Mega funding rounds from companies like Farmers Business Network, Gingko Bioworks, Indigo Ag and Plenty are redefining the agtech investment landscape as we move into 2018. Consistent with the first wave of agtech startups maturing, companies are looking to scale in a sector that has around $3 trillion value at the farm gate, and multiples of that downstream. In turn, a more diverse universe of investors supporting these companies is signaling a sea change in agtech investing. The total investment in 2017 topped $1.5 billion-- setting a new record. With indoor farming, disruptive retail, along with genome and microbial tech all vying for the big dollars, there is understandable angst for the “have nots” trying to attract capital to compete with the “have mores.”
Historically, over 95% of agtech exits have occurred via M&A as technologies were incorporated into the established distribution channels and farmer networks. These were commanded by the “Big Six,” retail leaders like CPS, Wilbur Ellis and Winfield, and farm hardware specialists like AgCo, Case NH and John Deere. These established players have been the market makers for exits to date, which was highlighted in 2017 by the Blue River and Granularexits.
However, things are changing. The increased exit activity, alongside increased traditional VC dollars entering the agtech market, has motivated growth investors to support market scaling as the sector matures. Softbank's Vision Fund led the $200 million Series B to bet on indoor farms while also opening doors to key partners in Asia and the Middle East to reach affluent consumers. Tech investors like Japan's Softbank are seeking to bring agtech into the realm of global scalability.
Greater capital availability will drive significant revenue growth for an elite group of companies providing a financing foundation for the first set of agtech unicorns. The spike in global interest into the agtech arena will fuel more innovation and growth. Plenty is reshaping indoor agriculture with its vertically integrated, high-tech farm coupled with an aggressive plan to rollout its fresh produce to consumers.
Exemplifying this is the recent financing by the Investment Corp of Dubai, which led the largest round in agtech to date – a $203 million round into Indigo Ag in December. We expect growth capital to gain momentum as the appetite for direct investment from large institutional groups and sovereign wealth fund investors, especially from Asia and the Middle East, is directed into the agtech market.
Farming's hot new pesticides
Over $860 million across 35 deals was invested in companies in the microbials segment, making it the single largest investment area for agtech last year. Bayer’s joint venture with Gingko Bioworks committed $100 million to reprogramming the genome of microbes. Gingko joined Indigo as the latest agtech unicorn having raised over $400 million to date. Competitors include Zymergen, which raised $160 million in a round with Softbank, in a superheated segment.
With the microbials segment supplanting digital agriculture as the hot subsector, these technologies will face the challenge of translating from the lab and greenhouse to the field. As is often the case in agtech, the “devil is in the data.” Can these companies prove their thesis and claims on yield and efficacy where it counts?
Established players like Agricen, fast movers like Innocucor, Pivot Bio, and Plant Response are getting in on the action. There is clearly also a roll-up opportunity for the plethora of new intellectual property being developed in this segment--which will likely drive additional investment activity in 2018.
Fintech in Agtech
Agtech is really a "horizontal" sector, with tech and business models from other venture-backable sectors being replicated in the agricultural markets. Payments and insurance are two segments to watch in 2018. For example, crop insurance is an $11 billion market, which has its first startup in Crop Pro looking to innovate around insuring new technologies used by farmers.
This has the potential to help address the challenge of adopting new tech that can boost yield, manage inputs and enable financing of working capital for farmers unwilling to risk scarce capital on the newest tech trends. Likewise, enabling payment processes for retail inputs and in key supply chain steps such as grain storage are the targets of companies like Bushel-- working to bring co-operatives and traditional retailers into the mobile e-commerce era.
The data sets generated in the move from manual-based legacy systems to those integrated with emerging platforms in blockchain, promise to unlock meaningful value for farmers and their partners in the supply chain.