Digging Deeper into Agtech Investment

Editor’s note: Agri Investor published a version of this article, “How to encourage investment in early stage agtech” (subscription). 

By Nitza Kardish, CEO Trendlines Agtech

Nitza Kardish, CEO Trendlines Agtech

Nitza Kardish, CEO Trendlines Agtech:

Compared to the huge investments, tremendous developments, and major changes to our lives since the start of the Digital Age, the agricultural sector has lagged behind. In addition to lower and fewer investments in this sector, investors traditionally have come from the field – literally! That is, until a couple of years ago. That’s when investors started to notice agtech too.

Agtech is no longer confined to the “top three”: drip irrigation, seed genetics, and biofuels. Along with scientific research, which provides technological solutions for growing food, other technologies are providing new drivers to solve myriad problems from field to plate.

Here is a selection of technologies driving change (and investment) in the sector:

  • mobile devices and apps connecting or providing access to the field, barn, and dairy
  • sophisticated sensors for monitoring water use to disease
  • big data gathering and analysis
  • alternative, sustainable protein sources
  • use of drones for imaging/mapping drought zones
  • robotics for agricultural automation and food processing
  • smart materials for greenhouses, storage, and packaging
  • genetic engineering to enhance traits and improve quality and quantity of yields
tractor spraying crops in a field

Mobile devices and apps connect the grower to the field, the barn, or the dairy.

All have contributed to a rise in activity of entrepreneurs who see the potential integrating these technologies to solve critical pain points in the sector.

Attracting More Attention

Recent reports published by AgFunder, the agtech crowdfunding platform, indicate that 2015 and 2014 saw a tremendous increase in the number and amount of money invested in this sector: In 2015, 499 companies attracted $4.6 billion of investment, almost double 2014’s $2.36 billion. This definitely points toward a positive trend and signals good news for the agtech sector. The sector also widened its investor base and attracted money from funds that had previously not considered investments in agtech.

  • Newer players in the field include Kleiner Perkins Caufield & Byers, Google Ventures, Khosla Ventures, and Andreessen Horowitz. Due to the launch of new funds, the amount of investment from agtech-focused VCs also increased.
  • Pioneers festival logoAdditionally, tech-oriented conferences began to feature agtech. For example, in late May, I spoke at the illustrious Pioneers Festival (for the third consecutive year). And tech-oriented publications are starting to cover the sector.

Digging deeper into the numbers behind these positive trends reveals two important aspects about investments in agtech and foodtech: (1) Most are made in more mature companies (those past the early-stage milestones), which (2) are perceived as less risky.

Moving the Needle

Many great ideas do not get commercialized simply because they lack funds. The needle needs to move from investments in the less risky, more established companies to the earlier stage start-ups. Entrepreneurs generally raise initial funding independently, either through funding programs or from friends, family, and fools, the 3 Fs. It’s a good start, but it’s rarely enough to meet major milestones. Without making these milestones, other investors such as VCs are reluctant to come on board, and the start-up enters a vicious cycle: Without follow-on funding, it cannot undertake significant development and milestones, and without significant development and milestones, it cannot attract funding.

Spreading the Risks

How can the positive trends and drivers in agtech garner investors’ faith in early-stage companies and bring them on board? The answer may lie in spreading the risk: Getting all stakeholders to take more of a risk represents a key factor in growing the ecosystem and attracting additional investors.

