Does agri-tech 2.0 need a financial reboot?

This month we’re thinking about investment – inspired by the release of the latest Global AgriFoodTech Investment Report by Agfunder (for which Agri-TechE is the UK partner).

Looking back – and looking forward

“What a year 2015 was for food and agriculture technology. The year saw 499 companies attract $4.6 billion of investment across 526 rounds of financing, far surpassing our initial expectations for the year, and nearly doubling 2014 figures ($2.36bn).”

This was the opening statement by Agfunder’s CEO, Rob LeClerc, on the publication of the first global investment report, a decade ago.

Fast forward to the latest report, and the opening remarks make for more sober reading:

You’re forgiven for assuming the data is this report will be dismal. The sector has been in free fall for the last few years, pulled down by macroeconomic trends and venture capital investor disenchantment, not to mention a pullback across venture capital more broadly.

All of that still exists, now compounded by geopolitical tensions, trade wars, and the ever-present threat of climate change.

How times have changed.

But before we delve into the whys and wherefores, remembering that $204.7 billion has been raised globally since 2014 helps reiterate that it is a sector that attracts the interest of investors – with high expectations.

The table below shows the number of deals across the top five geographies a decade apart. The total number of deals is up overall and never has agrifoodtech been more needed – yet investor confidence appears to be on the wane.

So, something needs to change.

“Is VC the right model for agri-tech?” the crowd keeps asking…

As Sarah Nolet (Tenacious Ventures) commented in a recent blog, there is no shortage of commentary about whether venture capital is the right vehicle for agri-tech. She points out the need for alignment and fit of deals, companies, entrepreneurs and finance so that, in some cases, yes, it is, but a more creative approach to funding is needed.

Public private partnerships, blended finance models, tech bundling – and the creation of a pension “mega fund” in the UK will hopefully lead to that much-anticipated “patient” capital.

One of the things we do for our members at Agri-TechE is to match up those seeking financing with the right investor(s). And Sarah Nolet is dead right – matchmaking is a key part of that to align expectations. Part of the trick is identifying those who operate at the right stage of investment (and associated ticket size), technology area, even geography – and that’s before we factor in the team, the tech, the market and if they are making any revenues.

Bundling Tech and Forging Success

Increasingly we are seeing more “tech bundling” – instead of trying to bring a single stand-alone solution to market, tech developers are partnering with those who are already there and integrating or adding their innovation to an existing offering.

It speeds up the time to market, using a pre-existing route and potentially gets revenues in earlier.

Another approach discussed at our recent Challenge Convention is a “foundry” model – as undertaken by the Ceres Agri-Tech programme. This mission-led approach starts with the “problem statement” as articulated by the industry, and then the right people, with the right tech, and the right financing, are convened around the problem to address it.

Is this “picking winners?”

You bet.

It’s a concerted effort around key challenges, articulated by the industry, to which the innovation community responds.

Not for everyone – but open to anyone

There’s no escaping the fact that investing in agri-tech isn’t for everyone. Seasonality can limit the time to gather vital data, weather impacts can render a year of trials meaningless, and margins on commodity crops can be so tight as to make investment in a technology unattractive.

So, we need to view agrifoodtech as a necessity, a long-term set of innovations to address global challenges, rather than a vehicle for big wins and rapid exits. Or, heaven forbid, a greenwashing exercise.

“Agri-tech 2.0” needs to take us into the 21^st Century and beyond – and needs a financing reboot.

Let’s make 2025 the year of the turnaround.

Looking for investment, ready to pitch, or keen to explore agri-tech finance? Join us at Focus on Finance – Ponder, Pitch and Partner, featuring a keynote from Louisa Burwood-Taylor of AgFunder.