Editor’s Note: This week we released the new AgFunder AgriFood Tech Investing Report 2017, continuing to expand the scope of our previous AgTech Investing Reports. You can download the report here. For more information about our research, read a primer here.
Early Stage investment in agrifood tech startups reached $10.1 billion in 2017, posting a 29% year-over-year increase and reversing the downward trend of 2016 when agrifood tech investing dropped 9% to $7.8 billion from $8.6 billion in 2015.
2017 was a year of extremes. Large deals pushed the total investment volume up to post an encouraging 29% growth, but deal count fell by 17% to 949, with the most dramatic contraction at the crucial seed stage.
Large deals characterized 2017 funding for agrifood tech startups as the sector continues to mature and some large, international investors entered the space.
Record-Breaking Deals and the New Normal
Food ecommerce, traditionally where we find mega deals within agrifood, did not disappoint in 2017. Chinese Restaurant Marketplace ele.me raised a $1 billion Series H round, German Restaurant Marketplace Delivery Hero raised a $421 million Series H round in May, a month before listing on the Frankfurt Stock Exchange with a $5.1 billion valuation. And Instacart, raised $400 million in Series D funding from high-profile VC investors including Andreessen Horowitz and Kleiner Perkins Caufield & Byers.
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While Restaurant Marketplaces seemed to continue to dominate funding in the Mid Year report, by the end of 2017 the category represented a smaller portion of the agrifood tech funding than in the past with 21% of the pie. However, overall, funding for the category still increased 14% year-over-year.
eGrocery startups raised 96% more funding in 2017 than 2016, driven largely by international deals that demonstrate investors’ continued interest in the space despite multiple VC-backed failures.
But despite these monster rounds, a major story of 2017 is that upstream agrifood technology deals are starting to match weight with downstream deals (excluding Chinese deals as we often must).
One of the most high profile deals was the $200 million Series B round from Plenty, the California-based indoor farming company. The round attracted investment from Japan’s SoftBank via its $100 billion Vision Fund. An early stage business, yet to post any revenue, it broke records for farm tech funding when the deal was announced in July.
Plenty was soon overtaken by Indigo Agriculture, the microbial seed coating company with an innovative business model, as it raised $203 million in Series D funding after attracting Dubai’s sovereign wealth fund.
The round values Indigo at over $1 billion, taking it to unicorn status.
The year closed out with another agrifood tech unicorn in Ginkgo Bioworks raising a whopping $275 million in Series D funding involving private equity firm General Atlantic, Bill Gates and Y Combinator’s Continuity Fund.
This one large deal also brought the category of Midstream Technologies to new prominence within agrifood tech. Increasing demand for transparency, traceability, efficiency and safe food drives much of the innovation taking place in the midstream category, which comes into play post farm gate and preconsumer. Midstream Technologies became the third best-funded category in 2017 with 9% of total funding and 89 startups raising $924 million.
The growth in Midstream technologies is in keeping with a global ”trend to watch” according to Venture Pulse as cross-industry or multi-disciplinary companies develop technologies that can apply to multiple industries. Within agrifood, these companies tend to be part of the Midstream category, though several remote sensing startups within Farm Management, Software, Sensing, & IoT also fit the “multi-disciplinary” label.
The being said, Ginkgo Bioworks’ Series D round represents 30% of funding in that category so its growth will not necessarily last.
Novel Farming Systems startups, of which Plenty is one, also saw remarkable growth in 2017, increasing by 233% year-over-year to $652 million across 57 deals. Since many of these businesses, which include indoor farms, aquaculture, insect, and algae production, have high overhead costs, more large rounds are expected in this category with the caveat that investors may want to see clear results from existing players before funding new ones.
The increased size of deals overall can be clearly seen at the Series D stage. This relatively advanced stage posted the greatest increase in total value, up 108% year-over-year reaching $2.3 billion.
It’s companies raising large Series D rounds that suggest agrifood tech startups are coming in line with the global trend for venture-backed companies to stay independent longer, holding out for larger valuations. And investors seem to be on board, favoring disruptive ideas that have some market testing behind them.
M&A and New Possibilities
Major acquisitions during 2017 changed the narrative around agtech exits, with John Deere acquiring robotics company Blue River Technology for $305 million, and DowDuPont acquiring farm management software platform Granular for $300 million. Both deals were applauded by investors and presented agrifood tech startups with a more recent model for exiting startups in the industry than Monsanto’s acquisition of Climate Corporation back in 2013.
These big deals involving big corporate ag players show the growing role of corporate investment initiatives. Syngenta Ventures was the most active strategic corporate VC in the fam tech space making five investments in 2017. Monsanto Growth Ventures, Maumee Ventures, BASF Venture Capital, Bunge Ventures, Cavallo Ventures, Taylor Farms Ventures, and Cargill also participated in deals.
While experts have long posited that agriculture was headed for the “pharma model” of innovation, where large entrenched players use acquisition as the primary mode of obtaining new technologies, the large agribusinesses have been distracted by consolidation and the ensuing M&A.
Now, the large strategic players could have more time, and money, to pursue more exits. In fact, already in 2018 Syngenta acquired remote sensing startup Farm Shots in order to add remote sensing capabilities to their in-house digital platform — the prototypical pharma modus operandi.
Not only are startups seeing a new vision for the valuations they can reach, but some are even beginning to imagine a future as stand-alone companies. The size of 2017’s rounds and the nature of the investors — which include private equity capital — indicate the intention of some of these startups to build stand-alone businesses with no plans for acquisition by the majors.
Indigo Agriculture and disruptive agribusiness marketplace Farmers Business Network are two startups that have confirmed they plan to list on a public exchange instead of seeking acquisition as an exit.
Digging into Seed Stage
Consistent with global trends, the total number of agrifood tech funding deals dropped 17% in 2017, compared to a 27% drop globally, according to Venture Pulse report. Most of this contraction came at the seed stage where activity dropped 29% year-over-year compared to just a 4% contraction between 2015 and 2016. While funding at every other stage increased, seed funding dropped to $335 million in 2017 from $464 million in 2016.
The average size of seed stage deals increased by 60% however, suggesting the presence of outliers at this early stage. Indeed Starship Technologies, a landbased delivery robot startup, raised a $17.2 million seed round – the largest agrifood tech seed stage deal on record, according to AgFunder data going back to 2012.
Considering the large number of accelerator programs and early-stage resources dedicated to agrifood tech across the globe, this drop is somewhat surprising. Upstream technologies beat out downstream in both deal count and funding volume at the seed stage, suggesting that early-stage support for on-farm technologies and supply chain-focused startups may be slightly healthier than consumer technologies. There were 305 seed stage deals for upstream technologies totaling $194 million, compared to 251 downstream seed deals totaling $141 million.
Though seed stage deals are down worldwide, suggesting a potential dip in future innovation, several developing countries are stoking early-stage agrifood innovation through new accelerators and funds. Latin America, with some of the world’s largest agriculture industries, is starting to catch up with its overseas counterparts, particularly in Brazil and Argentina where SP Ventures and NXTP Labs were among the most active farm tech investors in 2017. Israel, Australia, and Ireland are other countries on an upward trajectory in terms of deal count as early stage resources get going.
With new early-stage resources still coming into play, this drop in seed funding likely isn’t cause for despair, but it does emphasize the important role of incubators and accelerators in this nascent category within venture capital.
For more detailed analysis, download the report here.