Seed-Stage Deals Show Growing Diversity of Agtech Investments

Xconomy Raleigh-Durham — 

Fundraising is tough for startups but it’s particularly difficult in agriculture, a sector that has fewer firms focused on agtech investments. The dynamics are starting to change, though. A growing number of early-stage agtech startups are raising money and they’re pulling capital from a broader pool of sources, according to a new report from AgFunder, an online agtech investment marketplace.

Investors pumped $3.23 billion into the agriculture sector across 580 deals in 2016, the report shows. While the total dollars invested in 2016 decreased by nearly 30 percent year over year, the total number of deals increased by 10 percent. Furthermore, AgFunder’s figures show that the biggest increase in deal activity occurred at the seed-stage, suggesting growing investor interest in agriculture and food technologies.

AgFunder counts 14 active agtech funds valued at more than $850 million combined. Last year’s most active ag-focused venture fund was Washington, DC-based Crop Capital, an investor in nine deals. Because of the small number of funds focused on agtech, the sector relies on investors outside of agriculture, such as family offices and traditional venture capital expanding its scope to include agriculture, AgFunder says. As an example, AgFunder notes that GV, formerly known as Google Ventures, made five agtech and food investments, while Khosla Ventures and Kleiner Perkins, Caufield & Byers each made three investments in the sector.

Big companies are still signing the biggest deals. The largest investment of 2016 was the $200 million raised by China-based, an e-commerce platform that provides fresh produce to consumers. But activity at earlier stages is growing, in part because of an expanding infrastructure to support startups. AgFunder says the emergence of agtech-focused accelerators also offer an alternative source of angel and seed funding.

AgFunder counted 16 accelerators that launched around the world in 2016. One of them, AgTech Accelerator in Research Triangle Park, NC, has raised $20 million to date, which it plans to apply toward its first agtech investments this year. Accelerators are also planting seeds for future investment in other parts of the country. AgFunder notes that even though states like Colorado and Indiana had low investment totals, accelerator activity in these states led to a high number of deals.

Seed-stage companies accounted for 337 deals last year and 57 percent of total deal activity, according to the report. Investments at this stage totaled $230 million. In 2015, seed-stage deals represented 49 percent of dealflow and a total of $130 million invested. Agfunder says the growth in seed-stage investments was driven by food delivery startups, farm management software, and supply chain technologies. Investor interest in drones has cooled, AgFunder says.

Just 137 of the 2016 seed-stage investments involved U.S. companies, showing that agtech activity is also becoming more globally diverse. While the United States remains the top country for agtech investment, U.S. startups represented just 48 percent of all deals, down from 58 percent in 2015 and 90 percent in 2014. Agfunder says that large deals in China and India helped drive the increase in funding to agtech startups outside America.

At the state level, California led the country with $726 million raised by its agtech startups last year. New York was second with $324 million raised, followed by Massachusetts at $315 million. Agtech companies raised $63 million in Washington state; $52 million in North Carolina, and $40 million in Michigan.

Measured in total dollars, the biggest category for agtech investment was food marketplace/e-commerce, which accounted for more than $1.2 billion invested. The $189 million raised by FreshDirect, a New York-based online grocery service, was second to Yuigo in deal size in this category and was also the largest U.S. deal of the year. But AgFunder also says that investors are directing their dollars to other parts of the food value chain, such as microbes, alternative proteins, and gene-editing tools.

Agbiotech was the second largest category measured by total dollars, drawing $719 million in investment across 85 companies. Indigo’s $100 million Series C round was the largest agbiotech deal of 2016. The Boston company raised that round to support the commercial launch of its first agricultural microbial product last year, a seed coating that helps cotton plants hold up better in drought.

Farm management software accounted for more deals at 117, but fewer dollars at just $363 million invested. Novel farming systems was fourth largest category of investment accounting for $247 million invested in 43 deals.

Photo by Flickr user liquidcrash via a Creative Commons license.