Brave new world of venture funding in agriculture

Richard Heath, Australian Farm Institute general manager research, March 26, 2018

VENTURE capital funding of agtech is here and it is a weird and confusing place.

Ever since the Monsanto acquisition of The Climate Corporation in 2013 there has been a frenzy of activity trying to cash in on the boom that is agtech.

Richard Heath

Silicon Valley is well and truly in love with agriculture and food – and start-ups who are going to solve the problems of the world through better and more sustainable farming practices are everywhere.

So, is agtech going to revolutionise what farmers do and are start-ups going to lead the revolution? Short answer: probably. Long answer: probably not in the way that many of the pitches at the World Agri-tech Innovation Summit were suggesting.

First up, the interest, activity and investment in technology for food and agriculture is astounding. The summit had 1000 delegates from around the world with serious money on the table to invest.

This is unambiguously a good thing. The ag technology sector is on steroids: paradigms are being challenged, assumptions shattered, and innovation is thriving. There is no question this will speed up the pace of development of new solutions for agriculture.

However, the funding model stimulating this growth is not without its issues, particularly for the end consumers of much of the technology being developed who are trying to make sense of the opportunities and develop strategies for technology use and purpose.

Venture capital operates on the assumption that many of the investments made will fail. To account for the failure rate, successful exits (venture-backed companies that get purchased) need to return 10 times the investment made to make up for the unsuccessful ones.

This inevitably leads to an environment of extreme hype about the outcomes of the technology the funded company is developing. Unless you are going to ‘save the world’ with your business plan it is unlikely you will be an attractive venture proposition.

The problem of hype over substance is a real one and it is no wonder farmers say they find the agtech space difficult to navigate.

There is no doubt that the companies which make it through this high-pressure funding environment will have to deliver truly transformative technology solutions or they will not survive.

In this relatively early stage the trick is trying to sort the wheat from the chaff, the hype from the substance, so that farm businesses, research funders and policy makers can be prepared for what’s coming and have appropriate strategies in place.

For what it’s worth, here are my takeaways from the World Agri-tech Summit that are relevant to what farm businesses might be doing in five to 10 years’ time:

  • Most of the benefits of agtech will be delivered as the result of systems or integrated approaches rather than the application of individual pieces of technology. Farmers are likely to interact with agtech through service-orientated or packaged systems, rather than just buying a black box which they have to sort out themselves.
  • Farming systems will adapt to make the most efficient use of incoming technology, rather than technology being applied to existing farming systems. The most obvious example of this is robotics and automation: a farm designed to run with a large amount of automation does not necessarily look like a farm reliant on human labour (particularly when labour is a constraint).
  • Plant breeding has become part of the agtech investment environment. With this sort of investment incentive, traditional plant and animal breeding will be pushed faster than ever before. Genomics and computational breeding are going to have much more potential to produce step change productivity improvements than many of the on-farm applied technology solutions.
  • Technology developers are all talking about the need for open data platforms and collaboration. Hopefully this is more than lip service and results in genuine change which leads to true data portability and functioning data markets. This will be one of the most critical things to get right to speed adoption and confidence to participate in digital agriculture.

So – will agtech start-ups save the world? I don’t think that any individual product or company is going to suddenly make farmers more profitable and sustainable.

But the new innovation environment being stimulated by the billions of dollars pouring into agtech is absolutely going to have a cumulative effect and deliver technology change faster than we have been used to.

It’s going to be a bumpy and unpredictable ride, but the outcomes will make it worthwhile.

Source: Australian Farm Institute

This article first appeared on the Australian Farm Institute Ag Forum.


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