  • Bringing a few VCs on board at once allows the company to raise a more significant combined amount. This method demonstrated successful results in the Israeli medical technology sector. As soon as a few companies succeeded — and caught the attention of investors — end players entered the picture. Physicians and surgeons, people who understood and recognized the pain points of their industry, were willing to invest in innovative solutions to solve problems or meet unmet needs. This represented a vote of confidence in the investments, so VCs were more willing to participate in early follow-on funding rounds.In the agtech sector, CropX utilized this strategy for its Series A funding round, which was led by Finistere Ventures, Innovation Endeavors, and GreenSoil Investments.
  • Crowdfunding has allowed larger dollar amounts to be raised by a greater number of smaller investors, thus lowering the risk for each investor.
  • Another relatively new investor profile is the impact investor. These are high net worth individuals or organizations that primarily look to invest in ventures focused on making a social impact or solving big, basic problems (food, water, shelter). Investments in agtech that contribute to sustainability by saving water and decreasing environmental damage at the same time, and providing more food are a natural, attractive investment option.
  • Agriculturalists themselves are not all poverty stricken. Farmers look for investment opportunities, and like doctors, they want to invest in a sector they understand. Up to now, most investments from farmers have been in farmland. Soon, however, these investors will examine how to maximize returns from that land. Optimization of farmland and producing more food from less resources will only be possible with innovative technologies. Some, particularly in the United States, have already realized that farmer involvement in early-stage agtech investments could have a big impact on the sector.
    • In April, agri-drone sensor and analytics developer Slantrange raised $5 million in a series A funding round. Its first backers, however, were Nebraska corn and soybean growers.
    • International Farming and Finistere launched an agtech JV, which will use IFC’s farmland base and Finistere’s scientific testing program to accelerate growth and commercialization in portfolio companies.
    • Farmers themselves mostly invest through private or government organizations. In Israel, the kibbutzim, which form a large proportion of the farming community, could invest, but convincing them to make a collective decision to do so could take time. There are also private farmers who express interest, but not enough to call it a trend. It’s a change that also needs to take place in Europe.

Taking the Lead

Five years ago, we at Trendlines Agtech recognized the opportunity and need for investment in agricultural and food technologies. It quickly became apparent that we needed to lead the way in starting an ecosystem to encourage and support the early-stage sector in Israel. Trendlines Agtech was established as an incubator focused on early-stage investments in agtech start-ups.

In our quest to build the agtech ecosystem in Israel, we identified three sectors that interested both the market and investors.

  1. As the world looks for alternative sources of protein and ocean fishing has reached saturation, aquaculture has seen tremendous growth. Three of our portfolio companies looking at inventions in this area are BioFishency (an all-in-one water treatment system for aquaculture), ViAqua Therapeutics (drug delivery for aquaculture), and AquiNovo (accelerating growth of farmed fish). These companies originated from veteran private entrepreneurs and academics in the field.
  2. Precision agriculture is another hot area for industry, agriculturalists, and investors. Two portfolio companies that developed technologies to support precision agriculture are Saturas (a stem water potential sensor for optimal irrigation), and Sol Chip (an IoT system and energy-harvesting solution provider).
  3. In the quest to increase yields, ag biologics and crop protection face serious challenges as sustainability and health risks demand new methods and ideas. EdenShield and InPlant Technologies are among the companies involved in this sphere.

Seeking entrepreneurs, investing in, and supporting companies to form a portfolio of 14 companies proved the agtech sector was ripe. However, it is only a partial solution. Building the industrial ecosystem requires bringing all the players on board from industry, academia, private and public sectors, and regulatory agencies — all working toward a common goal.

AgriVest 2015

Networking at AgriVest 2015 against the spectacular backdrop of the Weizmann Institute campus.

International players and multinationals need to be aware of the tremendous potential in the local scene (just as they have in medicine, security and defense, and information technology). An example of this is the establishment of a $10 million fund by The Trendlines Group and Bayer Crop Sciences to leverage early-stage investing in ag innovation.

In 2012, we launched AgriVest, the only Israeli conference bringing together international leaders from industry, business, and government to focus on the challenges, trends, and inventive solutions developed by Israeli agtech innovators, and the opportunities that investment in the sector presents.

This year, the 4th AgriVest Conference will be held 27 September 2016. It promises to be the biggest event yet, due to the enormous “growth” in the sector. We invite you to join us in building the local – and global – agtech ecosystem.

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