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Mission investors seek to give nature a boost with early-stage capital for high-tech agriculture



ImpactAlpha, Feb. 26 – Humans have deployed technology to defy nature’s limitations on the cultivation of food – to nature’s detriment. Now, a growing number of venture capitalists are doubling down on technology – to harmonize agriculture and nature. 

Mission-driven investment firms are writing early checks to companies making biological crop treatments, food preservation techniques and tech-controlled farms that replicate, improve, and restore natural growing environments.

“I think the food system is where the internet was in 1996 or 1997,” says Chuck Templeton of agrifood tech investor S2G Ventures, “The pieces are falling into place to create the next wave of food innovation.”

“When you think about leveraging Mother Nature for what she is good at,” he adds, “many companies are using machine learning to make evolution happen at a much faster pace, with much larger trials, at much cheaper costs with more predictable outcomes.”

Investor rush to alternative meats and healthy eating accelerates the disruption of food systems

S2G Ventures reupped its investment in the Canadian agtech company Terramera, as part of a $48.5 million Series B funding round for bio-crop protection products to help the agriculture sector reduce chemical use and improve the health of farmland. S2G backed Terramera’s first venture round three years ago. 

Trace Genomics, a California-based soil testing and analytics startup, is on a mission to help growers “optimize costs, manage risk and protect their soil as a capital asset.” The company has raised over $22 million in a mix of equity, debt and grant funding since 2015. 

Agrifood tech is still nascent as a venture capital sector, representing only $20 billion of the nearly $300 billion global venture capital market. Funding for high-tech impact ventures like Terramera and Trace Genomics represents an even smaller sliver of that venture capital pie. Most agrifood tech funding goes to startups providing consumer conveniences, like restaurant marketplaces and e-grocers, and retail and restaurant tech. 

But the pipeline of high-tech, impact-driven companies is growing. “Upstream” technologies that are closest to the land and food production claimed $563 million of the $860 million invested in seed-stage agrifood tech ventures in 2019, according to AgFunder’s Agri-Food Tech Investing Report. In 2016, when Terramera and Trace Genomics raised their first funding rounds, just $217 million was invested in across all seed-stage agrifood tech ventures. 

Impact intentions

Dedicated agrifood tech investors like S2G tout technology’s potential to radically reshape the global food system for the better. In 2019, S2G invested in more than a half-dozen companies at the seed level, including alternative protein producer Shiru and on-farm robotics company Augean Robotics. In addition to Terramera, S2G’s Series B investments include Hazel Technologies, which is developing new food preservation technology. 

The sector is attracting new sources of early-stage capital: Environmentally-focused investor Ospraie Ag Science and self-described “mission-driven” investor Agroecology Capital are dedicated agtech investors.

Agroecology Capital closed its first deal in January, investing in Swiss food preservation tech startup AgroSustain. Ospraie Ag closed at least seven deals in 2019 and at least two so far in 2020. Ospraie Ag is an investor in Terramera, as well as in Charlottesville, Va.-based AgroSpheres, which makes bio-based crop applications and L.A.-based bee-breeding startup BeeFlow. Boston-based Freight Farms and Dundee, Scotland-based Intelligent Growth Solutions are targeting vertical farming.

Equilibrium closes greenhouse food fund at $336 million

 

None explicitly call themselves “impact investors,” yet they’re backing these early technologies in large part because of their positive impact potential. 

“We don’t call ourselves an impact fund, but we’re driven by impact,” says Agroecology’s Djalil Reghis. The firm targets purpose-driven tech companies but hasn’t committed to tracking impact metrics.

Agroecology’s is focused on driving positive behavior change in an industry that has seen little innovation in 30 to 40 years. “Consciousness is what we need to change the way we’re growing food,” Reghis says. “But if you provide technology, you make the behavioral transition easier.” 

Swimming upstream

Many of those technologies are capital intensive and as yet unproven at scale. The availability of follow-on funding remains a question mark. 

“Upstream” tech, closer to farm production, may dominate the earliest stage of funding. But from Series A on “downstream deals take the lead,” according to AgFunder’s report. Downstream deals, for delivery companies, e-grocers and “virtual kitchens” capitalizing from growing food delivery demand, attracted twice as much venture funding as upstream ventures at the Series A and B stages.

Trace Genomics, Intelligent Growth Solutions and AgroSpheres were among 194 upstream companies sharing $1.3 billion in Series A funding. That compares to 147 downstream companies that split $1.6 billion at the same stage. At the Series B stage, Terramera and Hazel Technologies were among 86 upstream companies divvying $1 billion compared to 81 downstream companies receiving $2.8 billion in venture investments. 

Plant-based startups are eating Big Food’s lunch

S2G’s Templeton says the high-tech and physical nature of the types of agriculture technologies S2G Ventures invests requires more patient capital. Companies making products that are being applied to food, handling food, and are pioneering entirely new ways to grow and make food often have more intensive and costly infrastructure needs, than say a food delivery app, and often have regulatory hurdles to clear, adding time in their paths to market. 

It took Terramera, Trace Genomics and Hazel Technologies nearly three years to go from their first venture rounds to their second. By contrast, London-based delivery startup Deliveroo, which has raised more than $1.5 billion since launching in 2012, went from a roughly $4 million Series A to a $25 million Series B and a $70 million Series C in a year. Bangalore-based online grocery company BigBasket, which is also backed by more than $1 billion in venture funding, raised a $10 million Series A three months after its roughly $1 million seed round. 

“We all have to learn that a food venture and a software venture are two very different puzzles to solve,” Templeton explains. “The time horizon, growth patterns and other factors play a different role in food and agriculture.”

The food and agriculture sectors need venture capital that can “disrupt the status quo in ways that existing organizations have a hard time doing,” he says. “It is necessary to get the food and agriculture system to change as fast as we need it to.”

Reporting for this article was done in collaboration with AgFunderNews

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