Hours after an upbeat conversation on agritech investing featuring Vinod Khosla and Dave Friedberg on stage at the World Agritech Summit in San Francisco last Tuesday, attendees took a slightly darker view. Investors on the panel later brought me back to reality. .
“We didn't do a particularly good job of getting attention from non-niche investors, which is why we lost our Series C to a crossover round of capital,” says Fall Line Capital. Co-founder and Managing Partner Eric O'Brien spoke about late-stage funding in the agritech space. “In fact, we never lost it, we never gained it.
“I think we have not done well in marketing the companies to show enough progress in the agritech market to attract generalist capital. It comes from a larger fund with deeper pockets that can help you do that.''
Stefan Drezalek, Managing Partner at Grosvenor Food & Agtech, added: But I don't think what we actually did fundamentally changed the world.
“Too many companies are chasing what I call incremental improvement. Show me an industry where three players have figured out completely different ways to do something. It's interesting. There are 50 players and… Is it an industry where one player is just a little bit better than the other? That's not very helpful.”
He added: “The challenge for all of us is that we have to develop some successful models that people can look at and say, 'Wow, this is what we needed.'” That's what it seems. ”
“The expectation of short-term profits inherent in many venture models is incompatible with agriculture.”
O'Brien said venture capital models could work in the agritech space, but investors “underestimated the time and capital needed” to get businesses off the ground in this space. . “Agtech software fits very well into the venture model. The hardware is something in between. The model itself works, but the question is, are we choosing the right companies? , and just whether they are solving a big enough problem.”
However, Vipla Shukla, senior program director for agricultural research and development at the Bill & Melinda Gates Foundation, points out that “the expectations in the venture model and the patience required for both technology development and technology market penetration and expansion… “There is a fundamental disconnect in the timelines.” Agriculture.
“The expectation of short-term profits inherent in many venture models is incompatible with agriculture.”
Drezalek from Grosvenor Food & Agtech added: On the family office side, we have the patience to say that even if it takes some time, we are here to stay.
“We pushed AeroFarms into bankruptcy because we believe that ultimately indoor farming is going to be incredibly valuable and important…and this is one of the most And it's the only farm that's actually profitable in today's environment…but do I want to start?'Starting an entirely new vertical farming company from scratch today? Not a chance. ”
“We're thrilled to be able to continue to support the industry,” said Spencer Swayze, managing director of agricultural private equity firm Payne Schwartz Partners. The problem is that the evaluation has gone off track. Very early on, a tremendous amount of capital was put into the company, and when you look at it, you say, where did they put that money? What did you accomplish with that funding? ”
growth and profitability: 'People are totally scared about their portfolios now.
On how to survive the current funding winter (investments are down 49.2% in 2023, according to AgFunder data), O'Brien told founders in the audience: For profitability. Understand that it's your code for survival in a world where you can't raise capital.Not an end in itself for startups [series] A, B to C [funding] Because if you pursue profitability without growth, there will be no value at the end of the tunnel.
“If you don't show growth, you won't attract additional capital. Put yourself in the shoes of a venture firm. If you need to raise money and you're showing a lot of businesses that are going out of business or have very bad reviews, that's a really bad thing for your business.
“So think about the motivation behind the direction you're getting from your directors. Remember that in a venture, people who are growing are rewarded.”
“This is not a catastrophe, but a reset…”
Regarding corporate venture capital and agricultural technology, Kim Nicholson, vice president of agricultural technology and innovation at Mosaic, said: I think in the corporate world, even when we think we know what's best, we sometimes get in the way.
“But I think the VC model is in a hurry. They throw away so much capital while hoping that the spaghetti will stick somewhere and one of us in the corporate world will grab it and move forward. It's pushing companies and forcing them to go in all sorts of directions. And that's not very fair to the companies, and in some ways it's not very productive for the companies.”
Fallline Capital's O'Brien said the success of corporate venture capital is entirely “dependent on whether the mother ship has a commitment with the corporate venture arm.”
“Some companies are recognizing that if they think long-term and are patient, opportunities can come from early-stage companies. I've seen tourist CVCs, and then if they don't generate significant revenue or acquisitions or something interesting in a relatively short period of time, they abandon ship.”
But Sebastien Pascual, director of Singapore's sovereign wealth fund Temasek, ended on a more positive note, saying that for all the soul-searching in the agri-food tech industry, what we're seeing right now is a “big deal”. It's not a disaster, it's a reset…I think so.” Corporate venture investors will return. ”
References:
Khosla and Friedberg speak positively amid agrifoodtech funding winter: 'Good founders don't have to worry about anything'
