The topic was front and centre at the recent World Agri-Tech Innovation Summit. Two rockstars of venture capital – Vinod Khosla, founder of Khosla Ventures, and David Friedberg, founder and CEO of The Production Board (TPB) – were fairly sanguine about the agtech investment landscape as they starred in a hotly billed panel discussion.
“Technology has delivered, and a lot of investors have lost money,” said Friedberg. “Those are not the same thing. From a capital market perspective, a lot of folks lost money. But improvements in technology in food and agriculture systems is demonstrating itself and we are really at the early stages of what I think will be some long-term compounding effects that will result from a lot of these technologies.”
The cream will always rise to the top
Yes, we are witnessing fewer exits than the highs of 2021. But the pair stressed that agtech is a long-term play in a still-young industry.
“I like to say not all hard things are valuable but most valuable things are really hard,” was Khosla’s sage advice.
“The ag cycle is very long, and we are right now in a negative part of the cycle,” added Friedberg. “But when there is something that is fundamentally disruptive to a core business, they [investors] will have to pay a lot more than they’re comfortable or willing or might want to. I think there’s going to be a few [examples] of those in the next couple of years.”
Newer technologies are creating newer business models that don’t exist at big companies today and represent “a fundamental shift in how companies do things today”, he told the audience.
Plant genomics and genetics is one example. Friedberg recently took on a new role as CEO of Ohalo, which is using advanced techniques like molecular breeding, quantitative genetics, and gene editing to develop new crop varieties with desirable traits that are designed to improve yield, quality, flavour, and resistance to pests and diseases.
David Freidberg: “Exceptional founders have nothing to worry about, but being a founder doesn’t give you the privilege of being able to raise money”
He believes the impact of these innovative plant genetic technologies is set to be profound with the potential to completely reimagine agriculture. Genetics traditionally takes a long time, however. But this fact presents an opportunity to create this compounding value, he reckons. “If you can shorten the time to driving, testing, measuring and realising outcomes from predicting and making changes in genomic driven systems, that value can compound and you can very quickly take entire markets and create extraordinary value.”
Among the start-ups Khosla is championing is BioConsortia, which is looking replace to crop inputs with microbe-based superior solutions for nitrogen-fixation, and Zorda, which is building autonomous greenhouses with robots to deliver high-quality local produce. Others include New Zealand-based Leaft Foods, which is using leaf-based protein as an ideal new plant-based protein source, and Vertical Oceans in Singapore, which grows sustainable shrimp in huge city-based ‘aqua towers’. “For us, agtech has been really profitable,” he said.
The pair blamed the 2021 spike in investment and subsequent dip on the rush of capital post-Covid followed by an inflationary period and rate hikes – a toxic cocktail that hit investment in all sectors.
The reduction in capital flows therefore “doesn’t mean there’s an absence of investors and an absence of innovation and progress,” stressed Friedberg. “There are still investors that are finding these opportunities and that are willing to make those long-term bets,” he said. “Exceptional founders have nothing to worry about," he declared, "but being a founder doesn’t give you the privilege of being able to raise money.”
Khosla added: “what the market has done is separated the really good start-ups from the not so good… There’s a lot of diamonds in the rough that will go public.”
But VCs are ‘scared shitless’
A different tone was struck during a separate World Agri-Tech Innovation Summit discussion where a panel of investors lamented a recent overheated market rife with overvaluations and ‘me too’ ideas.
“Put yourself in the shoes of your venture capital,” said Eric O'Brien, co-founder and managing director, of Fall Line Capital, as he warned young agtech businesses to beware of any advice to push for profitability over growth. “People are scared shitless right now about their portfolios and if they need to go on the road and raise capital from their LPs (limited partner) and they have shown a bunch of businesses that have gone out of business, that’s bad for their business.
“In a world where you can’t raise capital it’s not an end in itself,” he said, “because if you drive for profitability over growth, there’s no value at the end of that tunnel. It is a temporary strategy to get through a very difficult capital market. But if you do not show growth, you will not attract additional capital.
“So, think about the directions you’re getting from your directors and just remember that in venture, the rewards go to those who are growing.”
VCs have done a poor job at “getting investors outside our niche to pay attention and so we’ve lost the capital stack,” he added. “Speaking as an early-stage investor, we’ve never seen a series C through crossover round. We’ve done a poor job marketing companies and showing enough progress within the agtech market to attract generalist capital coming from bigger funds with deeper pockets that can help sustain some of these companies.”
Vinod Khosla: “Not all hard things are valuable, but most valuable things are really hard"
True of false: the traditional VC model simply isn’t suited to agtech
The traditional venture capital business model is just not suited to agtech investing, believed Vipula Shukla, senior programme officer, agriculture R&D at the Bill & Melinda Gates Foundation. “I think there is a fundamental disconnect in timelines between expectations in the venture model versus the patience that’s required for both technology development and technology market penetration and scaling in agriculture. The expectations of short-term return, which is endemic in many venture models – is not consistent with agriculture.”
Further advice came in another panel session with Hadar Sutovsky, VP of external innovation at ICL Group. The whole investment climate was affected by the post-covid problems of inflation and supply chains disruption impacting food security. Agtech was no different, she said. Yes, it’s going to be hard raising cash, therefore “start-ups need to manage their own cash flow in order to create traction. And there is a backlog of start-ups that are in line waiting because investors are not investing back into the ecosystem. And here we are stuck a bit but it’s not all black.”
“You have to do a lot less today with a lot less capital,” was the advice to start-ups from Agtonomy CEO and co-founder Tim Bucher.
