Agtech gets swept up in private venture debt opportunity

Following the collapse of Silicon Valley Bank in March, one of the most obvious fallouts was always going to be the shrinking availability of credit to tech start-ups.

The jitters that SVB’s demise introduced to the banking system – coupled with the simultaneously timed crisis at Credit Suisse that was only solved by a rescue deal from UBS – meant that venture banks were not going to be rushing in to fill the gap left by SVB. There was just too much uncertainty in the air.

As a result, the far nimbler private debt providers always seemed the more likely to capture the opportunities on offer ahead of the banks.

From the likes of Applied Real Intelligence founder and chief investment officer Zack Ellison, through to Fidelity International head of private credit strategies Michael Curtis, there has been no shortage of private market stakeholders who support this view.

Applied Real Intelligence’s Ellison went so far as to call the opportunity set “a once-in-a-generation event” for non-bank lenders. The firm was already in market raising its Venture Debt Opportunities Fund at the time of SVB’s collapse, and held a first close of an undisclosed size for the fund at the start of April.

Meanwhile, Hercules Capital subsidiary Hercules Adviser launched a private credit lending program at the end of March in a direct response the demise of SVB, which is aimed at “venture and growth stage companies impacted by recent market events.”

And now, there’s another venture debt vehicle in the market, this time targeting agtech as one of its core investment themes.

S2G Ventures is seeking $300 million for a Special Opportunities credit vehicle to “addresses the current market environment by providing credit and infrastructure capital.” The firm’s target areas are food, agriculture, ocean and clean energy.

The vehicle has been structured to cast a wide net, given its flexibility around risk profile, tenor and structure enables it to invest across the capital spectrum through debt, equity or hybrid investments.

More mature companies in need of capital to scale their operations will also be targeted by the fund, as the strategy is anchored by a “focus on businesses with assets, cashflows, contracts or leases to provide downside protection.”

Fund principal Andrea Woodside said “there is a need for a different type of capital in the climate tech market to complement venture capital and private equity,” which is another telling piece of insight about the way the fund has been positioned.

Climate tech was, after all, one of the limited segments of the agtech market to buck the substantial downward fundraising trend of 2022, when the market as a whole recorded a 44 percent fall from $53.2 billion raised in 2021 to finish at $29.6 billion raised in 2022.

Upstream agtech investments as a whole saw the least dramatic year-over-year fundraising decline between 2021-22, falling from $15.9 billion to $15.2 billion – of this, climate tech accounted for $10.9 billion, or 72 percent.

Like every other player eyeing the venture space right now, S2G is priming itself to pick as many winners as it can accommodate.