San Francisco-based AgFunder has signaled its ambition to become a one-stop-shop for ag investing by adding a suite of funds to its popular agtech crowdfunding platform.
Michael Dean, chief investment officer and a co-founder of the company, told Agri Investor that its debut funds would likely be succeeded by larger follow-on funds as well as a vehicle targeting corporate investors.
In 2012, the firm set up the Founders’ Fund, an internal investment vehicle backed by founders and friends of the business. Last month, it unveiled its first Co-Investment Fund, which will deploy money alongside the internal vehicle.
These are the beginning of AgFunder’s efforts to grow into a “global platform for investment in agriculture” that looks to broaden the firm’s appeal to a wide range of investors, Dean suggested.
He described the Co-Investment Fund, which is seeking between $3 million and $5 million and largely designed for individual investors, as a possible first step towards a bigger fund targeted at ag corporates. Many of them are interested in “the disruption that’s coming from innovation” but don’t have the resources to source deals, he said.
“They’re very keen to participate, and they have an insight into what’s happening. But they don’t have a venture arm. And none of them are located in the Silicon Valley, whereas we are.”
But one-size-fits-all does not appear to be AgFunder’s ethos. Dean said the firm is also thinking about launching individually managed accounts, “where investors can deposit money into AgFunder and then they’ll be able to invest thematically.”
He also said AgFunder could be looking to diversify its coverage. “Technology is our foundation, and it is where we’re cutting our teeth. But we see potential for a much broader market approach as we move down the track.”
That included, he added, “being able to fund production deals through our network.” The firm may also do debt offerings, “along the lines of the likes of the Lending Club,” Dean said, referring to a US peer-to-peer lending company.
In the interim, however, AgFunder will focus on sourcing dealflow for its existing funds and proving they can hit their 20 percent to 30 percent IRR target, Dean explained. He did not specify a timeline for future fund launches.
He did say, however, that the Co-Investment Fund would likely have a successor. “We’re obviously going to want to be following on a lot of opportunities that we’re investing in now. So we’re going to need to raise larger funds. We’re not specifically reserving capital from [the Founder’s Fund and the Co-Investment Fund].”
Investors in the Co-Investment Fund, a 10-year vehicle with a two-year extension period, will be given a pre-emptive, pro-rata right to take part in follow-on investment assets held in the first fund, he said.
Capturing lost value
Since AgFunder’s debut crowdfunding campaign in 2014, start-ups supported by the firm have altogether collected more than $34 million, 42 percent of which was raised through the platform. Originally, AgFunder took a five percent fee on amounts collected, but it did not invest in the companies it supported.
“Often the companies would go on and raise a multiple of their original valuation. If we’d invested instead of taking a small fee, we would have had a much better result,” Dean said. The first funds, he noted, were set up in response to “this lack of capturing value.”
Yet Dean is adamant that AgFunder’s dedication to the crowdfunding platform will remain intact as it invests capital, launches funds and manages third-party money. Most investments sourced through the funds will also be offered on the platform, he said.
Crowdfunding campaigns will remain important, he explained, “because they keep activity on the platform and keep our membership engaged.” AgFunder counts more than 50,000 members, including 5,000 registered investors.
Some of them will also prefer to invest case-by-case, so as to keep more control than they would be granted through a fund structure. “There are lots of people who said ‘I like the idea [of the fund] but I’ve got a particular interest in, say, microbiome or health.’”
For his part, Dean is particularly curious about robotics and distributed-ledger technology, though he is enthusiastic about many others. “You have to look at all this stuff. It’s about picking the winners,” He said. “And we think we’ve got a bit of an advantage.”