The venture capital model is still suitable for agtech. Sort of

With agrifoodtech investment still down and exits in the sector elusive, more folks are now asking whether the venture capital model is still applicable to agtech.

The jury, it seems, is still out on the matter. While VC investment to agtech has potential, there are some critical barriers to grapple with, said attendees polled by AgFunderNews at last week’s World Agri-Tech show in London, UK.

Soil Capital cofounder and CFO Alejandro Trenor said the VC model is still appropriate for agtech “because of the tech.”

“Ag in itself requires longer periods of investment and offers lower returns. The tech component is what continues to make it appropriate for venture capital, mainly because of the scalability. If you have the scalability embedded in the design of a business, which typically will come with tech, then that works for venture capital.”

Micropep CEO and cofounder Thomas Laurent was optimistic that the VC model can still work for agtech investment. “I think it is probably one of the only ways to move things forward,” he noted, adding that “the drivers behind agtech are very strong if you look at global warming happening in the next decade or so.”

“Food and ag, are at the center of everything,” he said. “That’s why we’re starting to see more and more climate funds coming into food and ag, I don’t think we have any climate fund that has that is not looking at food.”

‘The question is whether VCs have a long enough horizon for agtech’

“What we all learned over the past decade of agtech is that adoption requires time and the farmers make single decisions per yer in terms of new technologies. So there is seasonality,” said AGRIVI cofounder and CEO Matija Zulj. “I think the question is whether agtech is a good industry for venture capital because of the horizon and whether we should [consider] additional stakeholders that can support the industry. ”

That issue of horizons and timelines was a common concern amongst those surveyed at World Agri-Tech.

For David Lord, engagement manager at AgriFutures grow^AG, venture capital “has its place” in agtech investment but “needs to look much longer term and to more realistic returns.”

“Agriculture is based on biological systems,” he noted. “It’s complicated, it needs many years to iterate. It’s not just digital SaaS platforms, it’s also messy hardware dealing with different environments and climate. All of those things need to be taken into account when considering how you’re investing and your appetite for risk and understanding of the sector, because it is not the same as every other category.”

“The cycle of a venture investment should be around seven years. That can be challenging for some concepts and bringing things [to] commercial [stage] in agtech,” noted Jacqueline Heard, CEO of Enko Chem.

However, she continued, “It’s not different from how healthcare made it work for small molecule discovery. The big difference is that there are a lot more acquirers to take on innovation in the healthcare sector. The number of customers [in agtech] is pretty small, and it doesn’t make sense to go direct to farmer.”

‘It depends on how you define traditional VC’

It wasn’t just the AgFunderNews crew pondering the future of VCs in agtech at the event. As part of a series of true-or-false questions during his panel at World Agri-Tech, Anterra Capital managing partner Adam Anders asked those onstage to respond to the statement, “The traditional venture capital business model is not suited to agtech investing.”

Mixed responses followed. Rob Appleby, founder and CIO of Cibus Capital, declared the statement false.

Eduardo Mufarej, co-CIO at Just Climate, and Rogier Pieterse, managing partner at PYMWYMIC, argued it was true.

Astanor Ventures partner Christina Ulardic said it was true “for large parts” of the sector, though she did not specify which ones, while Capagro managing director Anne-Valérie Bach suggested it could eventually be true if the agtech sector doesn’t get better organized.

Like others, panelists noted the longer timelines common to agtech as something investors need to be cognizant of.

“The whole ecosystem is not mature enough yet,” said Ulardic. “If you take [the] example [of] the pharma industry, for instance, they’ve [were] starting to integrate innovation within the whole cycle 30 years ago, so now they are mature enough to write big checks or to buy innovative startups at any stage. In ag, we don’t have that.”

“It depends a bit how you define traditional VC,” added Pieterse. “If you define traditional VC and say you need to get your return six times in five years, that won’t apply to ag cycles.”