October 31, 2016

New investment firm Impact Venture Capital is leveraging its strategic location in California to identify investment opportunities in agriculture technology. Agtech is a natural fit for the VC startup, given the firm’s proximity to Silicon Valley with offices in both Sacramento and Burlingame, and Impact is actively scouting and vetting opportunities locally and beyond.

Launched about a month ago, Impact Venture Capital was founded by Jack Crawford, Dixon Doll and Eric Ball with a mandate to invest in areas where information technology (IT) converges with large global markets, including agriculture.

“Being located in Northern California, responsible for $20 billion of ag exports each year, and up the street from UC Davis, the global leader in ag research with a $700M aggregate R&D budget, we are highly enthusiastic about the ag sector and impressed with the new companies we are seeing the information technology/ag convergence area of innovation,” Crawford tells GAI News.

Crawford, who in addition to being a venture capitalist is an entrepreneur in his own right, recruited John Finegan, a 35-year agriculture industry veteran and founder of agriculture consulting firm Beck Ag, to advise on the agtech opportunities. (The pair has collaborated before on Crawford’s other VC brand, Velocity Venture Capital.) The areas of focus span water management technology, information technology and data as well as the Internet of Things (IoT) and precision ag, and ag biotech, for instance.

“Over the past three years, something like $6 billion in venture capital has gone into agtech, so Impact VC’s interest in agtech investing is pretty strong,” Finegan says.

In addition to agriculture, Impact Venture Capital invests in healthcare, energy, security, and education. Meanwhile, the pipeline for potential ag-tech investments is growing.

Investment Opportunity

Impact Venture Capital is currently looking at companies that are focused on the farm data management area.

“We’re based in California, so irrigation or water sensor technology are an area with big opportunities going forward,” says Finegan, pointing to watering systems that are placed into the field. “They’re permanent probes and they actually run the irrigation system,” he says. “You’re only watering when the plants need it. It’s a more efficient way to deliver water.” Desalination is another area on Impact Venture Capital’s radar.

Indeed, water will be a “big battle” in agriculture over the coming decades, explains Finegan, given the potential implications from global warming and droughts. “We’ve had three years of drought in California. Folks are looking at any way they can to reduce their water usage,” he says, adding that there’s not enough water available to use it unwisely.

Silicon Valley might need to look beyond California to solve the water challenge, however. Compared to America’s heartland, California agtech remains in the nascent stages.

“I don’t find that a lot of the Silicon Valley folks have the background, expertise and networking that’s needed in agriculture. They’re looking at ag as a great opportunity and saying ‘the industry is going to embrace this new technology,’ whether it’s precision ag, GPS data, sensors, or IoT. That’s been their motivation more than a deep understanding of the ag market,” explains Finegan.

As a result, some Silicon Valley entrepreneurs lack a solid grasp of agriculture. Meanwhile, they’re directing their budgets exclusively to technology development while overlooking another vital piece of the equation – marketing and channel access. “They’re not investing in that,” says Finegan.

Finegan suggests Silicon Valley entrepreneurs might want to take a page out of the book of a company that’s done this before, such as century-old Pioneer Seed. According to Finegan, Pioneer spends millions of dollars developing a seed hybrid or chemical. Meanwhile, the company will similarly direct millions of dollars in the first year driving adoption and getting the product out there for growers to try. Silicon Valley hasn’t quite figured this formula out yet.

“I look at the spend of a lot of the agtech, VC-backed companies that are raising $50 million,” says Finegan. “Most of that is going into the technology development. But then I don’t see them being aggressive in channel access, engagement and driving the adoption of the product.”

He goes on to explain that in agriculture, the game is all about getting people to try a product. He offers the following advice to Silicon Valley entrepreneurs who are taking on ag tech:

-Year one should be about building advocacy and driving adoption.

-Establish a base and grow that base for the future.

-Establish the word of mouth and the advocacy for that product.

-Bigger is better. The more people who are talking about how wonderful a product is, the much better year two and three are for everybody.

“Agtech is not going to sell on Facebook. This is a belly-to-belly type of business to change behaviors. You have to work with individual farmers almost one on one,” says Finegan.

Conclusion

Impact Venture Capital remains in the early fundraising stages, though they’ve already reached the milestone of the fund’s first close (the first investment was a non-agriculture startup.) Investors include limited partners from family offices, university endowments, corporation and pension funds, for instance. Crawford declined to attach a size to the fund until after the final close.

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Gerelyn Terzo