That is the point Frank Klemens is keen to get across. “Ag and food innovations used to all be from rural America but it swung out to the coast because all the money was there,” he says. But that’s a problem, he argues, “because if farmers hear you’re in San Francisco, they don’t trust you.”
Klemens is the managing director of the Generation Food Rural Partners Fund (GFRP), a fund spun out of Big Idea Ventures that is looking to address just that. Unlike the many agtech start-ups that populate the American coastlines, Klemen’s claims this new fund is getting back to farmers in rural America. “It all starts with the farmers. It really does. And everybody keeps forgetting that.”
Saying that, the home of the GFRP is New York although the fund has partnered with 33 universities across the country including North Carolina State, Ohio State, and Kansas State. The goal, its literature states, is to “bridge the gap between the innovative minds of university researchers and global corporations searching for fresh solutions.” Or, as Klemens puts it: “we’re a technology dating app”.
Unlike many VC funds which seek out existing companies to invest in, the GFRP acts as a founder by sourcing a variety of intellectual property from universities and packaging them up into a single business. “This is a totally different view of a VC,” says Klemens. “We’re not waiting for somebody to come up with the idea. We have the idea and we put it into action.”
The $125m target fund typically takes up to 90% of the initial equity with most of the remaining share typically held by the university which developed the technology.
The fund has so far created seven new companies since it opened for business in January 2023 including Plant Sustain, which aims to replace chemical fertilizers and pesticides with naturally symbiotic organisms, and Bio Cloak focused on plant and soil health. It also launched Nexture Bio, a cultivated meat technology which one can only assume fewer farmers will be cheering on.
Each of these companies is based on a variety of patents, Klemens explains, with TerraSafe, an eco-friendly agricultural packaging company, holding as many as 27.
“What we’re doing here are is making platform companies. Not a single product company,” he says. “I’m not one of those VCs where you can only work on one thing and when you get to a point where it doesn’t work, you keep throwing stupid money at it and end up spending millions of dollars for no revenue. That’s not one of my models.”
Instead, these companies have already spoken to potential future customers, “the ADMs, the Cargills, all those big guys, and asked them what would you want to work with this kind of company?” he explains. “Businesses in the fund must have corporate partners. That’s our model”.
Valley of death
Klemens launched the GFPR after recognising - along with Big Idea’s chief investment officer Tom Mastrobuoni - that agtech spun out of universities often failed in what they termed ‘the valley of death’.
“University IPs would come out, universities would support these startups, but they wouldn’t get far,” Klemens says. “I spent the first three months of my job trying to figure out why.”
His analysis concluded there were three reasons. The first, he says, is that companies often rely on just one patent in a high-risk strategy that either flies or flops.
The second is that tech founders are often placed at the helm. “That’s a nightmare in the VC world” says Klemens. “You need a seasoned person in there that knows how to say to the technical people: ‘enough iterating, we need a commercial product out, scaled, and into the market.”
And the third one, he concludes, is weak networks. “These universities really aren’t connected to the VC world and yet if you’re going to a seed stage or a Series A, you need to know how to bring those people in.”
This diagnosis has fundamentally shaped the way GFRP companies are built, sourcing a variety of different patents and technologies, building a team around a seasoned CEO, and plugging it into potential investors at an early stage.
They must also start making money as quickly as possible. “It’s very much the motto that I sit down with all these CEOs and its revenue, revenue, revenue. ‘R-cubed’.”
“If any of these companies, say: ‘what’s Frank about?’ R-cubed is the first thing out of their mouth. Because without revenue, you’re not going to get to a Series A right? You’re not going to get those investors in.”
While chemical giants like FMC, Corteva, and BASF are often approached for investment, they have so far shown little interest. “They’re slow and they’re going to get left behind,” Klemens says.
“We find it much easier to work with the midsize companies. They are extremely hungry for solutions that are very eco-friendly and plant based. They’re looking for solutions like that, and they will pivot much faster than these large corps.”
These external companies will only come in at Series A stage, however, once the company is already making money. The fund itself puts in the first $1m to enable the company to do four things: “It’s all about de-risking: de-risk the technology, the business model, the commercialization and the scale up. I need to know we can scale this up.”
After that, the company returns to the board for another $3-$5m to pivot from derisking to revenue and product roadmaps. “That’s the difference in our companies from university companies and maybe even some other startups. We’re focused on revenue from day one. The goal is to get to a Series A, we’ll get you there. That valley of death is in that pre-seed to seed area.”
“Even Plant Sustain - which is very ag-based - will have revenue within two years,” he says. “That’s unheard of for an ag startup, because you’re working with the regulators.”
Revenue is one thing, but profit is another. And given none of GFRP’s companies have reached Series A stage yet, it remains unclear whether the returns will be there. Klemens declines to say what its targets are, although he insists “we’re expecting returns more than what you would usually get at this at this stage.”
They are big promises that will demand big results.
