Agriculture Technology Trends: Investment Falls in H1, but More Investors Pay Attention

Investment into agriculture technology startups fell 20% year-over-year in the first half of 2016, as 307 funding deals collected $1.75 billion.

There were two main reasons for the decline:

  1. It coincided with a 14% year-over-year decline in the amount of investment recorded across the global venture capital markets, according to the Venture Pulse report. This first half pullback continues the trend for falling investment figures that started in the fourth quarter of 2015. The Venture Pulse report blamed the pullback on a “wait-and-see” approach among venture capitalists due to various market uncertainties including Brexit, the November presidential election in the US, a slowdown of the Chinese economy, and a potential interest rate hike in the US. We believe that problematic valuations and down rounds have also made VCs skittish on the global stage. The creation of a record-breaking number of unicorns in 2015 — companies valued over $1 billion — is also causing caution, according to the report.
  2. In agtech specifically, there is also a wait-and-see approach from venture capitalists, but for a different reason. Some firms have made their first few investments and are keen to see how they will play out before investing further. The hype surrounding some agtech subsectors has also died down. In Food E-Commerce, the growing number of failures, closures and consolidations have pushed many investors to pullback from the sector which in our view was very overheated in 2015. Investors also pulled back from ag-focused Drones startups, as farmers have questioned their efficacy and efficiency on the farm in their current form.

While investment funding figures were down, there were pockets of growth in some subsectors, such as Soil & Crop Technology, where investment grew 290% year-over-year, and Biomaterials & Biochemicals, where startups raised 32% more than during the whole of 2015. Precision agriculture continued to capture investor attention raising $333 million, slightly more than half the 2015 total. By comparison, we saw a noticeable pullback in funding to Food E-Commerce and Drones startups

The first half of 2016 also saw 7% more deals closed than in H1–2015 (285) and 25% more than in H2–2015 (245), compared to a 13% fall in the number of venture capital deals globally. The number of investors placing bets in the sector also climbed 52% year-over-year to 425. Together, these data highlight the growing number of entrepreneurs and investors that are engaging with the sector, coming to it from a range of different industries to capitalize on the attractive fundamentals of the agriculture sector.

It’s also worth noting that if we exclude Netafim’s $500 million in debt financing as an outlier from the H1–2015 data, we would have actually seen single-digit dollar growth during the period.

We noticed some maturing in the sector too, as Series B deals raised more funding across more deals compared to 2015 levels, while seed stage deals still dominated activity. The geographical diversity of the sector also grew, with startups from 39 countries contributing to the final figures. The US captured 53% of all deals in H1–2016, down from 58% in 2015, and some new or rare countries in the sector included Costa Rica, Portugal, Finland, Russia, Turkey, United Arab Emirates, Denmark, Indonesia, and Ecuador.

There were 3 more key trends during the half, which you can read about over on AgFunderNews.com