With agtech innovations slow to be adopted, the firm’s role in the development of Anuvia Plant Nutrients makes a case for later stage VC funding
As innovations in agriculture accelerate at a blistering clip after investment into agtech doubled to $4.6 billion in 2015 from the previous year, there is a temptation to invest in the latest big idea.
But TPG Alternative & Renewable Technologies (TPG ART), a TPG growth equity platform with $250 million in assets under management, favours a longer-term approach, helping grow businesses at later stages by merging them across sub-sectors when possible.
TPG ART typically injects between $20-$35 million over the lifetime of an investment. The firm’s executives tell me they seek to address a “gap” in the market by investing in late stage venture and early stage growth equity deals.
“There is a lot of money coming into the sector at the seed and venture stage, [but] there are no well developed pools of capital downstream of those investments,” says Mario Portela, a managing director at TPG ART.
Earlier this month, the firm led a $23 million equity capital investment into Florida-based Anuvia Plant Nutrients, a repeat investment characteristic of an approach aimed at growing businesses rather than getting them off the ground.
“It often takes longer and costs more,” Portela says, noting that agriculture is notoriously slow to adapt new technologies, which makes it a natural fit for longer hold periods. “It’s a much more involved and engaged form of investing; it’s active investing.”
Geoff Duyk, a partner at TPG ART, says Anuvia represented a “perfect storm” because it had the potential to operate across several industry sub-sectors, a trait the firm values.
Before TPG ART became its principal backer, Anuvia was originally a waste management company, but the executives say their investments and use of industry experts allowed them to grow and merge the business into the organic waste management, wastewater and specialty fertiliser sectors.
Portela says the firm brings in relevant industry experts often, and in the case of Anuvia they partnered with a chief executive from the specialty fertiliser industry back in July 2015 who “shared [our] vision and saw the opportunity to reposition the company”.
“We team up with co-investors and strategics both up and downstream from us who have a stake in the outcome,” he says.
These co-investors, combined with a long-term approach and spreading risk across sectors helps TPG ART address risk issues. “We are not afraid of emerging technologies nor initial deployment risk, which often gives many other funds reason to pause,” Duyk says.
Somewhere in between the latest crop sensors, new irrigation and drone technologies, a researcher in a lab somewhere may hold the key to the next great agricultural innovation.
But if you’re a private equity firm looking to provide capital into this industry and you consider how slow its adoption of technology can be, you may want to look beyond seed funding.