Avrio Capital, the Canadian agtech venture capital firm, has closed its third food and agriculture technology fund on $110 million. This makes it the third largest agtech fund on record after Seed to Growth Ventures’ $125 million Fund I and Cultivian Sandbox’s $115 million Fund II.
New investors in the fund include US fund of funds house HarbourVest, Quebec pension fund Fondaction pour la coopération et l’emploi, and a group of local family offices. The first close in August 2014 was anchored by Farm Credit Canada and Export Development Canada. Investors from Avrio’s previous funds also contributed to Fund III including Canada-focused BDC Capital and local fund of funds Alberta Enterprise Corporation.
Investor reception to Fund III improved on Avrio’s previous two funds – Fund I, which closed on $75 million in 2006 and Fund II, which closed on $92 million in 2011 – as the sector gained visibility as a viable venture asset class, according to Aki Georgacacos, senior managing director at Avrio.
“We spent so long convincing investors that it’s a viable asset class in the first two funds, but now there’s this acceptance of ag as an investable asset class, so it’s been nice to focus more on the individuals,” he said. It still took over two years to raise, but this is to be expected, he added.
“We raised Fund III in about the same time as the other two funds; it always takes a bit longer than one might like, but we are pleased with getting it down and with the size of the fund,” said Georgacacos.
Investments in Avrio’s Fund II include precision ag company Farmers Edge and precision irrigation company Hortau, and Fund III has made one investment so far in biotech chemicals company BioAmber. Avrio Capital has made over 50 investments since its launch in 2002, making it one of the agtech’s longest standing and most active venture capital firms.
So what’s in store for Fund III?
While Georgacacos thinks there are still some elements of precision ag that are interesting, there have been signs of overheating in the precision ag software space particularly, he argues.
“There’s a bit of a re-set occurring as some businesses need to look at their burn rates and to re-tune their spending in line with the reality of actually getting customers to adopt their technology and pay for it,” he said. “We’re still in the process of completing that reset; it’s been hard for some precision ag companies to bring in new capital when they haven’t been able to demonstrate the rate of adoption or revenue trajectory that makes sense for new investors, so their existing investor base has had to step-up.”
Many VCs have tended to prefer investing in precision ag software over the capital intensive business models of hardware players producing sensors and other data capturing tools. But “you can’t discount the role of hardware”, argues Georgacacos.
“Everyone talks about big data, but they discount the importance of generating good actionable data from which to make good decisions,” he said. “We think that the solution will be via a comprehensive integrated technology.”
This is just the line that Avrio’s portfolio company Farmers Edge takes. Farmers Edge, which recently raised $41 million in new equity, acquired sensor business Crop Ventures in 2014 and spends much of its time “digitizing the farm” which also involves installing weather stations for every 2,500 acres.
Avrio did not contribute to Farmers Edge’s recent round because it was too big for its $4 million to $8 million investment sweet spot, said Georgacacos. “They’re now raising much larger financings so this is when we’d typically stand aside and let the funds more geared towards these sizes invest,” he said.
Some alternative proteins startups have also looked overheated in recent months, according to Georgacacos. But that’s starting to rationalize a bit too, so Avrio will re-visit that segment, as well as alternative approaches to feed, feed additives, and antibiotics for livestock, he said.
Biological inputs will also be on Avrio’s radar after the firm was skeptical for a time about their efficacy for agriculture. And they are still not a complete solution for farmers, argues Georgacacos.
“There’s an acceptance and acknowledgment that biologicals, in conjunction with other chemistry, may create solutions that are more efficacious and economical than biologicals alone, so the pursuit of a hybrid approach is interesting, and we are again looking at some opportunities in that area,” he said.
Georgacacos is joined by co-founder Jim Taylor, Michael McGee, Steven Leakos, and Denis Boyer on the investment team.
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