Despite the overall decrease in clean tech venture capital investment — which dropped by 16 percent to $1.2 billion through May 30, versus the same time period a year ago — according to Thomson Reuters, things look much better in the Agriculture Technology area, a key clean tech subsector. The two areas driving much of the AgTech sector’s growth are biologicals and precision agriculture.
In the first quarter of 2014 investment in Agriculture & Bioproducts companies grew more quickly than any other clean tech sector, growing by 939 percent versus the same quarter a year ago, to $135 million, according to PwC and Thomson Reuters. If expanded to Food & Agriculture, the subsector pulled in close to $231 million across 39 deals in Q1— a 160 percent jump from Q4 2013, and up to $331 million as of May 30, according to data from the Cleantech Group.
The data signals an opportunity for venture capital investors and entrepreneurs who want to enter the space and larger Ag companies that are feeling the pressure to innovate. Regulators, producers, and consumers are also paying more attention to ‘greener’ agricultural technologies due to concerns over climate change and the environmental impacts of farming. This week Tom Vilsack, Secretary of the Department of Agriculture, called on the European Union to do more to ease restrictions on gene-altered foods, making the case that there is no scientific evidence of safety risks.
And Food and Ag industry corporate strategic investors are increasingly becoming limited partners in new agriculture-focused venture capital funds, according to John Selep, partner of the newly launched $50 million AgTech Innovation Fund. Last year, 26 new private food and agriculture funding sources launched, which likely affect the bolstered numbers we’re seeing in 2014. The new investment funds include $70 million fund Cultivan Sandbox, Arthur Ventures $45 million Growth Fund II, and Netherlands-based Anterra Capital’s new growth capital fund that focuses on food.
Biologicals refer to products derived from naturally occurring microorganisms or organic matter and are broken down into two major groups: biopesticides for plant protection and biostimulants for plant enhancement. The nascent biopesticide market is expected to more than double to reach $4.5 billion in 2023, or about 7 percent of the total pesticide market, according to a recent Lux Research report. The venture activity so far this year reflects these numbers.
The biggest rounds have been biologicals: Arcadia Biosciences raised a $33 million Series D in early May for its production of genetically engineered hardy crops and Chromatin closed $36 million Series E round in January to fund development of its sorghum seed technologies. Mandala Capital Limited led the Aracadia round with a $30 million investment, followed by nine other existing investors, including CMEA Capital, BASF Venture Capital and Saints Capital. Wood Creek Capital Management led the Chromatin round, which also included GE Capital, Equity, and previous investors, BP Alternative Energy, IllinoisVentures, the State of Wisconsin Investment Board, and Adventures IV, LLC.
While biopesticides are a small part of the larger Agricultural sector, it is drawing a lot of interest from VCs for a few key reasons, said Sara Olson, research analyst at Lux Research and lead of the firm’s Agro Innovation Intelligence practice. The reasons include the sustainability selling point of reducing the use of chemicals, that biologicals can in some cases better target specific pests, that they are inexpensive to get through regulatory approval, and the last being that it is a diverse sector that offers many opportunities for innovation.
On the other end of biologicals are the biostimulants, nutrients that enhance crop growth, a category that has received much criticism from those that view them as a way to cheat nature, promote pesticide resistance, fool consumers by not labeling genetically modified organisms (GMO) and put undue power in the hands of seed producers.
When GMOs were first introduced they were positioned as a saving grace that would reduce or eliminate the needs for pesticides. However, in reality the use of pesticides stayed the same or increased in some cases.
“The first crops were a step in the right direction, but that’s not where we’re going to end up,” said Sarah Olson of Lux. “The current kinds are more ‘enlightened’ if you will.”
Olson says that the technology has been in the early stages of the development trajectory, but now manufacturers are able to be incredibly precise and arrive at the desired trait without error – such as drought and heat tolerance and rapid growth. If the technology delivers what scientists believe it can, biostimulants could indeed help mitigate the effects of climate change and a stressed earth on food production. This magnitude of impact undeniably attracts bright minds looking to solve challenges, evident in the thriving startup community moving into modified crops.
One example is Isreali startup Morflora, founded in 2011, which has developed a seed treatment solution called TraitUP that doesn’t integrate into the plant’s genome. Instead the technology enables seed companies and breeders to quickly provide protection against threats to crops by introducing improved traits into seeds at a later stage in a process that takes a few days. Morflora has received funding from the U.S. government to help pay for testing of the technology.
The thirst for data has been driving technological innovation across every industry, from marketing to manufacturing. Agriculture is no different, evident in the growth seen in precision agriculture technologies. Precision agriculture is a broad concept, but generally refers to technologies that enable observing, measuring and responding to inter and intra-field variability of crops.
