Agri-Tech’s Business Model Maze

How agri-tech start-ups are moving from hockey stick dreams to marathon revenue plans

Subscription, leasing, purchase or rental – when it comes to business models deployed by agri-tech start-ups, we’ve pretty much seen them all. In fact, if our first question on meeting a new business isn’t “what’s your business model” – it is certainly second or third.

Given the contraction of global investment into agri-tech seen in 2023, this question has never been more pertinent. A likely emphasis on generating revenues at an earlier stage means the “jam tomorrow” premise might be waning when talking to investors.

As every accelerator and entrepreneurs’ boot camp states, it’s not just about the technology, it’s also about the team – and specifically the founder. But it’s also about the business model, which ultimately leads to the exit for the investors – and the narrative is changing.

An interesting phenomenon is underway.

Global investment into agri-food tech has – as we previously reported – dropped by nearly 50 %  from 2022 to 2023, according to AgFunder. Clearly there is less money in the system, arguably creating a fertile ground for consolidation, mergers and acquisitions.

Yet, on the other hand, significant private equity funds are being raised. In the Agri-TechE network alone, there are usually at least one or two organisations putting together a new fund for agri-tech. Some of the big-ticket announcements include Paine Schwartz Partners who have a $1.6 billion fund (version VI) for sustainable investments across the food chain.

At a UK investor round table last year, the investors – mostly VCs – were discussing the role of government co-investment to de-risk their position. The Innovate UK Investor Partnership Programme is designed to do this at a modest level – micro-businesses and SMEs with a pool of investor partners who provide leveraged finance.

Reality check: revenue rules

But we need to get real. The days of the ambitious “hockey stick” graphs shown by start-ups in investor pitches are probably behind us – as one investor put it, “all hockey and no stick.” Revenues are increasingly important – taking us back to the earlier point about business models.

And we shouldn’t under-estimate the value of government-backed contracts – not a model we often see in agriculture, but procurement by the public purse gives great confidence to investors. Who better to procure UK food for public services than the government itself?

Over the last decade, we’ve showcased over 60 start-ups at the REAP conference – some offering single technology solutions, others whole platforms, and those that charge a minimum price for hardware while also monetising associated consumables. Subscriptions for cloud-based services or access to data platforms are becoming more common, as is leasing for high-capital-cost equipment such as robotics.

Our Top Three Tips

• Be different. Know your points of differentiation in this crowded market: your business model will make or break you.
• Revenues are royalty. How are you going to make money – and fast?!
• Prepare for partnerships. If indeed the landscape for Mergers and Acquisitions is opening up, start preparing now. Who might be your target partners and what is your value proposition to them?

At REAP 2024 we’ll be showcasing a new crop of start-ups, from livestock welfare solutions to innovations powering the circular economy, alternatives to some of our favourite staples and cutting-edge automation.

What will their business models be, and how will they transition from the hockey stick to a relay race?

Or perhaps that should be marathon…

Join us at REAP 2024 on 6 November to find out!