As Ag Corporates Survey the Territory, Latin American Startups Have the High Ground

Latin America has burst onto the venture capital scene in the last year or so with a bang. Some of Silicon Valley’s biggest names are operating in the region now, with 25 new international investors entering the region in 2017, according to LAVCA.

Latin America, with one of the world’s largest agriculture industries, is starting to catch up with its overseas counterparts, particularly in Brazil and Argentina where local investors SP Ventures and NXTP Labs were among the most active farm tech investors in 2017 globally.

Large strategic agriculture corporates can have a major effect on a startup ecosystem. In the US, the big six (now four) have been responsible for most of the agtech M&A in the last five years and a couple carved out roles as influential venture capital investors as well.

Though most of the early stage support for Latin American agtech startups has been homegrown, some multinational corporations have joined in.

In 2017, Monsanto (now Bayer) invested in BR Startups, a fund established to help develop Brazil’s startup ecosystem and covers sectors outside of agrifood tech including fintech, insurtech, edutech, mobility, IoT, health, and telecom, though the fund has made just one investment so far in automated inspection technology platform Tbit. Raízen, the largest sugar, and ethanol group in the world, is supporting the Pulse agtech accelerator in Sao Paolo, in partnership with NXTP Labs and SP Ventures.

Other larger corporate players like Syngenta, Cargill, Qualcomm and the Jain Group are supporting startups in the region as customers, but not yet in the form of very early stage investment.

While early support can be hard to find in the US, in Brazil, a combination of receptive farmers and larger farms means that getting from ideation to operating the first 10,000 hectares can come from a single relationship.

“[In the last few years] young people on farms and startups at the agricultural universities started putting people in place to bring solutions that farmers actually needed, which were more customized to what was going on here,” said Mariana Vasconcelos, founder of Agrosmart, a Brazilian IoT startup using sensors, meteorological data, image processing and an application based on cloud computing, to provide farmers with real-time monitoring of various metrics. “There is this big trend where many sons and daughters of farmers, like me, decided to build those companies,” she added.

As in the case of Agrosmart, early funding for agtech startups often comes from the larger farmers themselves. Vasconcelos told AgFunderNews that it’s very common for farmers to be angel investors and early customers for startups. “Once you deploy a technology and they like it, they want to be an investor,” she explained.

Though Brazil’s large-scale corn and soy production might make one think that US tech solutions could help them too, both farmers and corporates have learned over the years that a few key differences prove that to be untrue. Namely: climate and connectivity.

Brazil and Argentina have tropical climates with three growing seasons per year for most commodity crops. But it’s not just the intensive nature of the farming that makes the tropical climate complicated. Brazil has microclimates at different altitudes that require different growing practices, plus the higher temperatures make pests and disease pressure increase accordingly.

Deep understanding of these ever-changing environments has allowed startups to expand quickly and drive value to farmers with simpler services. Agrosmart, for example, counts CocaCola and Cargill among its customers. The two corporations source from Brazilian farmers and feel the need to understand the risk climate change poses to their supply chains.

Though connectivity is an issue that all agtech startups have to address, the challenges compound with the size of many Latin American farms. Vasconcelos says that though manual data collection is not uncommon in any country, making the process manageable and efficient for farms over 10,000 hectares is another story.

Another Brazilian startup, Solinftec, which counts half of Brazil’s sugarcane farms as clients and focuses on improving efficiencies for farm operators, particularly around the harvesting process, is able to transmit data from even the most remote parts of Brazil via its mesh network of devices.

Solutions like this that are tailored to the particular challenges of Brazil, can achieve wide adoptions without significant investment (by US standards) or corporate endorsement of any kind.

Corporates Wade In

Startups and investors in the Latin American ecosystem say that in the region, ag corporates may be legitimizing some senior startups with their acquisitions and investments, but on the whole, they’re more following than leading.

Francisco Jardim, founder of SP Ventures says that the last few years have shown that Brazil specifically requires local agtech solutions as opposed to the importation of foreign technology.

“The North American agtech companies that hurried to come here were destroyed. Native solutions created by local entrepreneurs are much more effective,” said Jardim, who based his investment thesis on this trend.

Corporates today are entering the Brazilian agtech ecosystem through partnerships, investments and very recently acquisitions.

Established players like Jain Group are using startups as way to expand the value they offer to clients through digital tools faster than they would be able to develop a digital solution in-house.

“We have to reach out to farmers and provide a more complete service in water management, irrigation control and the agronomic part of it,” explained Alfredo Mendes to AgFunderNews, who joked that he works for Agrosmart full time these days.

Also along those lines, Syngenta announced plans to acquire Brazilian farm management software platform Strider in March. The purchase price was undisclosed, but multiple sources confirmed to AgFunderNews that the company achieved a traditional 10x multiple for its investors.

Also in March, Argentinian agribusiness marketplace Agrofy raised an oversubscribed $6 million Series A round led by SP Ventures, along with corporate VCs Bunge Ventures, Syngenta Ventures, and Endeavor Catalyst, a pan-Latin American technology accelerator program. The round also included funds from current investors including Nasdaq-listed company Cresud — the largest farming company in Latin America — and individual agribusiness investors in South America.

“We think that the agtech opportunity in Latin America is so large, it’s just beginning; the corporates have just gotten on board. Foreign VCs have just started to come in. The local digital VCs are just starting to do ag so the liquidity is starting to combine. Farmer adoption is just starting to grow,” said Jardim.

What do LatAm startups need?

Agrosmart has raised $3 million since its founding in 2014. And though Vasconcelos and founders like her have early stage support and have learned to run lean organizations, it is as yet unclear where she will find the funding to take it to the next level.

“Latin American startups have to be a lot more capital efficient than Silicon Valley companies, raising money is much harder so they have to do more with less and be more productive,” said Jardim, who added that in order to raise later stage rounds, investors often want to see startups from the developing world break even – an unheard of ask for US startups at Series A or B stages where they are often a long way away from that.

Vasconcelos said that US investors told her that she would also need to be operating in the US to raise US-based capital.

“The California VCs are waiting for startups to be in the US before they invest. But we have this blue ocean here. I have to attack Latin America with all of my strength,” said Vasconcelos.

Indeed, Jardim is the ultimate evangelist for Brazilian agtech startups – insisting that he has gotten in on the ground floor of Brazil’s next great successful tech sector (after fintech).

Bullish to the end, he added that it will be paramount for Latin American startups not to sell too early.

“Brazilians until recently would accept a much smaller check to cash out, but this ambition has been changing,” said Jardim. “We really think that if they can hold out for the next three to five years, the growth opportunities are going to be fantastic. It’s what we call an endless market. If you can execute, you can build a very large company.”

Brazil saw its first unicorn in 2017 and Jardim is convinced that he’ll see another in agtech eventually, but it likely won’t be a Climate Corporation scenario. So far, ag corporates are sitting in the passenger seat instead of behind the wheel.

“We want to build six, seven, eight big digital ag companies here in Brazil,” said Jardim.