With the realization that global food production must increase by 70 percent by 2050 in order to keep up with a global population expected to reach 10 billion, large corporations, entrepreneurs and investors are developing solutions to this major issue.
The acquisition of The Climate Corporation, which provides weather data to farmers, by Monsanto for $930 million at the end of 2013 was a catalyst for more corporate activity in the area of agriculture IT and big data (i.e., the AgTech sector).
Other strategic acquisitions in the areas of innovative agriculture include Deere & Co., which acquired Auteq Telematica (harvesting analytics) on Dec. 4, and DuPont, which acquired Pannar Seed (innovative crop production) last year.
Big tech corporations are entering the Ag space as well, including IBM, which offers a precision agriculture weather-modeling service, and Deep Thunder, which gathers data from sensors placed throughout agricultural fields to measure the temperature and moisture levels in soil and surrounding air.
This increased Ag-related corporate activity is sparking more corporate and venture funds, as well as incubators, to enter the space and driving a big increase in early stage investment in AgTech startups.
The most recent AgTech venture funding is FarmLogs, which raised $10 million in Series B funding on Dec. 17 from Drive Capital, Huron River Ventures, Hyde Park Venture Partners and SV Angel, following a $4 million Series A venture funding in January. The Ann Arbor, Mich.-based farm management software and mobile app developer helps farmers digitally manage their farms in order to increase yield and profitability.
AgTech Venture Capital Deal Growth
There’s been 15 percent annual AgTech venture capital deal growth in the last two years and 37 transactions in the past year, according to CB Insights. Most AgTech venture deals are occurring in the seed and Series A stage, they say, with a 400 percent year-over-year increase in Series A funding.
If broadened out to the Agriculture and Food sectors, there’s been a 33 percent increase of venture capital investment dollars, to $955 million year to date through third-quarter 2014 versus $718 million of investment during the same period last year, according to Cleantech Group. Deal growth for the same period in comparison was 70 percent, with 146 deals versus 86 deals, reflecting the higher level of early stage transactions occurring this year.
Corporate-Backed Funds, Incubators and Partnerships
Farm2050’s new corporate “investment collective”
Launched in November, Farm2050 was formed by Palo Alto-based Innovation Endeavors, a VC firm backed by Google’s Eric Schmidt, and Flextronics’ Lab IX, the VC arm of Flextronics. Innovation Endeavors, however, will handle the day-to-day operations of the partnership.
Farm2050 is set up as an “investment collective” that includes corporate partners Google, DuPont, Agco, United Technologies’ Sensitech, and 3D Robotics. All partners will vet the new startups coming into the program and will have an opportunity to make their own investments in the startups.
Its mission is to “catalyze groundbreaking innovation by providing entrepreneurs the network and resources to build the foundation for a better agricultural future,” and it is open to any ideas that boost food production. It will offer its startups a variety of types of corporate support including the development of distribution channels, building pilot production projects, and developing prototypes.
It plans to work with a broad range of startups involved in boosting food production, including biotechnology, bio-based chemicals, food processing, as well as robotics and automation. Sensors that make farms smarter and more productive by using data, from temperature & humidity to chemical composition, is a key theme Farm2050 is focusing on, says Samantha Wai, who works on the Innovation Labs Team at Innovation Endeavors.
In addition to the current set of corporate partners, they are looking to build a comprehensive set of industry partners in each segment of the agriculture industry value chain, says Wai. They are currently developing corporate partnerships in the food and beverage industry, the food processing industry and farm product distributors, as well as with large commercial farms that could provide test fields for their startups.
Big Ag corporates hungry for innovation at The Yield Lab
St. Louis-based incubator The Yield Lab, launched in September, provides AgTech startups with $100,000 in funding, mentors and connections supported by an agriculturally solid framework of organizations and businesses.
Backed by Cultivation Capital, The Yield Lab will select four to eight AgTech companies each year to enter its nine-month program.
It is strategically located in St. Louis, placing it close to major agriculture industry corporations such as Monsanto, Anheuser Busch, KWS, Bunge, Novus and Solae. It will be actively pursuing corporate involvement in the program, says program director Matt Plummer, and it plans to capitalize on existing relationships with corporations in St. Louis, as The Yield Lab’s management team includes former executives from Novus International, Anheuser-Busch InBev, and Monsanto. The Yield Lab hopes the program attracts more IT talent to St. Louis, which will spark the interest of the area’s major agriculture corporations.
It is actively vetting companies for its program and is looking for startups in the areas of biofuels, precision ag, livestock management, crop development, procurement and logistics, and urban agriculture, according to Plummer.
A hot area for innovation identified during its search for startups to enter its program is “farm waste repurposing,” such as producing biofuels from crop seed and wood chips, and other ways to reduce farm inputs and waste in the agriculture supply chain, says Plummer.
New food and agriculture VC fundraising
Avrio Capital, a Calgary-based venture capital fund focused on food and agriculture, started raising $125 million for its fourth fund in March to invest in innovative agriculture and food companies and is now 65 percent toward its goal, says Aki Georgacacos, Avrio’s senior managing director.
The fund’s current limited partners include Farm Credit Canada, Export Development Canada, and Alberta Investment Management Co. as well as several family office investors. According to Georgacacos, they’ve seen strong growth in interest in the fund by family offices and other high-net-worth investors, which are increasingly looking to invest in the AgTech sector.
They’ve also seen “a ton of interest” in AgTech from the corporate strategic side, says Georgacacos. However, Avrio made a decision not to pursue strategic investors as limited partners in its fund and is focusing only on traditional limited partners.
Avrio’s main investment focus includes startups involved in increasing productivity on the farm, fertilizers, bacterial microbial products to aid plant growth, and precision agriculture such as drones, sensors, big data and satellite imagery. It also invests in sustainable food brands that can address challenges to health and wellness.
Some of Avrio’s recent agriculture investments include Hortau, Farmers Edge, Organic Meadow and VoloAgri.
AgTech Innovation Fund draws interest from corporate LPs
The AgTech Innovation Fund started fundraising in May and is looking to raise up to $50 million for its inaugural fund.
The main limited partner interest in the fund has come from Ag industry corporate strategics, such as equipment suppliers and makers of agriculture materials, says John Selep, the fund’s managing partner. The firm is also seeing interest in the fund from institutional investors overseas, says Selep.
It plans to make investments between $250,000 and $500,000 in initial seed rounds of AgTech startups.
Big investment opportunities for the fund exist in the crop input side (seed and fertilizer), biological products, crop protection, animal health, information technology, and farm waste-to-value, says Selep. A particularly ripe opportunity for waste-to-value investment exists on dairy farms, says Selep, which includes converting cow waste into natural gas and nitrogen for fertilizer through anaerobic digestion, as well as making specialty extracts and proteins from dairy processing byproducts.
IBM Infographic