December 11, 2018

by Lynda Kiernan

By its very nature, trying to gain a clear picture of the agtech investment space can be difficult. The ecosystem is so broad, consisting of so many divergent yet interconnected technologies that touch on varying aspects of agricultural production, that examining and organizing the activity in the space can be challenging. Furthermore, the dynamic nature of the space, the constant and rapid development of much needed new technologies that have the power to repeatedly change the human relation to food production, create an ever-shifting, but fascinating landscape.

Recognizing that concise information is critical to ongoing agtech investment, leading venture capital agtech and life sciences investor, Finistere Ventures, and PitchBook have partnered with DLA Piper, Ernst and Young, and Wells Fargo for the release of an expanded 2018 Agtech Investment Review.

Through this report and through building a collective of partnerships with deeply-rooted players in the agtech space, Finistere offers a “base of knowledge” addressing a range of factors playing into growth in the space including the macro trends, financing trends, leading investors, and consolidations that are driving change and return on investment, as well as examining venture transactions in the agtech space on a granular level. The report has also been geographically expanded – following a mid-year report that covered agtech in Australia, New Zealand, Canada, and Israel, this latest report examines the drivers and investment activity occurring in Latin America.

The report finds that the growth that agtech investment has seen over the past 10 years continues. Both the value and number of agtech deals in 2018 are on pace to exceed the records achieved the year before. The third quarter of 2018 saw agtech startups raise a record $895 million – only $132 million less than the record financing realized in all of 2017, while the number of deals in the first 10 months of this year approached the the total number for the year before at 209. Additionally, the report finds an increase in late-stage deals with a median size of $10 million, up from $9 million last year. If these trends continue, 2018 is on pace to surpass the number of deals closed, and the amount of capital invested last year.

Following GAI AgTech Nexus, GAI News was able to catch up with Arama Kukutai to discuss the report, its findings, and his outlook for agtech investment for the year to come.

1. In the introduction of your report it states –  “…value chain needs and agtech financings are not necessarily aligned… Alignment between market need and investment flow will be essential to providing the right tools to the industry and making the correct bets on technology investments.” Can you please speak a bit about this misalignment, and explain how a correction may be achieved?

We’ve seen a high degree of investment into technologies that seem transformative but create little value on the?farm. Mark Rochford of Rochford Farms commented at GAI AgTech Nexus this year, that none of his on-farm hardware is compatible, making data download, integration, and use incredibly difficult from the producer perspective.Overall, from the start-up and investor front, there is often a lack of understanding of farm operations/stage of digitization on farm, and what technologies really drive value for growers. We need technologies that enable ease of use or can be easily adopted. Better alignment will come when we focus on tools that are easy to adopt and do not reinvent farming paradigms.

Historically speaking, biotech traits have been one of the largest creators of value on- farm, enabling increased yield for only a small increase in input costs. These technologies have been highly scalable and have produced incredible returns for both investors and producers alike. However, few companies in this segment have been financed. For example, in 2018, only 13 plant science financings occurred as of Q3, less than half the number of imagery, or indoor ag plays. We think that this is a missed opportunity on the part of investors.

2. Between your mid-year report and this latest report, Finistere has examined ecosystem activity in North America, Australia, New Zealand, Canada, Israel, and now Latin America.  What are the biggest differences you’ve noticed between these markets in regard to agtech investment?

The biggest differences between regions has been maturity of ecosystem and access to capital.

o    The United States has by far the most mature agtech ecosystem and investment community, as well as scale of market in which to grow. This has translated into not only many investments into U.S. companies by outside investors, but also many U.S. VCs looking beyond U.S. players.

o   Canada, NZ, Australia, Israel, and LatAm: All of these geographies have strong research and education systems underpinning the ecosystem. The biggest differences have been access to experienced talent (usually correlated with ecosystem maturity), with an understanding of VC, and access to capital. U.S. and Israel have had much better access to these key factors than the other ecosystems, and as such, have produced more agtech opportunities.

o   Government support, and stimulation of ecosystems in all NZ, Australia, Canada, and LatAm has been key to agtech growth.

o   Of all the geographies we’ve examined, LatAm is starting to mature and looks exciting. It has the benefit of the scale of the United States and the farming systems of other large geographies. LatAm is worth keeping an eye on in the year ahead. Key differences that make this ecosystem interesting are:

•      Lower cost of product development/R&D
•      Tied to smaller rounds/capital raised to reach growth milestones

However significant risks remain, including:

•      Undefined local ecosystem, roadmap to access capital
•      Risk of adapting solutions to broader markets outside LatAm
•      Underlying “country” risk (political/socio-economic)   

3. Your report notes a scaling up and higher volumes of later-stage (Series C and later) round of investment in the agtech ecosystem across 2017 and 2018. Has this trend correlated at all with an effect upon fragmentation in the agtech space? Has this scaling up also brought on more consolidation?

With the exception of the life-sciences space, consolidation is definitely a trend we see across several agtech verticals. Particularly in the imagery space where investment interest was quite intense over the last couple of years, we’re starting to see a shake out of companies as technology/value differences become clearer to farmers. As this trend continues, we expect that capital deployment in later stages of agtech will continue to rise, and consolidations will continue to occur in segments of agtech not driven by life sciences-based technologies.

4. What direction do you see agtech investment taking as we venture into 2019? What do you identify as some of the greatest challenges to growth in the agtech space moving forward?

We anticipate that agtech investment will continue to grow as existing funds grow larger and the universe of investors continues to expand. We’re seeing that first-time agtech investor participation has continued to remain strong in 2018, with a total of 34 new funds investing into agtech companies by Q3. To be candid, exit activity in our sector has remained slow in light of continued consolidation at the top tiers of the industry (Bayer-Monsanto, Dow-Dupont, Syngenta-Chem China, Agrium-Potash Corp). We also have challenges around a lack of PE fund participation in our space.

As our sector continues to mature, we will need to address the issue of access to growth-stage capital, either through PE investor education/participation or through successful IPOs of agtech start-ups. To date, we haven’t seen a lot of exits via IPO in agtech. However, we anticipate that this will change in the coming years. We’re starting to see some activity (Cibus, for example, has begun the IPO process), and it’s likely that several of the larger crop inputs, indoor ag, and ag marketplace/fintech start-ups will follow suit in the near future.