Startup activity in the precision ag space is clustered together in two main groups: drones or unmanned aerial vehicles, which is set to grow the fastest, according to Lux’s Sara Olson, and farm management software.
The Association for Unmanned Vehicle Systems International estimates drone technology will produce an $82 billion economic impact and create more than 100,000 jobs by 2025. The Federal Aviation Administration estimates that 10,000 drones could be airborne in the United States by 2018. According to many though, that number is on the low side.
One example of how drones could be of use to traditional farmers is by facilitating targeted, uniform spraying of pesticides over crops to protect them from fungal infections. Drones also are fitted with payloads such as cameras that would enable farmers to get a bird’s eye-view of their crops.
Despite the potential of drone technology, the sector faces regulation hurdles with the Federal Aviation Administration (FAA), which is determining rules for commercial use. The agency plans to draft airspace use rules by September 2015 and the meantime has allowed for commercial use in six test areas throughout the country.
“UAVs are set to explode,” said Olson. The legal definitions around UAV use from the FAA are the only thing holding the market back, she adds. “UAVs area all stacked up and ready to go but the FAA is holding everyone at the starting line.”
The number of Ag drone startups is growing and attracting investor attention. Oregon-startup Honeycomb is currently raising funding for its AgDrone that offers a software platform along with the $15,000 out of the box drone. The company was recently chosen as the top startup at the Entrepreneur Showcase at this year’s Cleantech Forum in San Francisco by a panel of investor judges.
Other drone startups include Aerial PrecisionAg (acquired by RoboFlight Systems on April 8), Precision Drone and PrecisionHawk, which launched in 2010 and raised $1 million in angel funding from Indiana University last August. Then there’s Bosh Precision Agriculture, which started repurposing military drones for use by farmers last year, and New Zealand’s Hawkeye UAV that has been offering unmanned aircraft observation since 2009. And 3D Robotics is conducting tests with farmers to understand their needs and is testing custom drones for agriculture.
Farm Management Software
Where drones offer farmers an opportunity to more easily capture data in a manner that was previously out of reach, the growth of customized software solutions are providing a platform to organize and make sense of all the data farmers have been using all along.
Startups like OnFarm Systems, FarmLogs, and Granular offer farmers a kind of master control room for their farm and its operations. Through a desktop dashboard and mobile apps, farmers can keep track of farm operations. From scheduling, rainfall, temperature, budgets to planning for planting and purchasing. These companies also use satellite images to allow farmers a variety of options for evaluating and monitoring individual blocks of crops.
In January, FarmLogs raised $4 million in a Series A round led by Drive Capital. OnFarm recently raised $800,000 in pre-series B on crowdfunding site, AgFunder, in a convertible note offering. In February, Granular (formerly known as Solum) raised $4.2 million in financing from Andreessen Horowitz, Google Ventures and Khosla Ventures.
“These technologies are perfecting an imperfect relationship between the farmer and his computer,” said Lux’s Sara Olson. “Data entry methods improve and fit in with what the farmer already does.”
Startups entering this space are indeed facing established and trusted farming companies such as John Deer, with its APEX Farm Management Software, and Winfield Solutions. And the question remains on whether companies founded and based in tech centers can make inroads with farmers.
Other Notable 2014 Fundings in Agriculture
Greenhouse infrastructure startup BrightFarms closed a $7.4 million Series B round in June led by WP Global Partners in addition to NGEN Partners, Emil Capital Partners and BrightFarms founder Ted Caplow.
Farmer’s Business Network, which gathers disparate data from its farmer members, analyzes the data, and converts it into new insights and perspectives, raised $4.6 million (of a possible $6 million) from two investors in April.
Aseptia received $28M from F.B. Heron Foundation, SFJ Ventures, Prudential Capital Group, and Lookout Capital in March. Aseptia’s technology enables the food production of products that maintain the flavors and nutrients of fresh food without the use of preservatives or refrigeration.
Mekitec received $3M from Inventure Capital and Finnish Industry Investment for x-ray scanning robot that will improve food safety.
BioConsortia raised a $15 million Series B round in April from Khosla Ventures and Otter Capital. BioConsortia uses a proprietary method for the selection of beneficial microbial consortia for crop improvement, including enhanced fertilizers.
Blue River Technology, which uses robotics to unlock greater yield potential in agriculture, raised a $10M Series A round from Data Collective Venture Capital, Innovation Endeavors and Khosla Ventures in March.
AquaBounty Technologies, a biotechnology company focused on improving productivity in commercial aquaculture, raised $10M in Post IPO Equity in March.
JDC Phosphate, which has developed sustainable produced phosphate products for agricultural applications, received $8.2M from Agrifos Partners and Florida Opportunity Fund in February.