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4 Ways Farmers are Investing in Agtech Startups

January 27, 2016

You will find a lot of articles on AgFunderNews reference the venture capital firms that are investing in agtech startups. There are VC firms dedicated to agtech, and there are more generalist VCs that are increasingly interested in the changing dynamics of food and agriculture production.

Strategic investors, such as agribusiness, electronics giants and e-commerce companies, are also increasingly playing a role in funding the development of new agtech.

But there is another, lesser known class of investors: farmers. This should not be surprising. Often entrepreneurs themselves, it makes sense that farmers and growers would take an interest in the startup community forming around their industry, not least because the technologies being developed stand to have a huge impact on their operations.

Farming groups investing in agtech are few and far between, or perhaps just a bit more under the radar than the activities of their VC counterparts. While many of the existing agtech-focused venture capital funds ensure they have farmers on their advisory boards, there are some initiatives bringing farmers even closer to the agtech startup community as investors.

And with complaints that entrepreneurs are not interacting enough with their potential client base — some farmers argue that new agtech startups coming down the pipe do not always provide solutions to their immediate problems — entrepreneurs should embrace these opportunities to get incentivised, invaluable advice and support as they build their companies.

Here’s a snapshot of four ways farmers are investing in agtech startups:

  1. Direct investments

There are a few recent examples of farming groups investing in agtech startups directly. For Phytelligence, the biotech and micropropagation company, its grower investors not only funded its development but steered it to success from the ground up.

Phytelligence was born out of the horticulture department at Washington State University where founder Amit Dhingra is a faculty member tasked with supporting the agriculture industry. After several conversations with local growers, he and his team started to do research for them, from mapping genomes of apple varieties to multiplying new genetic material through micropropagation. Phytelligence was incorporated when the requests became too many for Dhingra and his colleagues to handle.

“When I started the company, I was grateful that the industry was the first to come to the table with financial support,” Dhingra told AgFunderNews. “Phytelligence came from the industry as growers defined what their problems were and through their support and guidance we were able not only to develop solutions for them but to test them and improve on them. In many ways, this is the true definition of a democratic process: from the industry, by the industry and for the industry!”

Farming groups have invested over $500k in Phytelligence, which is now in the process of raising its next round of funding in order to lease more lab space and greenhouses, and hire people to service the large volume of orders. This next round will likely include investment from institutional funds and large strategic corporate investors. — Phytelligence’s current investor base includes angel investors, farming groups, WSU, and the Washington Research Foundation.

“The biggest value money can buy us right now is rapid expansion,” said Dhingra. “We want to serve the needs of the industry across different tree crops and including reforestation projects. This is not just a commercial endeavor, but we want to improve the planet.”

It’s a similar tale for SlantRange, the drone sensor technology platform. After demoing its technology to a focus group of farmers and agronomists at the very early stages of its development, SlantRange ended up getting seed funding from the group, according to Mike Ritter, founder, and CEO.  The farming group from Nebraska, who were joined by a syndicate of angel investors in later funding rounds, really helped to shape the product and ensure that the data SlantRange’s sensors were picking up were valuable to agronomists.

Other recent examples of farming groups investing in agtech directly are SWIIM System, a water management software platform, which raised $3 million in Series A funding in a round led by family-office backed farmland group goFARM Australia, and Adaptive Symbiotic Technologies, which gained investment from major Australian producer Twynam Agricultural Group. 

2. Ag Ventures Alliance — a cooperative model

Ag Ventures Alliance is an example of a cooperative created by farmers in Iowa and Minnesota to help bring in added revenues during commodity price downturns. The group’s first investment was in an ethanol facility 17 years ago. For the first eight years, the cooperative was run purely by volunteers without any staff, but after its investments had started making returns, it hired three full-time staff.

What is now essentially an evergreen fund, Ag Ventures Alliance has invested in a range of projects and agtech startups. They include Rowbot, the manufacturer of a robot which can add fertilizer and cover crops to corn fields when they are too tall for other machinery, and FeedLogic, an intelligent feeding and real-time farm monitoring barn technology for livestock operators. The bulk of its portfolio is in the soil amendments sector including Terra Biologics, Agricen, and Laurel Biocomposite. A full list of the group’s 13+ investments can be found here.

As well as investing in agtech startups directly, Ag Ventures Alliance also invites its 435 members to invest directly alongside the cooperative. And even when the cooperative decides not to invest in a company, it will still forward the details onto its members in case they’re interested. The cooperative is returning about $1.5 million a year and last year invested well over $500k, according to Jude Conway, executive director of Ag Ventures Alliance based in Mason City. He has a 25-year background in venture capital.

So what sort of involvement do startups have with Ag Ventures Alliance beyond the investment? A few have done tests on the land of members and continue to do so. “It depends on whether the startup wants to take advantage of us or not,” said Conway. “I think some could get more use out of our members and staff, but only a few work really closely with us.”

3. AgTech Growers Alliance — a grower fund

The guys at AgTech Insight, the consultancy company, have started fundraising for a farmer-focused investment fund and accelerator program. The group, which has been helping farmers find the best technologies for their farm as well as nurturing agtech startups, decided to launch the vehicle after seeing interest from the farming community in investing in agtech startups they frequently come across, and that could ultimately impact their operations.

“Growers have a ton of people calling them on a weekly basis trying to vet out their ideas, but with no real upside for the farmer, except staying ahead of the curve in terms of the new technologies coming into the market,” said Aaron Magenheim, CEO of AgTech Insight. “So we’ve been thinking a lot about how to facilitate grower participation in the agtech industry, and also how to get that real grower buy-in into these new technologies as they develop into saleable products.”

“By including growers in the process as LPs and advisors, there’s an incentive for them to say ‘we’re invested in this so we will have a ranch manager spend 10 minutes a week with an entrepreneur to tell them what they can do differently’. That’s the thing we all collectively realize: for this industry to be successful, growers have to be involved.”

The group is targeting $10 million initially for a seed stage fund that will invest in eight to 10 very early stage startups and aims to help incubate them into commercial technologies during the first two years of the investment. The fund is likely to take on a typical 10 year VC fund structure but will start investing as soon as the first commitments come in.

4. The Funding Farm — a regional project finance initiative

The Funding Farm was established three years ago to help farmers and others in the region invest in their local communities, make some money, create jobs and improve life in the Upper Midwest of the US. The founders, Matthew Willard, and Dave Kolsrud, have experience in business consulting and developing ethanol plants respectively, which they bring to the Brandon, South Dakota business.

“Farmers generally like to buy property and equipment, so we were trying to give them an alternative way to invest their money,” said Willard.

Investments are not always in the agriculture sector, although Willard has found that farmers like to invest close to home, which can be a challenge.

Investments that the group has made include ag processing projects, which have been particularly popular among farmers when producing value-added products, said Willard. One example of a deal The Funding Farm has invested in is a solvent extraction plant that processes corn byproducts. The group invests anywhere from $200k to several millions of dollars.

The group hasn’t invested in any agtech startups yet as it’s been very focused on existing projects over the last few years, but it’s interested in exploring the sector, said Willard.

Know of any other farmer-focused agtech funding initiatives? Get in touch on [email protected]

Have news or tips? Email [email protected]

Image: AgTech Insight’s Growers Investment Information Summit

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