The agricultural landscape has never looked more unpredictable — and deep changes may be on the way. Farmers have adopted new technology for generations, but the speed, depth and breadth of research and products hitting the market today is truly head-spinning. Dubbed “agtech,” the application of new breeding techniques, soil microbiome enhancements, and evermore precise field and climate data applications makes feeding a growing population on improved diets quite attainable. But this unfolds against the backdrop of a society with changing values on food production.
During the past five years, the U.S. agtech sector has shown rapid expansion, both in terms of the number and diversity of companies, and it continues to provide a growing source of investment for venture capital, private equity and strategic players. With a future poised to bring more M&A activity in the sector, as well as capital infusion to the production side, agtech is on a path of true disruption.
The top segments that have seen agtech capital raises are:
- Plant health and nutrition includes novel plant biologicals, breeding techniques, soil amendments, biostimulants and biopesticides.
- Animal health and nutrition includes animal disease vaccines and medicines, new animal feeds, genetic makeup and livestock management.
- Equipment and data include aerial monitoring, precision agriculture, agricultural equipment linked by the internet, big data and data analysis services.
- Food technology includes cultured meat, novel ingredients, plant-based proteins, food safety, new production methods and agricultural marketplace.
The plethora of investment opportunities encompassed by these sectors has prompted five trends agtech investors would do well to watch:
The rise of problem solvers. The agtech industry will continue to grow as companies try to solve problems of sustainability, pesticide and herbicide resistance, antibiotic replacements, farm level productivity, and the challenging economics of traditional agricultural methods.
An increasingly diverse landscape. Since 2014, 282 agtech companies have raised $5.5 billion of private capital across 481 transactions in the United States and Canada. Plant health and nutrition has attracted the most investment, with 159 deals raising $2.2 billion, or 40 percent of all capital raised.
Robust capital raising activity. Agtech funding experienced substantial growth between 2014 and 2018, increasing from $828 million raised in 2014 to $1.4 billion in 2018, which represents a 13 percent compound annual growth rate. The average agtech capital raise has nearly doubled in size from $7.7 million in 2014 to $13.1 million in 2018, with activity growing most significantly in food technology and plant health and nutrition.
Smaller deal sizes. For the five-year period, the average M&A deal size was $11.5 million, with 61 percent of all capital raises smaller than $5 million and 27 percent larger than $10 million. Since 2014, 86 agtech companies have closed 128 transactions larger than $10 million. Plant health and nutrition had the most transactions, with a total of 44.
Fragmented investor base. Since 2014, 219 institutional investors, including venture capital firms and family offices, have bet on agtech with transactions larger than $10 million in size. Of note, more than 65 percent of those investors have participated in only one-off transactions. The 10 most active venture capital firms have made 112 agtech investments.
AGTECH CAPITAL RAISES BY SEGMENT
Plant health and nutrition (including biologicals) have raised the most equity capital of all the segments, totaling $2.1 billion since 2014. The biggest year was in 2018 with $787 million raised, led by Indigo Agriculture with a $250 million raise. Indigo — a Boston-based agricultural technology company that works with plant microbes, aiming to improve yields of cotton, wheat, corn, soybeans and rice — also leads the pack for the five-year period, with more than $550 million raised in three funding rounds.
A subset of particular interest within this segment is biologicals, including biopesticides, bioherbicides and soil biostimulants. In this class, we see fewer seed-stage rounds and increasing size of later-stage rounds. Fully 40 percent of the plant health and nutrition investment category have been for biologicals.
We saw little animal health and nutrition capital raising activity in 2018, but for the five-year period, companies raised $831 million through 78 deals.
Since 2014, the equipment and data sector has raised more than $1 billion. Leading the pack is Farmers Business Network — a farmer-to-farmer network to create transparency and competition for business — with $150 million raised in two rounds in 2017. The 10 largest raises, totaling $423 million, represented 41 percent of the all capital raised in the five-year period.
In the food technology segment, excluding food delivery, over $1.6 billion of private equity capital has been raised since 2014. The 10 largest transactions accounted for nearly 58 percent of the total. In three raises, Impossible Foods, a maker of plant-based substitutes for meat and dairy products, accounted for nearly $400 million, or 25 percent of total funding.
Since 2014, the 10 most active financial sponsors have made 112 of the 481 transactions, or around 23 percent of U.S. agtech investments. The most active investor, S2G Ventures, has made 17 investments spanning all four agtech segments. Khosla Ventures is close behind with 16 investments in all segments except animal health and nutrition.
Among funders, Y Combinator, Google Ventures, MGV, Middleland Capital, Cultivian Sandbox, Kleiner Perkins, The Yield Lab, and Anterra Capital round out the top 10, each with multiple capital inserts across the spectrum of agtech. Many investors appear to be making intra-sector investments with multiple bets in the same space. These statistics indicate that financial sponsorship is widely diverse and not highly concentrated among a few funders.
Since 2014, there have been 131 transactions totaling $6.3 billion of M&A activity. This analysis does not include the mega-mergers. Ten buyers accounted for 22 percent of transaction volume since 2014.
Only 20 transactions were recorded in 2018, making it the quietest year out of the past five. The mega-mergers of Dow/DuPont with BASF, Bayer’s acquisition of Monsanto, ChemChina’s acquisition of Syngenta, the Agrium/PotashCorp merger that formed Nutrient, and Eastman Chemical’s acquisition of Taminco drew attention away from smaller deals.
M&A activity will accelerate as these new mega-companies complete their reorganizations and go back on the hunt for accretive acquisitions.
John Campbell, a Capitol Hill veteran, served as deputy undersecretary of agriculture during the George H.W. Bush administration. He is now managing director of Ocean Park, a boutique investment bank. This article is reprinted by permission of Global AgInvesting, where the piece was first printed in GAI News on June 17, 2019. Go to this link to read the full report: https://bit.ly/2Yy7CRu