Agri Investor Forum 2016: Finding private equity’s role in agtech

Though many opportunities in agtech are not a natural fit for a traditional private equity model, there is a role to be filled, according to participants in a panel held at the Agri Investor Forum in Chicago.

Regulatory uncertainty, evolving consumer demands and the inherent unpredictability of scientific innovations all present challenges to a traditional private equity model for investments in agtech, according to panellists.

But certain areas of the market lend themselves to private equity. One example is consolidation of the burgeoning field of sensors, which are used to collect the data for monitoring of crops and produce, said Cultivian Sandbox Ventures managing director Ron Meeusen.

He noted that many small companies are currently developing similar hardware, software and telemetry tools for use in specific niches of agriculture, which could allow for larger investments into the space as mergers occur.

“Someone from private equity can identify one of these opportunities, write a $100 million cheque and roll these all up into a world-class play that the customers want,” Meeusen said. “That’s where the real value creation is going to come from.”

However, the traditional private equity model is not as clear a fit for the burgeoning sub-sectors that remain in early research phases and typically require smaller investments and scientific expertise, such as gene editing. Declining costs have “democratised” the technology, opening the door to a wide pool of possible sources of innovation, and making it difficult for private equity firms to identify the best opportunities.

Panellists were, however, primarily focused on technologies aiming to impact agriculture through increasing efficiency through innovation.

“Most of the investment theses around land are predicated, explicitly or implicitly, on the fact that we aren’t making more farmland,” Meeuson said. “There are at least three technologies out there that are winding their way towards the market that let us take unfarmable land and convert it into farmable land.”

Ongoing consolidation, a theme throughout the conference, also loomed large over the panel’s discussion of opportunities in agtech.

As the newly-merged industry giants focus on internal efficiency over the next year or two, private equity firms may face less competition for potential acquisition targets, said Marcus Meadows-Smith, chief executive officer of BioConsortia.

Meeusen also drew on his experience with three previous rounds of industry consolidation to say that the real opportunity might come in the form of human resources.

“We can look over the next two years to pretty rich pickings if you are looking to bring in highly experienced, senior people who really understand both agriculture and technology, they are going to be become available,” he said.