AgTech Is Covid-Era Winner. Prospects Are Robust.
Before the pandemic, venture capitalists largely ignored trends in farm technology. A common view was that the sector did not lend itself to the sort of monetization framework seen in ride-hailing or e-commerce businesses, among other ideas. That convention may finally be a Silicon Valley relic.
Crunchbase reports that agtech funding — including pre-seed, seed, venture, corporate, and private-equity deals — soared to $4.9 billion across 440 deals in 2021, representing a 380% increase over the 2017–2019 average. For context, if coalesced academically into a single IPO, the money raised for the total agtech sector would have made this industry segment the second largest offering of 2021, outpaced only by electric-truck maker Rivian, which raised $11.9 billion through its mega-IPO.
Why the sudden interest in lettuce-and-tractor apps?
The primary accelerator, in our view, has been the pandemic. Higher unemployment begged questions about access to affordable food, while empty shelves, provoked by supply-chain disruptions and hoarding, amplified food-related emotions. In global forums, export restrictions in some nations on cereals, processed grains, and rice elevated the longstanding debate about food-security issues.
To be less cavalier, agtech is far more than lettuce-and-tractor apps. It includes companies tied to data science and alternative farming, as well as fertilization and pesticides. Here in Florida, Orlando-based Kalera, a pioneer in vertical farming, announced in February that it was going public through a $375 million SPAC-based deal. Other domestic names that have been in play include Chicago-based Nature’s Fynd, a company that develops vegan proteins from microbes, and Los Angeles-based Apeel Sciences, which manufacturers plant-derived coatings that extend the shelf life of produce. Agtech companies are also prominent in Brazil, India, and Israel, to name a few nations.
The Russian invasion of Ukraine has further amplified an opportunity for greater investment in agriculture worldwide, including technology components. Based on data from the American Farm Bureau Federation, Ukraine’s primary export markets for agricultural products include the European Union at $7.6 billion, China at $4.2 billion, India at $2 billion, Egypt at $1.5 billion, and Turkey at $1.5 billion. The supply shortfall is leading to extreme market distortions; wheat prices have settled since the dramatic spike in early March, but they remain some 20%-to-25% above prices seen at the start of the invasion.
Egypt is an example of a country experiencing a prime ricochet effect of the war. The price of bread is a politically-potent symbol there; it is heavily subsidized by the government. A leading slogan of the 2011 uprising was “Bread, Freedom, Social Justice.” Other volatile settings in the region include Lebanon, Iran, Iraq, and Syria.
Are we suggesting that Silicon Valley needs to upend its allocation strategies and invest more heavily in those agtech startups based in emerging markets? That approach may not be a bad idea, but it is ultimately validated by the risk-return spectrum. We do, however, believe, that the impact of the war, buttressed by the pandemic, will be a prolonged investment cycle for agtech companies worldwide. Ukraine too will benefit from that trend.
Our Vantage Point: Agtech was long considered a sleepy, albeit viable, corner of the venture-capital industry. For risk-tolerant investors, the pandemic and Russian invasion has led to broad reinterpretation of these opportunities.
Learn more at the Farm Bureau
Image Credit: Sompong_tom at Adobe Stock.
