware that what got us here may not necessarily take us to the next step," Jhala said. "...But at the same time, the collaborative culture and teamwork model that Perfect Day has built—where one plus one equals three—remains part of how we build our business."

In September, Perfect Day announced a new venture into precision fermentation by launching subsidiary nth Bio to help other startups use its processes to produce biological materials ranging from animal-derived proteins to rare sugars.

"Perfect Day's goal is to help companies in precision fermentation truly bridge the gap from strain to scale," Jhala said. "...We want companies to know there is a path forward, that you don't have to piece together needs piecemeal. Essentially, through the service we will provide, you can go from raw material to finished product in one stop."

Perfect Day is not the only company using its own technical knowledge and facilities to help smaller startups. Mark Warner, who has advised companies in cultivated meat and fermentation on scaling, noticed a clear gap in existing facilities. According to a 2020 presentation by Warner, a pilot facility—which can provide proof of concept but only produce small quantities—could cost between $1 million and $5 million to build.

His new venture, Liberation Labs, will build fermentation facilities for food companies to help them scale. Warner says one of the biggest problems he saw in the companies he worked with was the lack of such facilities. He says facilities like the ones Liberation Labs plans can help startups improve and scale their technology without having to raise millions of dollars and spend months building on their own.

Last week, Capacitor—an online directory of pilot facilities that companies can use to scale up—went live. Capacitor is a product of Synonym Biotechnologies, a company founded in January to build commercial-scale facilities for biomanufacturing companies.

Helping to the Extreme

Perfect Day started as a new entity in 2014. The company uses the power of precision fermentation to produce dairy proteins without using animals. At the time, co-founder Ryan Pandya was working at a company that produced medical antibodies through precision fermentation. A bad experience with plant-based cream cheese prompted him to apply the technology to dairy.

Eight years later, Perfect Day has become the largest player in precision fermentation food. Its branded protein ingredients are used in products ranging from ice cream and cream cheese to protein powder and milk. Perfect Day has also established partnerships with three of the world's largest consumer goods companies: launching animal-free dairy brand Bold Cultr cream cheese with General Mills, providing dairy for Mars' CO2Coa milk chocolate bar, and working with Nestlé to produce a milk drink.

This success partly stems from being first to the field and having solid science and plans, but another important factor is smart business decisions, including a 2018 agreement with Archer Daniels Midland Company for scaling and commercialization.

Perfect Day is still scaling up, but its production capacity is growing rapidly. According to a company statement in September, Perfect Day produced more dairy protein in the first half of 2022 than in all of 2021.

"When we started this journey as a startup in precision fermentation, we realized that the ecosystem needed to successfully bring commercial products to market, we had to create it ourselves because it didn't exist," Jhala said. "This has now become a core foundation of the company's business."

In September, the company's new business unit nth Bio announced its first partner, Onego Bio, which produces egg white protein through precision fermentation. Jhala said they will work closely with Onego to help develop its bioprocess, scale up production, and assist in getting the final protein approved by regulators.

Nth Bio will operate in Perfect Day's 58,000-square-foot advanced facility in Salt Lake City, which Jhala says should be fully operational by August next year. The space will fill a gap in precision fermentation scaling. The facility includes pilot-scale production space and equipment for use by partner companies of Perfect Day and nth Bio.

In Perfect Day's early days, Jhala said Pandya and co-founder Perumal Gandhi were simply trying to find a kinder, animal-free alternative to real dairy. Jhala said for a while no one realized that the company they founded would play a role in democratizing biotech food.

Perfect Day's expansion into nth Bio is largely about sharing that knowledge. Jhala said Perfect Day does not want to be the only ingredient manufacturer using precision fermentation in the long term.

"Our vision is that if we can empower other partners... then there might be a shelf in the store filled with products people can buy today, and they will have choices because we are helping each other succeed in the market," he said.

Liberation Labs Fills the Gap

Funding is a key part of scaling because there are few facilities available to companies. Former advisor Warner is trying to change that.

Liberation Labs, founded earlier this year by Warner and cellular agriculture veteran Etan Bendheim, is currently raising a $20 million seed round. Publicly listed Agronomics—which holds a 47% stake in the company—invested an additional $7 million at the end of last month. According to Agronomics' announcement, it will co-lead the round with Siddhi Capital. Other investors include New Agrarian and CPT Capital.

