A Playbook for AgTech Startups
If you’ve read my last post, you’ll recall that compared to traditional saas start-ups, AgTech start-ups face a unique set of challenges. They offer solutions that require a mix of hardware and software, sell products and services into cost centers, and need to persuade a more skeptical user. Their customers, farmers, are often slow to adopt new technology due to the uneven revenue flows and challenges of linking products directly to outcomes.
Although many opportunities exist to build successful and profitable businesses, scaling an AgTech company to be a billion-dollar company is particularly difficult. Given these dynamics, here are three must-do’s for the next billion-dollar company, and three areas that we think the next billion-dollar AgTech company may come from.
AgTech 2.0 GTM Essentials
Build for many crops
One of the challenges of AgTech 1.0 is creating versatile solutions applicable to multiple crops. The four big row crops (corn, soybeans, wheat, cotton) account for roughly 250M of the 300M acres of U.S. farmland, and roughly $90B in crop production, with very tight margins. In contrast, specialty crops (e.g. citrus, vegetables, tree crops) represent over 50M U.S. acres of farmland, but comprise $40B of production with higher margins and more room for technological experimentation.
Meanwhile, the average U.S. farmer grows multiple crops. Technology that can leverage synergy across crops is incredibly valuable. In row crops, this could be a Combine harvester that can be used for wheat and beans by swapping out the head, while in permanent crops, it could be an automatic harvester that can be used for both almonds and hazelnuts. Building crop synergies not only appeals to the grower but also expands the market size.
Find a distribution partner
Technology adoption in agriculture can be quite challenging given the long tail of family farms. Given the two million-plus farms across the U.S., it can be incredibly challenging to expand without well-established distribution partners. Finding a partner with a foot in the supply chain is essential to overcoming the high customer adoption costs.
Create farmer-first solutions
While this seems intuitive, many companies lack user empathy and lack farm experience in their management and founding teams. Creating a product that addresses true pain points is necessary for growth. Most farmer decisions are still made through word of mouth, so having your users be your greatest evangelists is key to success.
Ag Tech 2.0 Areas of Growth
- Ecosystem Services
Given their tight margins, growers are eager to augment their revenue through new and differentiated revenue sources. Carbon credits offer an opportunity for growers to benefit from the carbon sequestration of their land and their crops. Currently, companies like IndigoAg are working on building a market. However, the broader industry lacks consensus on questions around pricing volatility, metric quantification, and carbon impermanence in many crops.
A carbon market will also enable many indirect opportunities for carbon sequestration. For example, we are likely to see increased monitoring and tracking below the soil. Microbial companies may build new products specifically focused on carbon sequestration. Additionally, we are likely to see the rise of cover crops that not only rejuvenate the soil and increase yield but also sequester carbon.
Why we like this area:
- Product: Easily scalable, with the opportunity for data collection through sensors
- GTM: Offering more revenue opportunities for growers is a huge win
- Seasonality: Offers steady revenue throughout the year, not just during the harvest
2. Ag Fintech
Many farmers do not know their profitability. The average farmer makes over 10,000 decisions a season and thinks about each decision as an opportunity to improve yield or cut costs. However, most farmers aren’t regularly tracking their farm’s financial data, history, and profitability. Over 50% of row crops are rented. While an increasing number of tools exist, growers need financial tools that can help them navigate the tricky landscape of crop insurance and bank loans, as well as build a robust P&L. The increasing turnover of land is allowing farms to acquire more land than ever, however, limited tools exist for locating, procuring, and financing new acreage.
Why we like this area:
- Product: Easily scalable software product that is easy-to-use, and easy-to-customize for any farmer
- Seasonality: Steady use throughout the year
3. Regenerative Ag: Credentialing & Traceability
Regenerative agriculture, a suite of farming practices that help reverse climate change, has been around for decades. However, unlike Organic agriculture, which is denoted by its official Organic certification, regenerative agriculture lacks a certification, formalization, and uniformity. The authenticity of the Organic label also can be challenging to track and the EPA does perform audits, many growers confidentially told me they know of both domestic and overseas farmers that falsely claim and label products as “Organic” for the premium revenue opportunities. What will the future of regenerative agriculture become? Will there be a set of certifications for regenerative agriculture? How will it be quantified and measured? Will there be a consumer brand and/or premium pricing associated with products grown in a regenerative manner?
Why we like this area:
- GTM: Spans across many different types of crops
- Seasonality: Affects farmer decision-making through the year
AgTech Future
We are on the brink of a technical renaissance in agriculture. Seventy percent of U.S. agricultural lands are expected to change hands in the next 20 years leading to a younger, more tech-savvy farmer. With this transition, the future of AgTech is just beginning.
