Seeking funding in the microbiome supplement space

According to Grand View Research, the global microbiome supplement market was estimated at around $9.7 billion in 2024 and is expected to grow significantly in coming years, partly due to investment by companies like Nestlé, Danone, Bayer AG and Procter & Gamble that have either developed their own products or acquired microbiome-based brands. Consumer awareness of digestive health has also propelled the market forward, as well as interest in the gut microbiome’s role in overall health.

Irrespective of industry success, how easy is it for companies—from startups to more established firms—to get financing to either develop microbiome-based supplements or even to get their business off the ground?

According to Michael Bush, managing partner at GrowthWays Partners, the market is still challenging regardless of indications of promising economic data.

“I think there’s such uncertainty in the market across all sectors,” he said. “Venture capital money is just not as available as it was before.”

In response, companies are instead increasingly focusing on niche or novel products to attract investment. The idea is to get more specific about the solutions the supplements provide.

“Companies are starting with mechanisms of action and they’re developing probiotics that deliver metabolites,” Bush said. “It’s just so much more sophisticated now than it was a number of years ago.”

Seeking venture capital

Making the case for supplementation is no longer as much of a market challenge as it once was. With brands like Pendulum leveraging social media and Hollywood stars like Halle Berry promoting probiotics, the category has become a household name.

Popularity and having a base of Instagram followers can strengthen a pitch to venture capital, but visibility does not always translate into financing.

Brian Peeters, managing member of consulting firm Substrate, said established companies must make a business case to venture capitalists about how they have grown their market share in the company’s core areas in the last five or six years and why they do not want to divert funds away from another part of the business to provide capital for a new venture.

“It may seem obvious, but if you’ve got a track record of success, it’s easier to get money,” Peeters said. “Compare this to someone who’s doing something for the first time, and they don’t have that track record. Obviously, those people are going to have a harder time getting the funding that they’re looking for.”

He said venture capitalists are looking for investments in the health and wellness space knowing that it is a trending category but that they also want to understand the scientific components of biotics. This is a challenge when science surrounding pre-, pro- and post-biotics can be complicated to comprehend. This is one reason why companies should focus their pitches primarily on outcomes, Peeters added.

It is also difficult for both established firms and startups to gain funding when there is often no precedent for some new products.

“This is the challenge as the category evolves,” Peeters said. “There’s no history of these new health areas with probiotics. There’s going to be a hesitancy from investors to want to put funds into a new venture without that history.”

Hesitancy aside, by 2021 there was a five-fold increase from five years prior in venture capital investment in microbiome supplement companies with investments reaching $488 million globally.

Peeters attributed this to the COVID-19 pandemic where investors spent time at home conducting more deals, including mergers and acquisitions.

Alternative sources of financing

Despite a pandemic-fueled investment drive and biotech firms expressing interest in supplement companies, firms do not always look toward venture capital for financing, at least not initially, said Vivek Lal, MD, CEO of Resbiotic.

He did not.

To establish Resbiotic, a microbiome-based supplement company that connects gut health to different body systems, Dr. Lal approached family offices for financing—institutions and foundations that have private equity funds often organized within ultra-high-net-worth families.

Dr. Lal noted that family offices sometimes have more time and flexibility to hear a pitch from a startup than venture capitalists. He also noted the importance of understanding how the professional background of a company’s management can influence the funding process.

Family offices were less impressed by his clinical experience as a physician and former National Institutes of Health researcher and more by his background in business operating a company focused on urgent care, which convinced funders to take a chance.

“I was in a business role,” Dr. Lal said. “I was the chairman of the board. I knew what business was, how to run a business and how to scale it.”

Another issue for Dr. Lal was his geographical location. His companies were based in Alabama where there was little to no ecosystem for either investment, CPG or biotech firms when he sought funding for Resbiotic, he said.

“Being somewhere where there is no ecosystem or institutional money was a big concern for everyone,” he added. “That’s another reason why I had to go for these family offices rather than these big bases.”

Large investor bases tend to also have more oversight, they are more integrated, and they sometimes seek more control over decision-making, Peeters said. Family offices have additional flexibility, but the downside for some businesses is that they often have too close of a personal relationship with companies, he noted.

Bush said some close relationships can be helpful, as the best way to start a business is with friends and family or even angel investors.

“You typically don’t see a venture capital firm just jump on some startup idea,” he explained. “It’s got to be a pretty good idea and a good founder group to raise money right from the get-go. You’ll typically see the venture folks coming in either before the Series A round or during the A round.”

Whether it is a venture capitalist or a family office, Dr. Lal reinforces the sentiment that investors are looking to fund niche areas now.

“In the past it was all about gut health,” he said. “For the last five-to-seven years, people have started talking about the gut-brain axis or specific axis. Our concept was always very clear. We knew that different parts of the organs of the body behave differently.”

He added that customers and investors are educated about the microbiome and various biotics now.

“The industry is evolving,” Dr. Lal said. “We are moving into an era of precision probiotics or precision microbiome supplements…and that’s what people are looking for on the shelves these days.”