$14 Billion Each Year Delivers $73 Billion in Annual Net Economic Benefit – And More
ReFED’s analysis of current financial and industry data shows that an annual investment of $14 billion over the next ten years can reduce food waste by 45 million tons each year. That investment would result in $73 billion in annual net financial benefit – a five-to-one return. Plus, every year, it would reduce greenhouse gas emissions by 75 million metric tons, save 4 trillion gallons of water, and recover the equivalent of 4 billion meals for those in need. Over ten years, it would create 51,000 jobs – and achieve the United States's national goal of a 50% reduction in food waste by 2030. Capital providers of all types are recognizing the critical role that their funding can play in launching and scaling for-profit and nonprofit food waste reduction solutions – along with the potential economic return on their investment. This page provides updates on recent funding highlights and an overview of how catalytic capital can lead to a multiplier effect for more funding.
The Critical Role of Catalytic Capital to Drive Impact
While the majority of financing required to scale food waste reduction solutions is expected to come from traditional market sources, there is an equally important and crucial role for catalytic capital. We estimate that $3 billion per year of catalytic capital would unlock an additional $11 billion of further investment.
Catalytic capital tends to be first money-in, thereby having a multiplier effect that stimulates larger amounts of future funding and helps overcome system-level barriers. According to The MacArthur Foundation, catalytic capital is “investment capital that is patient, risk-tolerant, concessionary, and flexible in ways that differ from conventional investment” and “is an essential tool to bridge capital gaps and achieve breadth and depth of impact, while complementing conventional investing.”
Catalytic capital often includes Non-Government Grants, Government Grants, and Impact-First Investments. Additionally, incubators, accelerators, and challenge platforms that provide funding – as well as seed/angel rounds – can be considered catalytic.
Non Government Grants
Non-government grants – such as those from high-net worth individuals, family offices, foundations, and donor-advised funds – are defined as concessionary, philanthropic capital used to support initiatives that lack a market-based application (profit motive) and may also play the role of “first capital in” for solutions perceived to have high risk. This form of capital is particularly impactful when used to fund the development of initial ideas; the scaling or pivoting of solutions that aren’t profit-driven; or funding vital operating costs for nonprofit initiatives.
Government grants are considered to be concessionary, philanthropic capital at the federal, state, and/or local level that can support initiatives often lacking a market-based application or do not yield direct, monetizable benefits (longer-term projects with higher positive externalities, such as consumer education programs). This funding may play the role of “first capital in” for solutions that are perceived to be high risk. Government grant programs can be highly impactful when funding nonprofit and for-profit solutions that support the public good.
Impact-First Investments are willing to accept more risk or potentially lower returns in pursuit of measurable social and/or environmental impact. Investors can offer lower-cost sources of financing to enable projects that may eventually attract more traditional sources of capital, but that require upfront capital and reliable cash flow to prove the the solution’s economics to future paying customers. Impact-First Investments are highly impactful for social enterprises, infrastructure projects, early-stage innovations, and nonprofits testing earned income models.
The Importance of Catalytic Capital
- De-risking New Innovations – Startups need early-stage funding, subsidized pilots, or flexible debt to demonstrate they are effective in real-world settings to attract follow-on private investment.
- De-risking Novel Projects – Any project with a first-of-its-kind component faces an extra risk premium. Low-interest debt or credit enhancements can help get these projects deployed and de-risked to lower the cost of future financing.
- Unlocking Bottlenecks – Some types of infrastructure projects struggle to attract funding due to marginal profit margins, but they are critical to lowering costs for the system as a whole. Trucks and storage facilities, for example, are bottlenecks within the recovery and recycling ecosystems.
- Overcoming Agency Problems – Some solutions fail to get funded because no one stakeholder benefits enough to justify the costs, such as various recycling projects or Standardized Date Labeling. Catalytic capital shifts the economics so other stakeholders are incentivized to invest.
- Stimulating Marginal Projects – Many projects with valuable social and environmental benefits are not financed due to marginal profitability. Catalytic capital can shift the economics of these projects above the necessary hurdle rate to attract market-rate financing. That said, it is important to note that this can have negative market distorting effects if not deployed properly.
Catalytic Case Study
Bill and Melinda Gates Foundation Research Grant
In November 2012, Apeel was founded with a $100k research grant from the Bill and Melinda Gates Foundation to help reduce post-harvest food waste in developing countries that lacked refrigeration infrastructure. With this funding, Apeel’s founder James Rogers hired two researchers he knew from his Ph.D program and commenced working on the product that ultimately would become Apeel. While the product was originally focused on assisting farmers in Africa and Asia, it expanded to food preservation in the Western Hemisphere. Apeel has since been recognized as one of the first food waste “unicorn” companies (greater than $1B in valuation), having raised more than $300M in total funding in order to continue research and development development and to scale globally.
Catalytic Case Study
The Tyson Foods Protein Innovation Fund provided $1M to 10 Feeding America food banks in nine states to fund protein-sourcing projects with the potential to be scaled and replicated across the country. In its first two years (2016-2018), the project led to more than 4.5M servings of protein sourced and distributed. This was catalytic through the ability for these projects to be scaled to other divisions of Feeding America. As part of this work, for example, Feeding Tampa Bay was awarded $50,000 to hire a full-time staff member whose main function is identifying and pursuing sources of wasted food, particularly protein, in their local supply chain. As a result, Feeding Tampa Bay is now able to source an additional 1M pounds of protein per year.
Help Fund the Fight Against Food Waste
The Food Waste Funder Circle (FWFC) is a network designed for private, public, and philanthropic funders interested in using their capital to solve food waste challenges. Co-founded by ReFED and Upcycled Food Association , the FWFC offers a curated platform for funder education, collaboration, and investment to help drive the capital flow needed to reach national and international goals to reduce food waste by 50% by the year 2030. Membership in the FWFC is free and open to both individual investors and representatives from funder organizations.
Food waste is a systemwide problem, and solving it will require a systemwide response. ReFED's Roadmap to 2030: Reducing U.S. Food Waste by 50% looks at the entire food supply chain and identifies seven key action areas to help guide the food system’s efforts over the next ten years.