Agtech VCs eye partnerships to secure long-term access to customers

Farmers’ agronomic, financial and cultural barriers to adopting new technology have been a constant talking point as agtech has matured over the past decade.

At Re-Think Events’ Agri-Tech Innovation Summit in San Francisco last month, investors compared notes on lessons learned during introduction of existing software, sensors and biological innovations. Their discussions suggest the most impactful near-term opportunities for financial engineering in ag could focus as much on fostering partnership for access to customers as on finding new breakthrough technologies to support.

Stephen Davis of software-focused Banneker Partners compared ag with other markets like insurance, hospitals and utilities and suggested continued potential for mass consolidation.

“You don’t see a lot of large software players in ag,” he said. “We’re very early, I don’t think it’s that’s risky. It’s definitely the first stage, not even the first inning of what’s going to happen.”

David Friedberg, partner and CEO of The Production Board – a food, life sciences and energy tech investor – retorted that while other sectors can support multiple profitable companies, few startups have proven an ability to secure payments from farmers for more than three years. Instead, he suggested, investors should acknowledge that software is often given away to drive larger trade and merchandising relationships built around purchase of seeds, inputs and equipment.

“People are a little scared to make this leap, but it has to happen: value-based pricing where the software drives adoption of new input technologies and ultimately the value-share goes back to that input company and the software is an enabler,” Friedberg said. “Farmers spend $800 to make $1,000. The input companies on average are making 12-40 percent margins. There’s enough in there for them to say: ‘Let’s figure out how to use technology to drive adoption of our inputs and participate by driving value up for the farmer’.”

Friedberg drew on his experience as co-founder of farming software provider The Climate Corporation and described how its 2013 acquisition by Monsanto facilitated a rapid deployment of the company’s FieldView data platform, which amounted to a “land grab” that effectively shut out startups in its wake.

He argued such an ambitious internal re-imaging by large corporates is unlikely in the current environment and highlighted his recent effort to introduce technology into Brazil through ownership of a network of ag retailers, as more likely to speed tech adoption.

“Existing shareholders in businesses of scale can find capital partners that are willing to take risk with them to bring a technology asset into the fray and transform that business together,” he said. “You can do public, you can do private, full buy-out or partial buy-out. It’s a moment when it could be needed and could realize value for investors that have great technology assets. We’re partnering and trying to push a boulder up a hill and convince people to pay royalty fees and payment fees. It could really be changed if we could take risk together and bring these things together.”

Biological inputs and gene editing emerged across conference programming as sub-sectors seen as having the strongest immediate prospects and Friedberg highlighted Corteva’s acquisitions in that market last month as indicative of the deals he expects going forward.

Dialogue around farmer adoption of technology encompasses many of the most potent environmental, historical and social forces shaping agricultural production, and usually settles somewhere close to a focus on producers’ inherent pragmatism.

To the extent the recent slowdown has provided an opportunity for reflection on private capital’s role in developing the next iteration of agtech, helping facilitate the partnerships necessary to rapidly balance the role of synthetic chemicals in modern agriculture with more sustainable alternatives is coming into focus as a key venue to watch.