June 3, 2015

Wilco Schoonderbeek Vice President, Ag Investments, PPM Oost

The Dutch have a long history of venture capital dating back to the 1600’s including the establishment of the Dutch East India Company, the first multinational corporation to fund both private and public ventures, and the first company to issue shares. AG tech is also part of our national DNA as it helped our nation’s economy thrive. Some facts & figures:

• The Netherlands is the world’s 2nd largest exporter of agricultural products, after the USA. The total value of Dutch agricultural exports was 75.4 billion euro in 2012.
• Four of the world’s top 25 food and beverage companies are Dutch and 12 have a major production site or R&D facilities in the Netherlands.
• The Food Valley region, centered at Wageningen University and Research Center, is one of the most authoritative agri-food and nutrition research centers in Europe. It includes the largest food testing pilot plant in Europe and is open to the entire food and ingredient industry.

In the next decades, both the growing population and economic growth will result in an increased demand for crop and food production. However, there are significant concerns about declining levels of yield gain due to water shortages, reduced use of pesticides and global warming. Besides the traditional focus on increasing consumption, today’s technology allows us to produce individually designed human dietary proteins based on the application of biotechnology to molecular nutrition. These proteins can deliver specific health benefits such as managing diabetes or reducing obesity.

Given the window of opportunity, there are still relatively few active VCs in the AG sector. Traditionally, LPs and VCs have been skeptic to step into AG tech. However, recent developments indicate that the industry is about to change. AG is a data hungry industry that, historically, has not been served very well. The emphasis on IT and Big Data will attract some of the well-known VCs to step in. IT can help to solve a variety of the challenges that the AG sector is facing. For instance, there is a strong need to further integrate the AG supply chain and increase the traceability of critical product data.

However, the AG tech environment is granular and complicated. You need to invest time to understand the pitfalls in order to successfully deploy capital. Firstly, you need to establish a mature ecosystem to generate enough seed and early stage investment opportunities. While we are faced with global challenges, I believe the required AG tech innovation will happen through research and entrepreneurial networks at a regional scale. Universities need to collaborate with VCs to help transform knowledge into start-up companies. Investments in preconditions for innovation and entrepreneurship need to be made.

Secondly, you have to manage the risk/reward ratio. In general, to realize an attractive net IRR for seed/early stage VC is a challenge and the AG sector is no exception. There are significant wildcards. Many of the AG segments have an evolving regulatory framework. Geopolitics are often involved and AG is considered to be an emotive subject for people. As a result, governments see food as ‘vote’ sensitive. In the past decades, it sometimes seemed as if a trade-off between economic and social return was inevitable. I argue to the contrary. Focus on social benefits will accelerate economic profits and AG tech provides an excellent platform for translating shared social returns to individual economic return. However, in order to provide an attractive risk-return structure, VCs need to be able to follow through with series A/B rounds to double down on their early stage top investments.

Finally, find the right team. VCs have been reluctant to step into AG tech. Most of them have been watching the sector for a while, like to get involved, but recognize it is different and are having difficulties finding the few investment professionals that understand the AG tech environment.

The sector has proven to be one of the few bright spots in turbulent times and it will remain an exciting sector for the foreseeable future. AG is a global business and if a VC wants to realize its potential they should build a global pipeline of technologies, a pipeline that I believe should include a Dutch flavor.

About Wilco Schoonderbeek
Innovation and entrepreneurship are great means to serve human potential. As VP AgroFood Investments within PPM Oost NV, a government backed VC and one of the leading providers of venture capital and early stage finance to SMEs in the Netherlands with over € 300mn in funds, I invest in companies that are working to make the food supply chain safer, more efficient and more sustainable. Wilco is a member of the speaking faculty at GAI AgTech Week in San Francisco, June 22-24, 2015. 

The opinions expressed in this editorial are the author’s own and do not reflect the views of GAI News.