AgriTech and building traction in the pre-revenue period
AgriTech startup must traverse a long 'valley of death' to arrive at pastures green of commercialisation. Attracting more investors to the early stage could help with this.
13 December 2022 • 6 minute read
The period between a startup receiving funding and creating regular revenue is notoriously challenging, leading the demise of many young buinesses. To this end, this time has picked up the nickname 'valley of death'. In AgriTech, this period can be particularly protracted, with time frames dictated by seasonal growing cycles or disrupted by adverse weather conditions.
As a relatively new tech industry, a need for early-stage investors to help sustain startup through field trials and proof of concept compounds AgriTech's longer pre-revenue timeframes.
Addy Windsor-Clive, investment manager at Regenerate Ventures, says: "There is money coming at pre-seed from universities, angels and UK grant funding, but it's the next stage that is lacking in smart capital. That is capital mixed in with the expertise and knowledge of the agricultural sector."
"It's getting the investor to understand the nature and length of time it takes within the agricultural sector that is different to b2b SaaS products, where developer teams can adjust and trial beta versions within days opposed to once a year. As simple as it seems, people forget the agricultural sector is seasonal."
The need for early-stage investment
Bringing in smart capital is essential to supporting startup through building the first product and getting them ready for commercialisation. "Without the right introductions to the agricultural networks and corporates, field trials and end customers, startup will need help to get to the next stage.
"For investors, it means there isn't enough pipeline coming through. Few AgriTech businesses make it beyond pre-seed, which means a limited amount is making it through to Series A+, at which point the valuations are much higher because of the shortage of companies. These companies are then picked up by the Agri-corporate venture funds or late-stage AgriTech funds. This means investors aren't getting a wide choice of investments and are paying higher valuations."
Regenerate is a fund focused on investing in the earliest stages, Seed to Series A, to ensure a constant flow of AgriTech companies coming through the pipeline. Regenerate is looking to attract more capital to the earlier stages of AgriTech investment to plug this gap.
In recent months Regenerate has seen larger corporates scaling back their R&D teams because of the breadth of AgriTech coming out. It’s not efficient to do it in-house anymore, and they are now focusing on increasing their M&A teams to look at acquiring the technologies at the growth stage of Series B. Therefore, there must be investment coming in at the early stages; otherwise, potential new technologies might not get funded.
The urgency is all the more apparent given the pressures on food security and the agrifood supply chain in recent years due to Brexit, Covid and the War in Ukraine. The technologies that Regenerate are investing in are making positive changes to the future of farming to develop a more sustainable food supply chain.
Regulation that supports food security and climate change mitigation could draw more investors into the sector. "If government regulation around carbon labelling on products were in place, this would shine a light on how much carbon is being emitted from our weekly food shop.
"30% of all global emissions come from the agrifood supply chain alone. With labelling, we'll see exactly how much carbon has been produced in the production of individual items." When that regulation comes in, this will show exactly how much the agrifood supply chain emits and will make consumers more conscious of where and how their food is produced. When this is made clear to end consumers and consumer behaviour starts to change, you start to see the knock-on effect. Investors will then begin to look at investing in technologies that will reduce carbon emissions in agriculture.
Beyond regulation, there is also an educational need within the investor community. Addy says: "As part of the fundraising process, I am educating investors about the sector because although it's been around for centuries, it is one of the last sectors to digitise and modernise and take off." It's getting investors to understand timelines within the sector itself, and there is a long way to go. There is also a required understanding of the interlinking of sectors within AgriTech and the various technologies that form AgriTech, which can involve anything from biotech and genetics to robotics and AI.
"It is about educating investors about the investment opportunities available now that can have a natural effect on reversing climate change and producing food sustainably. You can invest in the planet's future while benefiting from great returns."
And industry tackling global issues
The sector is demanding more attention because of global events. Brexit, Covid and the war in Ukraine have highlighted food security and safety issues. When borders have shut, or seasonal workers can't enter the country to pick crops, shelves are left empty, and everyone has witnessed this in the UK. Ukraine is Europe's breadbasket, and the war has opened eyes to the fact the UK only produces 56% of all the food needed in the UK and imports the other 44%.
Addy says: "We can encourage more investors to look at the sector by educating them on the importance of food security within the UK but also to show that the new emerging AgriTech can quickly address climate change."
Investors with a mandate to make a positive impact take a keen interest in businesses that are reducing emissions and doing good rather than greenwashing. Addy says there is genuine interest in companies that can quantify their reduction of carbon emissions from the use of their technologies.
Successful AgriTech entrepreneurs tend to be mission-led, with the common goal of decarbonisation, food security or food safety production. "Companies incorporated in the last two to three years have seen the landscape, worked out the problem and built technologies to help solve the issues. They are also open to advice and pivoting as the drive is always to solve the issues as quickly as possible. As a sector, we are fortunate that it is incredibly collaborative, as the problem is too big for only a few to handle. We need as many people as possible innovating ideas and investing to make a change before it’s too late.
Getting AgriTech founders' narratives out there and informing investors of the potential of this exciting sector will be critical to seeing more AgriTech shepherded through the Valley of Death.
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