November 28, 2018

By Michelle Pelletier Marshall

NOTE: Sharon Devir is a member of the speaking faculty for next week’s Global AgInvesting Europe, 4-5 December in London, and will present “IPO Case Study: Roots – Sustainable Agriculture Technologies Ltd. (RZTO)”. Learn more and register.

It has been said that Israel is one of the most important agtech ecosystems outside of the U.S. This young country – with a population of just 8.7 million, only slightly more than the city of New York – is home to hundreds of startups and industry stalwarts capitalizing on technological innovation and entrepreneurship to address the global demand for food production and security. Israel-based Rimonim Venture Capital is at the crux of that excitement, investing in early to mid-stage companies in the space.

Led by co-founder Sharon Devir, the Rimonim Fund focuses on startups developing promising breakthroughs to enhance agricultural productivity and efficiency across the spectrum of opportunities – from indoor ag to ag biotechnology, to soil and crop technology and automation and drones, to foodtech, and more. The company’s investments include SALICROP, which has developed non-GMO seed treatments that induce crops to grow well in high salinity soils, and SkyX, which offers solutions through a modular swarm of autonomous spraying robots and drones.

GAI News spoke with Devir as he was readying his presentation for Global AgInvesting Europe, 4-5 December in London, where he will be a speaker.

1. What have you seen as the biggest challenge in the agtech startup sector in your more than 30 years of experience?

It’s difficult to give just one answer, but we think that the biggest challenge of ag is the food and water shortages, and I say so because the world trend is to use agricultural products for fuel, like gasoline, and you also see a lot of money going into the cannabis sector. Both of these efforts are not aiming to help the food or water shortages.

Secondly, the challenge in the ag sector is mostly how to produce more food, which is not necessarily a purely ag issue. Because if you look along the value chain, starting from breeding, feeding, harvesting, packaging, shipping, transportation, you see that each part in the chain has its own challenges. And the first part is mostly a challenge of lack of land and lack of water, then you have the problem of crop protection in consideration of climate change, and how to make it sustainable and efficient, then you need to think about making harvesting and shipping efficient.

On top of this, I would say that agtech has been a little bit of a late bloomer in that it has been slow to adopt IoT. You see a lot of high tech applications coming into ag today – software imaging, drones – which started about 20 years ago, but are just now bringing in money. Today people want protein from cows, which is a very inefficient protein. To invest today in dairy is not the solution the UN sees needed in the next 20 to 30 years. If we want to create more protein, we have to look to more efficient sources such as poultry or fish, or any kind of insect or plant. As you can see, it’s very difficult to pick one challenge because each part of the food chain has its own.

2. Why Israel? What do you think gives the region its advantage for growth in agtech?

Israel was established 70 years ago as a young country with hardly any resources which meant we had to rely on our talent and innovation, and as everybody knows, we are not living in the nicest neighborhood in the world. We were forced to be entrepreneurs. In Israel, there are 5,000 startups, which is a lot for a population of 8 million people.

On top of this, in the agtech sector you have about 500 active companies at any given moment, and this entrepreneurship in Israel is what we are known for. This provides a good foundation to build a successful ecosystem for agtech in Israel. Furthermore, the Israeli government is very supportive. About 20 years ago, the government started a unique program that today is not so unique globally, but Israel was the first to do it. It’s called the Israel Technology Incubator Program, which at the time, provided investors with up to half a million dollars as a low-cost, non-recourse loan from the government in order to move their ideas to a working prototype. More than 1,500 companies were financed by this program and many of the very successful Israel companies started in this technological incubator program. One such company is Roots, the company we took public on the Australian Securities Exchange (ASX) about one year ago. It was started about five years ago and financed initially by the Israeli chief scientist, the tech incubation program, the founder and innovator Boaz Wachtel, and private investors.

These two factors: entrepreneurial spirit and very strong government support provide the background for developing this unique ecosystem in Israel.

