AgriFood Tech Startups Raise $4.4bn in H1-2017 as Global VC Market Signals End of Downturn

Editor’s Note: Today we release the new AgFunder AgriFood Tech Investing Report – MidYear 2017, expanding the scope of our previous AgTech Investing Reports. You can download the report here. For more information about our new research, read a primer here.

Early stage investment in agrifood tech startups reached $4.4 billion in the first half of 2017, posting a 6% year-over-year increase reversing the downward trend of 2016 when agrifood tech investing dropped 17% to $6.9 billion from $8.3 billion in 2015.

Deal count continued to decline in H1-2017 however, falling 27% year-over-year to 369. This mirrored the global venture capital markets where deal activity reached a nine-year low in Q2, according to KPMG’s VenturePulse report.

However, KPMG global chairman Jonathan Lavender said that there were “many positive signs that the global VC market had reached a positive turning point” after a 10% drop in funding in 2016, and that investment had rebounded with some “mega-rounds” and several new unicorns.

Agrifood tech investing could be charting a similar course as the sector also saw a few large deals (and unicorns) push totals up in H1. The three largest outliers were:

• Chinese Restaurant Marketplace ele.me, which raised a $1 billion Series H shortly before acquiring search engine Baidu’s food delivery subsidiary Xiaodu for $800m
• German Restaurant Marketplace DeliveryHero, which raised a $421 million Series H in May, a month before listing on the Frankfurt Stock Exchange with a $5.1bn valuation
• Instacart, which raised $400 million in Series D funding from high-profile VC investors including Andreessen Horowitz and Kleiner Perkins Caufield & Byers, just months before key partner and investor Whole Foods was acquired by Amazon (eek!).

Exits & Corporate Activity Picking Up, Slowly

Recent news about John Deere acquiring farm robotics startup Blue River Technologies and DowDuPont acquiring farm software startup Granular was welcomed by the industry where exits have been few and far between. While these sizeable acquisitions ($305m and $300m respectively) missed the cut-off for the MidYear report, they followed others during H1 including Monsanto’s acquisition of water management tech HydroBio and Jain Irrigation’s acquisition of ag IoT group Observant.

Early stage investment from corporate entities was less impressive, accounting for 2% of deal activity compared to the all-time high of 20% in the global VC markets in H1, according to VenturePulse. But we are seeing growth in the number of corporate investment initiatives in the sector and now count at least 24 corporate agrifood VC funds – managed internally or launched with the company as the sole LP (investor) – and other investment initiatives. And many are doubling down by quietly investing in venture capital funds to gain additional market insight and deal flow access.

There is still room for a lot more corporate investment and M&A to keep the sector attractive to entrepreneurs. Corporations that are still dragging their feet with their innovation investment initiatives may soon face an alarming wakeup call as their competitors gain an information advantage for their M&A pipeline.

Farm Tech Section Records 56% Year-over-Year Growth to $1.13bn

Farmtech investment represented a quarter of total agrifood tech investing in H1-2017, reaching $1.13 billion, and accounting for seven of the year’s top 20 deals. The funding total represents a 56% year-over-year increase but is still below the record-breaking 2015 when startups raised $1.3 billion in H1-2015. Deal activity contracted 14% year-over-year to 138 deals, with some large and later stage deals pushing the total up.

Investment increased year-over-year in four farmtech categories: Agribusiness Marketplaces (2,490%), Bioenergy and Biomaterials (100%), Farm-to-Consumer (53%), and Novel Farming Systems (560%). On the flipside, the Ag Biotech (-3%), Farm Management Software (-17%), and Farm Robotics (-12%) categories experienced a contraction in funding.

Seed Stage Deals Increase in Size but Activity Declines

Another potential sign of a changing tide in agrifood tech was the size of seed stage deals in H1-2017; the median value of seed stage deals reached a new high of $535,000 from $250,000 in H1-2016 and the previous high of $400,000 in H2-2014. This trend for increasing seed stage deal sizes follows the global VC market and could emphasize that the lean startup model does not work for all startups in this sector. With early low-hanging fruit already picked, investors may need to start paying up to enter seed stage deals. Further, agrifood tech seed stage deals are still some way off the global VC median of $1 million, according to VenturePulse.

There was a 37% year-over-year decline is seed stage activity, however, but VenturePulse put this global trend down to a return to pre-boom (2015) levels when seed stage activity was less inflated.

The drop in seed deals could also highlight some redundancy in some agrifood tech categories, such as food delivery and digital on-farm technologies, where ‘me-too’ startups continue to crop up. Seed rounds represented 51% of deal activity in H1-2017, down from 59% in the first half of the last two years. Examples, where deal activity contracted, include Online Restaurants & Meal Kits, eGrocery and Farm Management Software, Sensing & IoT.

Series A stage funding reached a new midyear record, raising $660 million during the half across nearly the same number of deals as in H1-2016. Although partly driven by the $150 million round for Chinese Agribusiness Marketplace Maihuolang, it’s positive to see investors supporting startups at Series A stage, despite the overheating in some categories at the seed stage, particularly after a fairly dramatic 38% decline in Series A activity between H1-2016 and H2-2016. Series B deal activity also held steady, decreasing by just one deal compared to H1-2016, and maintaining its median value.

Large Deals for Agribusiness Marketplaces, Novel Farming Systems, Midstream Tech & Innovative Food Startups Drive Category Growth

Agribusiness Marketplaces raised 7% of total funding and $301 million. Investment in the category increased 2,488% while the number of deals grew 42% year-over-year. China’s Maihuolang contributed nearly half with its $150 million Series A. Entrepreneurs in this category are working to disrupt the traditional relationship-based supplies and machinery procurement process as well as how farmers market and sell their produce, removing or disrupting existing middlemen and creating new markets.

Investment in Novel Farming Systems might soon match the hype and excitement the category has received in the media. Startups that are using new and innovative ways to produce agricultural and biological products including insect farming and controlled environment agriculture, raised $198 million during the half, a 560% year-over-year increase. The largest insect farming funding on record — Protix’s $50 million Series B — and some large indoor farming deals, such as AeroFarms’ $34 million Series D, helped to reach that total. With vertical farming group Plenty’s $200 million Series B over the summer, expect this category to pop in the full year report.

Funding to Innovative Food increased 60% to $206 million across 18 deals with a diverse range of startups raising funding for meal replacement drinks, nutraceuticals, sugar replacements, and novel ingredients. Meal replacement drink Soylent raised the category’s largest deal with a $50 million Series B. Cultured meat startups were noticeably absent from the half, except Finless Foods, the cultured fish startup. This may come as a surprise to some as the sector attracts so much media attention, but it remains a small part of the agrifood tech ecosystem, with some question marks around how much it will cost to bring food products to the market. 

Restaurant Marketplaces accounted for an outsized portion of total funding (37%) due to the $1bn Series H outlier for Chinese company ele.me pushing total investment in the category to $1.7 billion across 30 deals. Excluding ele.me, funding in the category fell 53% year-over-year to $680 million. However, the number of deals in the category still increased 50% as new players continued to appear, particularly in emerging markets that accounted for nearly half the deal flow.

For more detailed analysis, download the report here.