By Sarah Day Levesque

 

Finistere Ventures announced its first closing of $150 million for its agtech focused Finistere II fund last week. The company, which has been investing in the agtech space for a decade, clearly understands the opportunity that agriculture, and agtech in particular, present.

 

“This is a $3 trillion dollar industry that we have globally producing food for the planet and absolutely has always been the recipient of trickle-down technology from other fields,” says Finistere co-founder and Partner, Arama Kukutai, “But we see real significant unmet demand for smart capital in the space. There are fundamental resource and quality issues that are out there around need for agricultural products but we also see that the sector is underserved by innovation capital. We’re delighted to see a myriad and very diverse group of our investors recognize this opportunity and coming into the space. That’s a good sign for venture investors like us looking to create and build companies alongside the best entrepreneurs in the space.”

 

Kukutai sat down with Global AgInvesting shortly after the announcement of the fund close to discuss the tremendous potential for agtech investment and how Finistere is addressing it.

 

 

GAI: What is the investment strategy for Finistere Ventures?

 

Kukutai: Technology is critical to the ability of the planet to feed itself and ultimately when you look at the three drivers of our agtech investment strategy, there is an ongoing challenge with ensuring we can produce abundant, safe food. Food security issues, particularly in the context of decreasing agricultural land, pressure on critical resources like water and the added challenge for farmers dealing with increasingly unpredictable climate events are critical. So the issue of basic productivity is a big driver.

 

You add to that the issues of quality of output, particularly as it relates to nutrition – it’s something that has been growing in importance for consumers and therefore for producers for some time especially in developed countries. It’s not just the number of calories we produce, but how we produce them and what we eat. This ties back into the third driver we are focused on, which is around sustainability – and not just environmental standpoint, but economic and practical sustainability of farming.

 

You know we have a farming population that today can feed 150-160 people per farmer and in 1960 that was 20, and yet when you look at the farmer base, the average age of farmers, according to the USDA, is 58 years old and has been trending up for many years. So how we address and think about the roles technology can play in making farming more efficient and also more attractive and rewarding for those participating in it for an economic and quality of life standpoint. There’s more nuance to thinking about where the opportunities are in agricultural technology than the mantra of “how do we feed 9 billion people in 2050.” There are also these threads throughout the conversation around how technology can improve agricultural sustainability and durability of supply chains, as well as when you go from the developed world thinking about nutrition to many parts of the developing world concerned about the ability of a growing population to feed itself. The issues of productivity will always be front and center.

 

But I think when you overlay this a different way and you think about innovation as a category – last year over $30 billion got invested in innovation technology in venture capital as an asset class – and agriculture was in fact not even measured by most players – most of us acknowledge its probably less than 1-2 percent that has gone into agtech, though the sector benefits from many of the platform innovations made in areas like life sciences, internet of things, big data and so forth. Direct agtech investments are growing quite rapidly and it is promising for focused specialized investors that are experts in the ag domain.

 

 

GAI: What is the average investment size?

 

Kukutai: We are stage agnostic, we focus on the ag space. That said, we will continue to do early stage investments – we see a lot of leverage and deal flow in this space but we’ll also look to do later stage deals so we’ll do anything from a million dollar ticket size all the way to total investment in a company could be $10-15 million in a single company.

 

 

GAI: What are the target returns?

 

Kukutai: We’re looking to attractive returns – our minimum goal cash-on-cash we’re looking for minimum three times cash returned on capital and typical for a private equity stroke venture returns needs to be in the mid-twenties IRR.

 

 

 

GAI: How involved will you be with the management of the start-ups/technologies you invest in?

 

Kukutai: The best investments are built on working with the best teams, and our operating experience is invaluable to entrepreneurs looking to build big successes with their companies. I would say that one thing that sets us apart from other investors in the space is that experience allows us to bring both capabilities and networks to the table specific to the ag sector, whether it be commercial, technical, regulatory, internationalization expertise because that’s how we see we can build value alongside the other stakeholders and companies.

 

 

GAI: Does collaboration with Bayer CropScience influence the focus of the fund and the technologies you choose to invest in?

 

Kukutai: Bayer is one of the leading companies in crop science, crop protection, support services to the farmer. They’re a logical type of partner for us to work with and alongside, whether that be more from the standpoint of their insight and view on either technology or market that help us ascertain the type of deals we are engaging in as well as building working relationships for our portfolio companies that create value with Bayer on a bilateral basis. Certainly to be very clear our decision making for investments are wholly independent so Bayer doesn’t play a role in choosing what we invest in or who or when.

 

 

GAI: How will you decide who makes the cut, ultimately?

 

Kukutai:Quality and caliber of management is obviously crucial. We’ve been in the sector for a decade, prior to that we had experience running agricultural assets or developing agtech companies, we feel like we have a very good handle on both the large-scale opportunities that are out there to be sold and which ones to focus on. It’s the combination of our own experience and obviously the fantastic network we’ve built in this industry so leveraging those knowledge points and re-leveraging our understanding of what we think over the next decade will need solving.

 

From our view point of making an investment decision we have an investment committee that comprises our partners, which is led by Dr. Jerry Caulder, my cofounder at Finistere, who has really been one of the true pioneers in the sector. We think we’re in good hands but of course it great to have a network of partners that expands globally including AVAC in Canada and a soon to be announced partnership in Israel. And of course both Dr. Spencer (Maughan) and myself being from Australia and New Zealand, respectively, have a lot of networks to develop technology pipelines in that part of the world. We’re fortunate, we have a stable team that has been together for a long time and the new members of the team that includes seasoned CIO and land asset manager Kirk Belsby bring new expertise, perspective and opportunity to the table.

 

 

GAI: When will you start investing?

 

Kukutai: We’re planning to close our first investment this quarter.

 

 

GAI: What else makes Finistere II unique?

 

Kukutai: We’ve known for a long time that agriculture technology is global and unique in that the level of public funding that goes into the sector on fundamental science is diverse and internationally deep as all countries need to feed themselves, across many different climate zones. While the US is the leading producer of new agricultural technology, the other centers around the globe that have their own specializations and skillsets. While we will focus investment on North America we are looking at companies that could come from Canada, Australia, Israel Netherlands, New Zealand – the other centers of excellence – or in tropical agriculture, Singapore and Malaysia among them. We are unique in regards at looking at truly global pipelines of technology.

 

When you think of fundamental R & D that goes in globally, which tops $13 billion a year in food and ag, it’s a mixed pipeline to draw upon, especially when you think about the amount of VC money that is going in to ag would be lucky if its 1%. So that puts us in a position where we have this gigantic global market opportunity for technology but not many experienced technology investors. We’re very bullish about our prospects. The global angle is a big part of it and our company is made up primarily of people with technical operations experience so we’re looking at companies that we could be running ourselves if we weren’t doing this.

 

 

GAI: Finistere has been investing in the agtech space since 2005. What are the fundamental shifts both in how investors perceive the sector – when and how to commit capital, and its potential for return, and the sector itself?

 

Kukutai: Two big things jump out at me. One is that the cost curves of enabling technologies in other sectors have continued to come down by order of magnitude making startup companies the beneficiaries of incredibly low-cost enabling technologies.

 

The other big thing is that with the global focus on nutrition, sustainability and on food security has driven greater awareness in all parts of the community on this critical sector that we rely for our food. It has brought other investors into the space that weren’t here before whether by an interest to see healthier food, greater sustainability of water use or just financial returns.