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Michael Lavin Germin8 Ventures
Michael Lavin Germin8 Ventures

🎥 Germin8 Ventures on a ‘bruising’ year in venture capital, and new opportunities in ‘frontier science and computation’

April 4, 2024

In 2023, agrifoodtech represented just 5.5% of all venture capital sector dollars, down from 6.7% in 2022 and 7.6% in 2021, despite the fact that the food & ag industry accounts for almost a fifth of global GDP and is a major contributor to climate change. And with funding continuing to decline, is it time to panic?

At the recent World Agri-Tech innovation summit in San Francisco, we caught up with Michael Lavin, managing partner at Germin8 Ventures, a long-time investor in the sector to discuss:

  • Where are we in the current down cycle?
  • What is getting funded now and why? What is Germin8 excited about?
  • Is agrifoodtech a good fit for venture capital, which is not the most patient kind of money?
  • Has there been too much tech for tech’s sake, or throwing money at tech not ready for prime time?
  • We’ve seen relatively few exits in agrifoodtech over the past few years. Is this cause for concern or just a reflection of the fact that the industry is still young?

According to Lavin:

Agrifoodtech investing: “I still think there’s a big delta of opportunity if you factor in just how big agriculture is as a contributor to GDP, plus it’s the world’s largest employer. But it is markedly different than investing in SaaS opportunities, AI and computation. We look at investing in agtech and foodtech as being a lot like investing in medical devices, which can follow a lengthy path with difficult adoption cycles.

“And in some cases it’s more like pharma, where not only is there a long development path and long adoption cycle, but the regulatory part can be a significant barrier, so we have to be patient capital.”

Too much focus on the ‘tech’ part of agrifoodtech?  Sometimes, actually, oftentimes, we see too much tech for tech’s sake. Sometimes we say there are companies that are trying to kill a flea with a steamroller, and it’s just unnecessary when a hammer will do.  So we’re looking for the technologies that are built for purpose, that are solving a significant need, that change the world of the user in a good way without changing too much.”

Exits: I think it [the lack of exits in the sector] is something to be concerned with because as investors we have to provide liquidity for our LPs and in order to keep investing in these types of innovations, we have to have successful track records.

“Now, there’s good indications that the landscape is maturing and that exits will be there. But at the same time, there’s also a huge backlog of unicorns. Actually, there’s more privately funded venture backed unicorns today than there are billion dollar plus market cap tech companies.”

What’s getting funded now? “We’re seeing a lot of emphasis on software, at least when we’re looking at agtech. There’s a lot of on-farm software that has a realized value proposition… so we’re seeing a lot of those types of opportunities getting funded. And actually a lot of times it’s not the flashy type of technology opportunities that you saw getting funded in 2021 and 2022, but much more sensible technologies that are solving problems more elegantly and without as long technology development cycles.”

Where are we in the down cycle?  “I don’t know if we’re at the bottom, but I think that we’ve returned to healthy market dynamics… What we’ve seen in venture capital in general is a bruising year in 2023 with a near 50% decline in funding, but the number of deals has been relatively less impacted [-26% according to AgFunder’s recent Global AgriFoodTech Investment Report] which indicates smaller rounds at lower valuations that are more attractive for investors. I think we’ve returned to sensible dynamics now.

“We’re also seeing that the Russell 2000, which is an interesting proxy for small cap growth stocks, is receiving new interest and has climbed, and we’ve seen returned optimism to software as a service (SaaS) as a category in the public markets as well. And then you’ve got AI that is launching a new tech cycle, and so we think that there’s a lot of opportunity.”

Germin8’s focus: “We’re still the same Germin8 that we set out to be, but one thing that we’ve recognized is that sometimes breakthrough technologies that map really well to a very positive and impactful food and agri thesis might originate outside of the sector.

“The same is also true in the other direction so [gene editing tech] CRISPR began with food research, for example. So this means that we’ve been targeting other opportunities in what we call ‘frontier science and computation,’ where we want to be able to invest in the best science, the best technologies, regardless of where they originate knowing that they still will have an impact on the food and agricultural system in a very meaningful way.

“It might even happen after our liquidity event from that given company, but we should still be investing in the best opportunity, the best science. And this also helps position our fund for returns at quantums and market dynamics that are outside of the sector.

“So it’s an interesting way to diversify our portfolio and manage a proper balance so that we can have multiple shots at goal with respect to liquidity events.

“As an example, in 2023, we led a round in an AI company called Matterworks in Boston, which developed not a large language model but a large spectral model for biology. They built a semantic foundation for raw biological data, which serves as a foundational model on which they’re building multiple fine-tuned models for various applications where each one independently is very venture worthy and has huge market opportunity.

“The first one is targeting users of mass spectrometry, which is an important workflow in labs. So this is just one example of a company that we’ve invested in within that frontier science and computation vertical, and it has very meaningful application in not just biology, across life sciences, but industrial chemistry and food science and agriculture and breeding.”

Further reading:

Khosla, Friedberg strike positive note amid agrifoodtech funding winter: ‘Exceptional founders have nothing to worry about’

‘Incremental’ innovation, a warning on the push for profitability and investors ‘scared shitless’ about portfolios: overheard at World Agri-Tech

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