Consolidation in the agricultural inputs market has helped focus private equity investors on the potential for roll-ups across agtech subsectors, according to a co-founder of Finistere Ventures.
Speaking to Agri Investor following Finistere’s publication of a report on the early-stage agtech market this month, Arama Kakutai said mergers such as those between Bayer and Monsanto, Dow and DuPont, and Syngenta and ChemChina, have increased investors’ attention on consolidation opportunities in agtech.
“I’m bullish on opportunity for collaboration between venture and private equity on roll-ups,” Kakutai said. “One of the biggest challenges in agtech is adoption by farmers, and you learn a lot about that at early-stage.”
Kakutai highlighted Finistere portfolio agricultural imagery platform Taranis’s May acquisition of Mavrx – an aerial imagery provider headquartered in San Francisco – as the type of deal reflecting the current stage of overall agtech market development. Opportunities for such roll-ups exist across agtech subsectors, Kakutai said, highlighting soil testing and crop science as particularly promising.
Produced in collaboration with Pitchbook, Finistere’s report was based on a survey of professionals within its network carried out in spring 2018. It defined angel funding rounds as those that do not involve either private equity or venture capital investors and defined seed-stage funding as any investment under $500,000 that is identified as such.
The report divides the agtech market into eight subsectors: plant science; crop protection and input management; precision agriculture; agricultural marketplace and fintech; indoor agriculture; sensors and farm equipment; imagery; and animal technologies.
Investors committed a total of $123.8 million in 108 seed and angel funding rounds last year, according to the report, which noted that $89.5 million had been secured by seed-stage companies and $34.3 million was committed to angel stage ventures. That total represented a more than 15 percent drop from the year prior, when $76 million in angel-stage funding combined with $69.2 million in seed-stage financing for a total haul of $145.2 million.
“The median round size at the angel and seed stage is above $1 million in 2018,” the report’s authors wrote. “Yearly median round sizes have flirted with the million dollar market before, but typical years settle somewhere in the $600,000 to $900,000 average.”
Kakutai said the Early Stage Agtech report came in response to venture investors who thought that earlier-stage companies in the market were not getting the attention they needed to avoid the technical and commercial mistakes companies often make early in their lives.
“More sophisticated capital is coming into the agtech space,” he said. “It means we are doing our job; we’re creating companies with greater value that would benefit from scale of capital and the different skill sets you need in private equity to be able to conventionally scale a business, including considering strategies like roll-ups, for example.”
Looking to 2019, Kakutai said the overall agricultural investing market is likely to be influenced by continued progress within the recently merged large input suppliers, highlighting Corteva Agriscience’s spin-out from Dow/DuPont as an example.
“I think we’re going to see a lot of activity in M&A and I think as a result we’re going to see more crossover activity between private equity and VC,” Kakutai added. “What we’re seeing now is just the beginning.”