My Investment Takes: QOA - A chocolate success

BzEK...fcDA

4 May 2022

182

My Investment Takes is a weekly dive into the startups I find the most innovative & interesting.

It doesn’t take a genius to realise that we, as a society, are obsessed with chocolate. Obsessed. On average, we eat almost a kilo a year per person while those of us in Western Europe are far worse. Take the Swiss for instance: 9.7kg a year. That’s: 260 Ferrero Rochers, 80 KitKats, and 56 Mars Bars and for those of you who do your counting in chocolate too (for more fun facts, I recommend le Syndicat du Chocolat’s website). I myself am quite partial to its many wonderous forms: chocolate cakes, fountains, chips, I’ll take them all.

Here's the catch: whilst chocolate itself is delicious, chocolate production… not so much. Harvesting cocoa is far from being the most sustainable and fair activity. Growing Cocoa plants to sustain our global obsession means sacrificing swathes of unique biodiverse forests and enormous amounts of water to boot. Worse still, children and victims of labour trafficking constitute a great portion of the work force. I’ll get back to that.

Enter QOA!

QOA is a Munich-based biotech start-up which produces organic chocolate, minus the cocoa part. Using precise fermentation and local, natural ingredients, the team is producing delicious chocolate without the nasty aftertaste of deforestation and child labour.

Why Chocolate Matters

A ripe industry

The chocolate industry is quite big. According to Statista, the chocolate confectionery market will reach US$223.63 billion by 2025. Much of this market is carried by European cravings, but Asia is starting to become a target for future growth. On a happy note, these cravings are shifting towards organic, vegan, sugar-free and even gluten-free chocolate paired with an emphasis on 'fair trade' products. The market is starting to respond to this demand: you might have noticed your favourite chocolate bar sporting a 'Fair Trade Certified', or 'Rainforest Alliance Certified' logo. While this may have come at the expense of a few pennies, it appears consumers are happy to pay a premium for these new, more equitable bars.

There are two takeaways:

The chocolate market is large and continues to grow.
There is a space for more sustainable & fairtrade products, and consumers are ready to pay more for it.

The issues with production

While chocolate demand is soaring and production is following suit, the impact on people and their environment is devastating.

Water impact

Cocoa trees originate from hot and humid tropical regions around the Equator and require an enormous amount of water. It takes ~17,196 litres of water to produce a small chocolate bar, worse still than beef which requires 15,415 litres per kg. But before jumping to conclusions, it's worth noting that the overall environmental impact of chocolate is still much smaller, as cocoa trees are located in countries high precipitation levels and do not directly emit greenhouse gases, unlike cows. However, clean water is becoming more and more scarce and as such questions can be raised as to the future availability of cocoa, given that more water-efficient plants will likely be favoured.

Environmental impact

Cocoa trees produce fruit for around 25 years before needing to be replanted. That is, if it isn’t lost to weather changes, diseases or pests, all of which are so common that farmers expect between 30-100% of a harvest to be lost. This deters large plantations and because of this, most cocoa harvesting happens on small, labour-intensive farms.
The problem with replanting is its high cost and difficulty, as it requires taking dead or diseased cocoa trees out of the ground and planting new one. Farmers therefore usually use new farmland, which in essence translates to cutting rainforests. While it's not as bad as soy, palm oil, or beef, it has a small impact on the global deforestation footprint and more significantly an impact on the unique biodiversity of where it's grown.

Social impact

As of 2020, the total cocoa production amounted to 5,757,953 tons, with a production shared by many countries. A few key players should be noted: the Ivory Coast: 38%; Ghana: 14%; Indonesia: 13%; Nigeria: 6%; Ecuador: 6%; Cameroon: 5%; Brazil: 5%.
As you can see, more than 60% of the total production comes from 4 African countries with the Ivory Coast heavily relying on the fruit for its local economy. However, the University of Chicago estimates that 1.48 million children worldwide are working in Cocoa plantations and engage in hazardous work.

We need to do better.

QOA: What I love

Biotech Chocolate: what does it mean?

Unlike cellular meat (if you haven't read my take on cellular meat, you can take a look here), the idea QOA came up with is closer to brewing beer. Through a process called 'Precisions Fermentation', they have been able to find and extract the building blocks of chocolate’s famous taste. And the real revolution is their use of by-products of other foods (such as sunflower seeds), which means it's cheap and reduces food waste.
The 'grains' produced can then be roasted, dried and processed in a grinder to transform them into chocolate.

Why QOA?

First of all, I have to say it's not exactly easy to gather information about their technology. They take the 'stealth' part of growing a startup pretty seriously, so I'll mainly focus on their team, story, positioning, and what they have been able to do so far.

QOA was created by two siblings, Sara Marquart and Dr Maximilian Marquart. Both have an entrepreneurial background – Sara actually worked for a startup focused on coffee-free coffee –they simply started in a kitchen. They then slowly built a small team of scientists to find the right combination of flavours to create something like chocolate.
By their own account, the process was far from being easy, with most samples being poorly rated by their random group of testers. However, little by little, the scores went up, and finally chocolate sensory experts at an organisation called Fraunhofer said they couldn’t taste the difference between traditional chocolate and QOA's product.
And that systematic testing is what got me interested. I love start-ups that are client-obsessed and know the value early adopters have. QOA listens to their clients, and that's rarer than you'd think. You can find QOA’s reaction video here.

With these kinds of reactions, my next step is to get hold of one of these boxes.

The path forward

QOA has reportedly reached out to a major chocolate brand and has been able to get them interested after sending out their kit. But it won't be so easy to expand.

There will be technical challenges to scale, and it will be necessary for the startup to convince large chocolate brands to also use their product, which is something the founders are aware. Another hurdle will be legislative, as governments set rules on quality standards, production processes, and appropriate names to use.

QOA has recently raised its $6 million in a Seed Round from Cherry Ventures, Fifty Years, Nucleus Capital, Pioneer Fund, Tet Ventures, Trellis Road, World Fund, and Chris Murphy. This recently raised fund will go toward building out their pilot production facility in Munich to complement the one in Switzerland as well grow their team!

The Questions I have for the Team

Do you have IP on your method?
Can you estimate what will be the cost of your chocolate vs. traditional chocolate?
What are you looking forward to in the short to middle term?

My Conviction

QOA has the potential to disrupt a huge industry. A world without chocolate would be tragic, and I doubt it will disappear. Their technology would not only be good for the planet, but also act as an equaliser in the future: anyone should be able to enjoy a good chocolate cake.

They have ambition, a clear idea of how scalable their company is, and what will be the necessary steps. Plus, being in the heart of Europe has its advantages, with the continent being the largest consumer of the treat.

If you’re excited to check them out, take a look at their website https://qoacompany.com, and leave a comment on this post if you have any thoughts or comments!