US agtech venture capital firm Finistere Ventures is aiming for final close this summer on its second fund, targeting $150 million. The firm also launched joint venture Willow Hill with farmland manager International Farming Corporation, with the aim of scaling up its growth-stage agtech companies.
Finistere partner Spencer Maughan gives Agri Investor some hints about how the firm will deploy its second fund, and explains how falling commodity prices have created opportunity for agri investors as industry giants pull back on R&D funding.
When it comes to deploying the latest fund, how is the market different to when the first fund launched in 2005?
There’s a huge appetite, probably larger than when we started, for acquisition of technology. The big companies, as part of their innovation strategy, have more aggressively adopted an acquisition posture, which in some ways is similar to the pharmaceutical industry in the ‘90s. I think that matches the general macros around the need for increased [yields] and therefore innovation.
Do you see the downturn in agri prices as a challenge for Fund II?
Commodity cycles tend to [last] five to eight years, depending on individual commodities. That timing suits our Fund II perfectly in terms of when to expect changes in a commodity stock.
Bigger companies have a lot of cash on their balance sheets, but they’ve pared back on R&D to some degree because of lower commodity prices. That means […] more innovation from new companies. Also, because there is a downturn, you see better company valuations.
In terms of dealflow, do you see an advantage in taking an international approach?
Geography-specific specific issues tend to give rise to important innovations that can be deployed in places where there wasn’t that […] need basis. Most of our companies will be selling in the US. But agricultural technological innovation is global, and […] it tends to be recurring in five regions: the Netherlands and New Zealand for dairy, the US for soybeans and corn, and Australia and Israel with water.
Are you looking at precision agtech, given its current popularity?
On the software side there’s a huge amount of functionality being built. But there’s a smaller set of companies that have matched that with a high degree of utility; an economically important output is produced the grower can act on without an intermediary or interpretation of lot of data. They automatically get a return by pushing a button — something that hasn’t filtered into […] software in agriculture. And that’s an important thing that we’re looking at.
And are you looking at the biotech side too?
I think that novel traits that increase yield or energy content are going to see considerable growth. Doing full genome selections and creating predictive models for assembling the best genomes is a minor revolution in agriculture, and will speed up. DNA sequencing is getting more affordable and cloud computing is getting cheaper, so you can do all sorts of new modelling.
There’s also been a big change in plant breeding generally, towards exploiting genomics, which we would consider sort of a crossover between biotech and software.