Khosla Ventures, the California-based venture capital firm, has been investing to agriculture and food technology for some years. Here Andrew Chung, partner at the firm, explains how these sectors fit into the firm’s overall investment objectives and capabilities.
When did you first start investing into agtech and food technology?
About five years ago when many other venture firms were not yet comfortable taking the risk. We pride ourselves on looking at spaces when others are not; leading the herd as opposed to following it. We now have 10-12 investments spanning new food production [Hampton Creek], ag biologics [BioConsortia], agronomic data [Climate Corporation] and robotics and precision ag [Blue River Technology].
How does the sector compliment your other focuses?
There is quite a bit of overlap between the ag space and the energy sector. In both cases you are addressing a global infrastructure problem. There is demand for both food and energy that exceeds supply and in both sectors there are companies developing techniques to use the resources available more efficiently. Khosla was founded on a thesis to identify “black swan” technologies that can change the world’s infrastructure for the better, and agri certainly fits that criteria. And many of the issues at hand are particularly important in the developing world. This is why we lump energy, food and agri together under the banner of ‘sustainability’.
What are the challenges of investing into agtech and food tech?
Both are heavily regulated industries where policy is important and variable across geographies so a deep understanding of these areas is necessary. Startups in this area compete against large incumbent players that have significant investment in the sector, massive distribution capability, and have been around for years. The sectors also involve very long-term horizons for validation and commercialisation.
How is Khosla positioned to cope with these challenges?
The way we have designed our fund structure enables us to play in the very early stages in startups through our $300 million early stage seed fund. This can literally fund experiments to see whether an idea or technology has legs. It is very risky but when these initial projects bear fruit, we can start the clock again and invest through a $1 billion main fund. This dual-fund structure means that it does not matter whether it takes several years to get initial validation or attract high quality senior management.
Are the other investors you are coming across in these spaces from a similar pool?
There is some overlap, but everyday investors seem to be more excited about the food side of things. It’s easier for most investors to relate personally to advances in food technology as opposed to the complex technologies in agricultural production side. That said, some of the big agri data businesses have had interest from IT investors. Climate Corporation was the poster child of that segment, with its recent $1 billion acquisition by Monsanto.