Following a year that saw significant investments into ag startups, particularly in soil and crop tech, as well as historic mergers among industry giants, BioConsortia’s Holly Meadows-Smith tells Agri Investor why 2017 is primed for private equity investment into startups in agtech, biologicals and other ag industry subsectors.
Historically, early-stage agricultural startups have fallen beneath the radar of private equity investors and the more common route for these small companies has involved multiple rounds of venture funding followed by acquisition by one of the major industry players.
Despite the enduring role of venture capital in agtech, a series of successful exits, attractive ROIs for VC and PE owners and other changes in the wider industry are increasing the opportunity for private equity participation in the market.
Last year saw significant funding come into the soil and crop technology sub-sector, consisting of biological, chemical, and GM inputs into agriculture. For example, microbial company PivotBio raised $16 million in a Series A, microbial R&D platform company BioConsortia raised $8 million, and Cool Planet, a biocarbon company, raised $9 million – and their round remains open. The largest agtech funding round to date was the $100 million investment by the Alaska Permanent Fund into Indigo, a microbial company focused on discovering beneficial endophytes, which falls squarely into the soil and crop technology sub-sector.
Since Bayer CropScience acquired biopesticide company AgraQuest for $425 million plus milestones in 2012, the rest of the “big six” has followed suit. Monsanto partnered with Novozymes to form the BioAg Alliance, Syngenta bought Pasteuria Bioscience for $113 million, BASF acquired Becker-Underwood for $1.06 billion, DuPont Pioneer acquired Taxon and Dow is now collaborating with Radiant Genomics. While these industry giants continue to scout for new opportunities through their own venture funds, some are currently focused on internal projects, clearing room for both mid-tier players and private equity firms.
From the perspective of enticing private equity funding, a faster route to market and/or a faster route to field trial proof-of-concept is a significant benefit.
A large portion of the smaller agribusinesses are research-focused and have benefited from rapid technological advancements, which have brought costs down significantly. For instance, microbial companies like BioConsortia regularly utilize genome sequencing and microbiome analysis to direct their discovery of beneficial organisms – an effort that would have been inconceivable just five years ago given the cost of sequencing DNA.
In addition to reduced research costs, small companies also benefit from lower regulatory fees and obstacles than those faced by large chemical companies. Development of genetically-modified crop solutions is estimated to be a 12 to 13 year project costing about $130 million. Synthetic pesticide development is slightly quicker, at 10 years, but with costs around $250 million.
In comparison, a biopesticide can be brought to market in five to seven years and cost just around $20 million to launch in the US. New research platforms, like BioConsortia’s Advanced Microbial Selection (AMS) process, are streamlining the discovery of natural crop solutions, further cutting costs and timelines while delivering products with higher efficacy and consistency.
A side-effect of the rush of acquisitions has been a strengthened confidence in agtech itself, specifically in biologicals. It took years to convince agriculture sector veterans to consider biologicals as viable solutions for growers, but their growing acceptance is now encouraging investors in turn. For example, in December Paine & Partners invested with Australia-based biological company AgBiTech, which produces viruses that attack crop pests. Verdesian Life Sciences, an investment platform focused on plant health and nutrition established in 2012 is also in the Paine & Partners portfolio.
Other hot areas for agtech investments are in the areas of IT and precision ag. With the notable exception of Climate Corp selling for $950 million, there are fewer large exits to point to. However, this is another space to watch in the coming 12 to 18 months.
As the challenge of feeding 9 billion people by 2050 draws closer, the pressing need for innovation and growth in this agtech sector will keep it at top of mind for consumers, governments and a wide variety of financiers. Given the range of new technologies, attractive opportunities and a recent history of successful exits, we will see more new PE funds making commitments into ag startups in the years to come.