3. You co-founded Roots Sustainable Agricultural Technologies, which went public last year. Why did you choose to go public with this agtech innovator? 

First of all, my situation is not common – that I am a GP and founder in Rimonim – which invests only in private equity not in public – and took a company public. But in the case of Roots, it was worth it for several reasons. The first was to build awareness. Since Roots has a disruptive technology that is new to the market – heating and cooling of roots on a commercial scale – (we are the first to apply it on a commercial basis in an affordable way that can bring a high rate of return to the farmer), you have to educate the consumer. We also developed irrigation by condensation technology to water crops with condensed humidity from the air.

Once you become public, the awareness and the promotion you receive is invaluable. The result of that recognition is that now we can approach any company in the world. Even when I call a huge conglomerate of over one billion dollars, if I say that I am a public company on the ASX, they usually make the time to talk to me. If we were not public, there is less chance that they would talk to me. We anticipated going public would help open doors, but didn’t think it would as evident as I just described.

The second reason was that Australia was open to listing small cap companies, which is not so common, and the cost of going public was relatively lower there than going public in other countries such as the U.S. Also, they were very friendly throughout the process, helping us better understand the regulations surrounding going public.

And last but not least, my partner Boaz Wachtel had already listed two companies on the ASX, which helped us navigate the process more easily and grow more quickly because he had already succeeded in that endeavor.

4.         Has the public offering been successful?

We have been very successful. We had a sale price that was more than 50 percent above our listing price, which is very good for a small cap. Also as a result of the fundraising, we are now present in six different jurisdictions, whereas when we were listed, we were only active in Israel and Spain. Those six include one for R&D, two for piloting, and three for ongoing commercial sales.

The funding received from going public has helped us accelerate from R&D to engineering to manufacturing and initiation of sales; otherwise we would have not been able to do this. We have made several announcements over the last year– increasing yield by 60 percent; subsidizing the heating and cooling tech by the ag ministry for basil growers; and signing an exclusivity agreement with an Israeli ag tech integrator committed to buying $19 million over five years in China. We have really matured and grown. The public offering has also brought us more customers, and an opportunity to be closer to the market to attract more funding.

5. At GAI AgTech Week 2017 Israel was highlighted as a global leader in the advancement of agtech development. At the time, Eitan Elkin, director of marketing with Start-up Nation Central, noted that there were more than 400 agtech startups in Israel, or one for every 1,300 people. Does such a high concentration make it easier or more difficult to decide where to commit capital?

At the moment, because there is not enough money in Israel for all the startups, for an investor it is easier because they can “cherry pick” the best companies. As we look at the global agtech sector, which has become a $10 billion market (up from less than one million in 2012), you can start to see maturation in the industry. Three or four years ago it would be mostly early stage with low valuation; today you can see more A round and even B round and the valuations are much, much higher. I am also starting to see these trends in the Israeli market – companies’ values are up compared to about a year ago. This is because there is a little bit more money in the market.

6.     And what of your long-term goals?

At Roots, we are looking mostly for agtech integrators and turn key companies who deal with food shortage – plant protection, hydroponics, technologies that utilize current resources of water and land, breeding, IoT in agriculture. This is what we believe in and so that’s where our focus lies.

I have been in the agtech business for more than 30 years, which is not so common because most of the professional investors that are active today did not come from the agtech sector, most came from other sectors. Myself and my colleagues came to the sector because we wanted to invest not only in companies that bring money to their LPs, but also bring some kind of additional advantage to humanity. Impact investment is the way we see what we are doing – a combination of bringing income to the LPs who invest in our companies and funds, while also providing some kind of goodness to the food and water shortage to leave a better world to our children. This is one of the unique sectors, where you can not only make money, you can also do good.

~ Michelle Pelletier Marshall is managing editor for Global AgInvesting’s quarterly GAI Gazette magazine and an occasional contributor to GAI News. She can be reached at mmarshall@globalaginvesting.com.