Q&A with Mike Velings, co-founder of aquaculture investment firm Aqua-Spark
Mike Velings is the co-founder and co-managing partner of Aqua-Spark, which was founded in 2014 as the first investment fund dedicated to sustainable aquaculture. Investments made by Aqua-Spark include the Netherlands-based firm and insect farmer Protix, and XpertSea, a Canadian company that has developed a machine that accurately counts and sizes early-stage aquatic organisms such as shrimp larvae and live feed. In addition to a commitment to sustainability, Aqua-Spark investments are driven by the opportunities that stem from increasing demand for aquaculture products from a growing global population – per capita intake of seafood increased from 9.9 kilograms to 18.8 kilograms annually over the past 50 years, while output needed to satisfy seafood demand is expected to double to 230 million metric tons by 2050.
SeafoodSource: What are some of your recent investments and how do you narrow down potential investments?
Velings: We’ve invested in algae farming and another one is in technology.
At the moment, we are monitoring about 1,300 companies globally. In many cases, it’s way too early [to decide whether to invest or not]. We look at how they perform, who they are, and how they deal with adversity. Therefore, when the time comes we can make an informed decision.
For things to pan out really requires a wide range of things. It starts with whether companies have sustainability at their core. We look for their intention to work to a better future in a collaborative attitude. And the company must fit into our ecosystem. There has to be synergy [between the different companies we have invested in]. For instance, when we invest in feed ingredients, we expect they will be available for our farm operations.
We also expect when we invest in market access [companies involved in distribution] that this access will be open to other firms we have invested in. Also, in our evaluation, we look at remuneration of management. And we look at other investors to see whether we have alignment or not [with them].
Our assessment can take from three months to six years. Usually it takes quite a while.
SeafoodSource: Can you explain how remuneration is important in your assessment?
Velings: Everything has to be balanced. Sustainability means it must be socially sustainable too. Things need to be right. We want to invest in teams that treat employees well and pay a living wage. Not just a minimum wage but a wage [employees] can live on. Management salaries must be right. The main profit [for management] should be from dividends and not so much from salaries or big bonuses. We don’t want to see really high salaries at a stage where the company can’t really sustain that. If the gap between lowest-paid employees and management is too wide, that also would be a reason to disengage.
We are also careful about corruption and about who is engaged in the value chain. It’s all about integrity and long-term relationships.
SeafoodSource: You have an aquaculture farm in Mozambique…What has your experience been investing in Africa? Is corruption an issue you deal with there?
Velings: Developing countries are not the only geographies where corruption is an issue. Africa is more a challenging geography not so much because of political [issues] but because there is very little infrastructure. Asia, Europe, and South America have a lot of aquaculture. The infrastructure is in place, like quality fingerlings and feed.
One of the biggest challenges [in investing in Africa] is risk of investment. There are many fewer companies to look at as potential investments. In a lot of cases, this leads to increased valuations compared to Asia, the U.S., or Europe.
Farm operations are less developed. Therefore, if you want to find a place where everything checks out in another territory you can look at 50 companies and pick one. In Africa, you might find two dozen and choose none.
We want to engage in Africa. We look at the huge increase expected in the human population and a large part of this will be in Africa. It’s a huge opportunity. There is a huge need for infrastructure, and we can help with, for example, investing in vertically-integrated farming platforms. We think by building a feed mill, hatcheries, etcetera, we can supply others and that can help spark the development of aquaculture in Africa. Our investment in Mozambique was a greenfield site.
SeafoodSource: Is it difficult to secure funds for your investment fund given some of the technology is new and you must explain it to your investors?
Velings: More than half our funds come from the U.S., [though overall] our funds come from 21 countries. We see a very wide range of investors across the board. A lot of investors have risk-averse profiles. But many of our investors are family offices who tend to look at these things with a long-term view. Usually, investors have a relatively short horizon of eight to 10 years.
We educate our investors on what we are doing together. Our investors are usually people who invest to make a difference, from an impact point of view. Much of what we invest is in increased efficiency and sustainable new better feed ingredients. If we can’t really explain this to investors, then we should look at ourselves. The same goes with our global network. We have a global network and work with shareholders across the value chain.
SeafoodSource: Have there been any political events or policies recently which you’ve noticed which create an opportunity to invest?
Velings: Nothing in particular comes to mind. Obviously, the trade war is not good for anyone, for feed producers or soy going into Asia or fish coming back to the U.S.
At the same time, these will probably go away, these tend to be short-term. I don’t think a short-term political event will change the long-term trends. However, trillions of dollars of investment are required from everyone across the globe and we do need more stimulating policies. I believe the demand for aquafeed might increase eightfold in the next 50 years. The soy industry certainly doesn’t need to worry about the long-term [demand].
Looking at animal feed, and fish feed in particular, there are potential new inputs to feed such as insects grown on food waste, single-cell proteins, seaweed, algae. We see companies working on these. We need to look at a different use of the oceans. We need to get to a place where we will be able to feed a population of nine to 10 billion with a much smaller footprint than we have today. The population may in fact be larger because current projections don’t take into account medical breakthroughs so it could be twice as large as the projected figure. We will have to do a lot more with less, to produce food that is healthy and affordable.
We need to see a change in what bulk ingredients we use in aquafeed, but this won’t happen overnight. Today’s ingredients will still be needed for a long time to come. It’s not something a single company can achieve, it will take trillions of dollars over decades. We need 20 or 30 different bulk ingredients to not be dependent on a few, for food security. In today’s interconnected world we have an unprecedented chance where we can sit around the table and together design the food system of the future.
SeafoodSource: Are you confident the large food-producing conglomerates can achieve this transition?
Velings: It’s very, very hard. The alternatives are not available yet at the right prices and quantities. It takes bold decisions. Increasingly, management teams at large industry players realize the boundaries of the planet, and the need to change to stay relevant. They are willing to engage in discussion. But it doesn’t mean it will be solved tomorrow.
SeafoodSource: With the huge and growing demand for aquaculture technology and the presence of large sums of capital in China and Asia in general, are you in talks with any potential investors or target companies there?
Velings: We are in talks with both potential investors and potential portfolio companies, yes. We can’t disclose any names yet though.