"Liberation Labs' solution will set a standard for the precision fermentation industry, providing cost-effective, reliable, and well-located facilities to meet growing global consumer demand," said Jim Mellon, co-founder and executive director of Agronomics, in a written statement to UK publication The Grocer. "This is a key step in the advancement of cellular agriculture."

Liberation Labs plans to build six production facilities globally for food companies using precision fermentation. Warner said they are finalizing the site for the first U.S. facility and plan to announce the specific location by the end of the year. The company expects the facility to be operational by 2024.

Warner said that in the absence of facilities like the ones he is creating with Liberation Labs, many food tech companies using fermentation have had to go far afield to find places to scale. This is literally true—many American companies are using research facilities in Europe. These facilities are not only farther away, but sometimes also use older equipment.

While others are also building some scaling facilities, Warner said these are not competitors to Liberation Labs. Smaller facilities are like middle schools; Liberation Labs is like a high school. Warner said he very much hopes all scaling facilities succeed. That way, he will have more companies to work with, and they won't have to wait.

"I've seen people spend tens of millions of dollars and fail," he said. "I've also seen people spend a few million and succeed. It's often about moving quickly, but knowing when your process is ready."

Because, he said, with or without facilities, a product not yet ready for the mass market will not succeed in front of consumers.

Finding Capacity

When tech industry veteran Joshua Lachter co-founded Synonym Biotechnologies with entrepreneur and founder of Essential Capital and Kite Ventures, Edward Shenderovich, earlier this year, they faced a big problem that needed solving.

Synonym's goal is to build commercial-scale facilities for companies in precision fermentation and synthetic biology to produce large quantities of products. Lachter said Synonym's facilities will be used for food production, but could also be used by companies in various industries such as energy production and packaging materials.

Synonym has so far worked mostly behind the scenes. The company completed a $6.3 million pre-seed round last month with participants including Andreessen Horowitz, Giant Ventures, Blue Horizon, and Thia Ventures. It is developing its first U.S.-based "fermentation farm," which will use a standard-based design that enables companies to produce large quantities. Lachter said more facilities are planned in the future.

They also worked with companies in precision fermentation and the Good Food Institute to understand their needs. Lachter said they heard the same feedback repeatedly: while the ultimate goal is large-scale production, it is difficult to find facilities beyond the lab stage.

"We started asking where pilot capacity was, and they (the people we asked) said, 'Well, there used to be a database. There was a guy who ran a database from his garage... but it hasn't been updated in years.' Yeah, that was basically it," Lachter said.

Synonym launched another project: creating such a database. The database, called Capacitor, was developed jointly by Synonym, the Good Food Institute, Blue Horizon, and the Material Innovation Initiative. Lachter said the creation process took about six months and involved extensive research and phone calls to piece together who had available facilities and where they were. The database is free for companies seeking access to fermentation facilities and also allows companies to list their facilities for free. It also accepts additions and corrections; Lachter said Synonym may have missed some available facilities.

While Lachter knew there was demand for such a database, he was surprised by the number of registrations in the first few days. He said the popularity highlights the fundamental reason for Synonym's growth: many companies have products that can be produced through advanced fermentation but lack production facilities.

Lachter said the directory provides an opportunity for facilities that typically cannot promote themselves to attract companies to collaborate. But he also noted it helps show geographic gaps in scaling facilities. He compared it to using a phone to search for nearby sushi restaurants. If you are in a densely populated area and there is no sushi restaurant within 15 miles, you might think someone should open one here.

However, opening a pilot facility is much more complex than opening a sushi restaurant, Lachter said.

"These things are very expensive, and it's hard to measure demand before a facility opens and significant money is invested," he said.

Synonym is also advancing its main goal—building commercial-scale facilities for fermentation production. Lachter said they are developing the first "fermentation farm" and are selecting a site in the U.S. Synonym plans to break ground in the second quarter of 2023 and hopes to be operational by 2024.

Lachter said commercial-scale precision fermentation facilities will eventually become as ubiquitous as data centers or cell towers. And, like data centers and cell towers, commercial-scale precision fermentation manufacturing facilities might one day be relied upon to produce a variety of critical products.

"Production assets need to be separated from users—this is true in many industries," Lachter said. "But that's not the case here yet. There is a serious shortage."