Venture Capitalists Bet Big on Ag

Barb Baylor Anderson, Contributor

A biochemist, an electric and computer engineer, and an ag college dean: What do they have in common? They are all now agtech brokers looking to help finance the next big thing for farmers.

"It is an exciting time to be investing in the agriculture space," says Roger Wyse, managing partner with Spruce Capital Partners, a San Francisco-based venture capital management company that invests in foodtech and agtech startup ventures.

Wyse may be one of the few true farm-kids-turned-agtech brokers who has devoted his career to agriculture. He was raised on an Ohio farm and worked as a scientist for USDA, led the New Jersey Ag Experiment Station, served as dean of research at Rutgers University Cook College and dean of the University of Wisconsin College of Agricultural and Life Sciences. He has been an ag venture investor for more than 20 years.

"All venture capitalists in agriculture operate in their own way. Our company's strength is our insight into the culture of farmers and their conservative nature, paired with deep domain expertise in the technologies converging to enable new farming practices," he explains.

With decades of experience, Wyse believes COVID-19 is the catalyst that finally shined a bright light on the vulnerability of the food supply chain and the country's socioeconomic divide. It may well be the impetus to accelerate technology use in farming.

"How we respond to a new post-COVID normal is critical," he says. "We can link ag's role in a low-carbon economy to a more resilient, diversified, traceable and sustainable food supply chain. We must support low-cost, healthy food with more economically viable rural communities while we address environmental impact and climate change. Ag innovation is vital."

ATTRACTING VENTURE CAPITALISTS

Venture capitalists have taken note. According to AgFunder.com, agtech startups raised $19.8 billion in venture funding across 1,858 deals in 2019, down a bit from a record-breaking 2018.

Agriculture is viewed as largely undercapitalized, adds Larry Page, principal with Lewis and Clark AgriFood, a St. Louis-based company that invests in expansion-stage companies in agriculture.

For example, Lewis and Clark AgriFood worked with Aker, a company that has developed a probe with a suite of sensors that can be used to scout for pests and diseases below the plant canopy. The company also provided support for Benson Hill, a company that uses gene editing to create healthier crops, including a line of ultrahigh-protein soy and improved lines of barley.

"Feeding the world is a big challenge," explains Page, who worked in biotech before joining Lewis and Clark in 2016 to manage early stage agtech venture capital. "We have to find creative ways to do it, or there will be starving people. Novel farming practices are of interest to investors. We see high levels of enthusiasm for digital traceability, biological-based products and sustainable crop controls." He adds ag is also attracting investors because it's one of the least-digitized industries.

IDENTIFYING AVAILABLE DOLLARS

While it may be more challenging to bring agriculture up to speed, it is not impossible.

Johnny Park grabbed the reins of the ag digital world as CEO for the Wabash Heartland Innovation Network (WHIN) in 2018. The alliance of 10 counties in north-central Indiana has a $38.9-million investment from the Lilly Endowment to "harness the power of internet-enabled sensors and turn the region into a global epicenter of digital ag and next-gen manufacturing."

The former electrical and computer engineering professor with Purdue University was the brains behind Spensa Technologies, a digital pest-management startup. (Editor's note: Spensa was purchased by DTN, the parent company of Progressive Farmer, in 2018.)

WHIN vets potential Internet of Things technologies and subsidizes costs for adoption products with the most potential for success that are at or near commercialization.

"While not every new idea goes through venture capital funding to reach commercialization, those that do generally start with an accelerator or seed investor like WHIN to receive initial capital," Page says. "Grants are another source for early stage seed investment."

Typically, he says, a concept then moves through Series A and Series B funding to prove it is fit for market and makes business sense. Late-stage or growth equity follow, which fund confirmation of a promising market. The final stage is an exit to sale and commercialization.

Spruce Partners reviews 500 to 700 opportunities per year but only selects three to five for investment. As an example, it's an active investor in Pivot Bio, which offers a novel approach to replacing synthetic nitrogen fertilizers with biological nitrogen fixation in corn.

"We knew farmers would be interested in Pivot Bio because of its promising environmental benefits," Wyse says. "To learn how it would fit into a farmer's system, the company partnered with a small, innovative group of farmers to field-test the product."

Wyse says most companies do a similar "lean launch" to assure alignment between farming practices and product, and commonly offer farmers reduced product cost or compensation for data access. In return, they get a huge data lake to share with the partner working on a specific digital solution.

FARMER BUY-IN

Rick Clark is providing data to WHIN and receives compensation for it. The fifth-generation farmer from Williamsport, Indiana, is transitioning to all organic and raises corn, soybeans, wheat, alfalfa, peas and regenerative grazing, with a strong focus on conservation.

"We were contacted by WHIN to evaluate agtech-driven concepts for wider use. The biggest benefit we have gained is the knowledge from testing new ideas."

Clark is evaluating Intelinair as a crop-management tool and has received specific recommendations from Solinftec about fine-tuning his machinery efficiency. Both systems are data-driven. Intelinair gathers crop intelligence via aerial images to help farmers make informed decisions, while Solinftec connects tools to optimize productivity.

Tom McKinney, contract corn and soybean farmer from Tipton, Indiana, also works with WHIN. He compared data gathered by Intelinair with other mapping tools and found tile lines in a field he didn't know existed, for example. He also is assessing robotic soil testing and sprayer timing. "You have to monitor emerging technology and stick both feet in the water to see what's there," he says.

While McKinney believes big ag companies and dealer networks aren't going anywhere, he sees the infusion of capital into agtech as a good way to fill farming's problem niches. Page agrees. "The venture capital model is a disruptive one to change the way agriculture is working," he says. "Farmers are searching for margin opportunities in a low-price environment."

"If we do not continue along this pathway, we will be in big trouble," Wyse adds. "Farmers need to increase productivity, be more resilient and more diversified with less environmental impact."

[PF_0121]

(c) Copyright 2021 DTN, LLC. All rights reserved.