Ospraie weighs public and private options for agtech venture strategy

Dwight Anderson says an improving commodity outlook and government attention on food supply chain risks are among factors helping create a material improvement in investor sentiment towards ag.

Growing liquidity options have allowed Ospraie Ag Science to extend the timeline for finalizing its investment structure until at least mid-2021, founder Dwight Anderson said.

In April 2020, Anderson told Agri Investor that by the end of that year, the New York-headquartered firm expected to have formalized a structure to continue an initial $125 million exploration of agtech supported since 2018 with capital from Anderson himself, partners at Ospraie Management and related parties.

The time since has seen exploratory conversations with strategic investors about partnerships ranging up to $500 million in value, as well as other developments that have extended the process of solidifying such a relationship or formalizing a framework for fee-paying investors.

“What we had envisioned before was something more generic; some sort of incremental fund, a bolt-on fund or something like that,” Anderson said in reference to the April 2020 interview. “There have been logical strategics, financial or industry-related, who have approached us. In addition to that, there’s aspects of the public market viable now, and much more viable, than they were at that time.

“Given how well the portfolio is doing, all the incremental liquidity, our ability to continue to fund it ourselves, and the wider range of options that are available for us at the moment of people interested, we have not gotten to the point that I thought it would then.”

A September 2020 filing showed a vehicle named Ospraie Ag Science – which held $84 million as of October 2019 from 42 LPs that Anderson described as being made up mostly of related parties – had grown to hold $135.2 million from 59 LPs. In a March filing, OAS identified itself as a venture capital fund managing $137.9 million, focused largely on early-stage companies with some scope for backing “mature high-growth companies.”

Anderson declined to identify any LPs in the vehicle or strategic investors OAS has been in contact with recently. He said investor interest has been building significantly since the fourth quarter of 2020 and intensified following the US elections.

“There’s been inbound from different entities than we had expected. We are pondering how formal or defined a process we should potentially do because if we go down that road, we need to be relatively committed to it, if you take up people’s time and resources.

“Depending on which strategic partner you eventually go with, or not, you close certain doors off. They might bring tremendous resources in certain aspects, but it means that Strategic Investor B, whether financial or industry-related, won’t deal with you, or is less likely and there is a conflict of interest.”

Anderson said OAS is currently evaluating several options and he expects the firm will have finalized one or more formal structures to continue its efficiency-focused agtech strategy by mid-2021.

‘More fertile ground than a year ago’

Though the recent “optimism and ebullience” in public markets is part of what has expanded the options currently available to OAS, Anderson added, there are also risks as public and private market expectations interact.

“The valuation expectations that companies had was already relatively high,” he said. “The multiples that have been accorded by the market to some of the public companies in the space, we do worry about if that trickles down and creates unrealistic expectations for people in the private market. We haven’t fully seen it yet, but it is definitively a concern that we have and are worried about.”

Among the factors helping dampen those fears, according to Anderson, is a favorable commodities outlook that Ospraie expects to support agriculture generally and row crops specifically.

Whereas the firm had worried in recent years that its target market of ag producers might not have sufficient financial flexibility to take the risk of investing in the new input and diagnostic offerings Ospraie is developing, an improving trade with China is among the factors supporting an improved outlook.

“We’re at high conviction that farmers are going to have a minimum of two years of really great profitability and their service and input providers will have great years,” Anderson said. “If anything, we are stepping up our investment to accelerate commercialization of products and product availability because it’s a situation to ‘make hay while the sun shines.’”

Another factor supporting the fundraising environment surrounding agtech, said Anderson, is the increased interest among national governments following covid-19. He highlighted the government of Singapore’s public announcement that it would accelerate its “30 by 30” self-sufficiency campaign’s timeline in the aftermath of the pandemic as an example of the urgency with which governments are re-examining risk in their food supply chains.

The effect has been to increase the importance of reliability of supply over efficiency and price as a focus of investments, he said, adding that the dynamic is not limited to net-importing countries.

“The breadth of the number of people who have been given a mandate or pressure in their government and the level of government that it has risen to is more urgent, higher and more pressing across the board,” he said. “In terms of seniority, level, commitment and actual dollars budgeted, it is materially a more fertile and better environment than it was a year ago.”