Why VC Investors Are Plowing Record Sums Into Agtech

Shifts in how people think about food, investing and even changes brought about by COVID-19 have led to more money—and more deals—in the agtech sector than ever before.

Last year was a record year for agtech, with nearly $5 billion invested in the sector in 440 funding deals to VC-backed startups, according to Crunchbase data. That far outstrips the $3.3 billion invested in 422 deals in 2020.

Last year saw four deals of a quarter-billion dollars or more:

• Berkeley, California-based Pivot Bio, an agtech tech company that looks to take nitrogen from the air and make it available for plants, raised a $430 million Series D last July;
• Chicago-based Nature’s Fynd, developer of nutritional vegan protein from a microbe, closed a $350 million Series C, also in July;
• San Carlos, California-based FBN, an agtech and commerce platform, raised a $300 million Series G in November; and
• Goleta, California-based ​​Apeel Sciences, which develops plant-derived shelf life extension technologies, closed a $250 million Series E in August.

That pace doesn’t seem to be slowing down. Through the first month-plus of this year, more than $1 billion has come into the sector, Crunchbase figures show.

That number was helped by South San Francisco, California-based vertical farming startup Plenty, which raised a $400 million Series E led by new investors One Madison Group and JS Capital, and also included participation from strategic partner Walmart and existing investor SoftBank Vision Fund 1. Founded in 2014, Plenty has now raised $940 million to date, according to Crunchbase data.

“I don’t think the question is why are we seeing this now,” siad Arama Kukutai, CEO of Plenty. “I think the question is why hasn’t it received more capital sooner?”

Intersection of change

Those who invest or work in the industry point to a handful of reasons why agtech—long thought as slow to change and unlikely to bring back big returns—is now receiving large rounds.

One of those main reasons the sector finally seems to have taken root with investors is the changing buying habits of millennials in particular and people in general when it comes to their food’s taste, nutrition and sustainability.

“Consumers have made a real impact,” said Sanjeev Krishnan, founder and managing director at S2G Ventures, a multistage venture fund focusing on investments in food and agriculture industries. “Consumers definitely want more nutrition. They want different tastes.”

Consumers have also flipped the script on when and what they want to eat at different times of the year, and what they want in the food they eat, said Kukutai, who believes both alternative proteins and indoor farming will push agtech to even greater funding heights this year.

Krishnan said while millenials have different wants when it comes to food, baby boomers have different needs as they get older. That has led to different ways to produce food, be it through genetics, fermentation or vertical farming.

Rise of vertical farming

Vertical farming, for instance, has become a popular investment. The basic concept is that produce is grown on levels—one above each other—conserving both land and water while also cutting down on pesticides and other chemicals.

Florida-based vertical ag company Kalera recently announced plans to go public on the Nasdaq through a merger with a SPAC. The deal is slated to close at the end of April, said Henner Schwarz, the company’s chief commercial officer.

Schwarz agrees consumer preferences have changed, leading to increased interest in vertical farming in particular and agtech in general.

“Consumers want locally grown, ultra-clean, no pesticides produce,” he said. “That is a big driver.”

COVID and climate

While Schwarz believes consumer changes are the main tailwinds driving the industry, another is the one thing that seems to be raising the tide for many sectors in technology—COVID.

“COVID has definitely been an accelerator,” he said.

Schwarz said many countries are seeking to increase the food they produce to improve food security and cut down on the effects of supply chain disruption.

Krishnan said while “Agtech 1.0” concentrated on areas like genetics, pesticides and fertilization, “Agtech 2.0” focuses much more on digitization, data science and alternative farming, which has helped respond to COVID and the issues it caused with supply disruptions and labor force access.

“Something like digitalization has become important because people need supply chain visibility, they want to know crop yield,” said Krishnan, adding tech around automation and robotics also have become more valuable due to labor shortages.

However, it’s not just the pandemic that has caused the industry to pay more attention to issues like yield and supply chain visibility, but also climate change, Kukutai said.

The sector has had to adapt as retailers and distributors have adjusted how they secure food thanks to environmental and climate changes.

“Climate change isn’t coming,” Kukutai said. “It’s here.”

Investors see a path

The final—and perhaps most important to investors—force pushing agtech forward are greater opportunities for liquidity for investment in the sector.

Historically, the most likely path to an exit and liquidity for an agtech startup investment was to sell it to a large acquirer like Corteva or a conglomerate with tentacles in the agtech space like Bayer.

However, public markets have become more receptive to agtech companies, whether the path is a SPAC or the traditional IPO route.

Krishnan pointed to food design and sustainability platform developer Benson Hill and RNA design and research company GreenLight Biosciences as two examples of companies that have gone public in recent years.

“That’s what’s exciting about it,” Krishnan said about the ability to exit to the public market. “Companies are more revenue ready.”

Kukutai agreed optionality in exits has clearly affected investment in the industry.

“We considered all options before the recent raise,” he said. “But in the end we wanted to stay private and knew we had great strategic partnerships.”

Schwarz said “lots of options were available” when Kalera was contemplating a listing in the U.S.

“You see the long-term interest,” Schwarz said “You see the megatrends and that makes (agtech) very interesting.”

Illustration: Dom Guzman

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