Bioceres CEO: Business Model Innovation is Key for Conservative Ag Industry

“There is an industry consensus that you need to invest over $100 million to develop a genetically modified crop; we’ve shown that you can do it at a 10th of that cost,” Federico Trucco, CEO of Bioceres, told the international delegates of Argentina’s recent AgTech Week.

The delegates were visiting Bioceres’ facility in Rosario, the country’s main agtech hub, as an example of one of Argentina’s most successful agtech businesses.

Bioceres is an agriculture biotechnology business that a group of 23 Argentinian growers founded in 2001 to sustainably develop higher-yielding crop varieties. Today it has 12 business divisions, three of which were acquired to build out a unique business model for the development, production and sale of genetically modified soybean, wheat and alfalfa seeds as well as crop protection and nutrition products.

The company estimates that its drought-tolerant soybean and wheat varieties, that are due to hit the market next year, would have saved 5 million out of the 15 million tonnes (approx) of crops that were destroyed in Argentina’s drought earlier this year.

Bioceres’ three-pillared, open architecture business model is the reason the company is able to develop products cost-effectively, according to Trucco.

The first pillar is technology sourcing, where Bioceres’ R&D division INDEAR sits — created in collaboration with government agency The National Scientific and Technical Research Council (CONICET) in 2004. Spun off from INDEAR in 2011, INMET focuses specifically on developing metabolic engineering solutions for the conversion of agricultural feedstock.

“In the US a scientist will have a biotech center to validate his ideas with all the tools needed available, but that’s not the case in Argentina; we might have good ideas — there are three Nobel laureates here — but we don’t have the resources to validate technology early on. So we created a biotech center here in Rosario to give these scientists they would have at an institution in the US, and we help them validate their discoveries using our tools,” said Trucco.

For that research stage, Bioceres uses public funding that’s already available for research and Trucco indicated that a significant portion of the $500 million available annually to the science sector goes to exploratory research in life sciences.

“We re-direct funding that already exists to research leads we think will be applicable and able to improve the productivity of crops,” he said.

Once the tech is validated, Bioceres helps the scientists secure IP rights for it and show their proof of concept data to potential partners such as the big seed companies with the aim of gaining investment from them, often in the form of a joint venture for product development.

Production development partnering is the next pillar of the business model, where Bioceres has three subsidiaries for different crop types: Verdeca for soybean traits, Trigall Genetics for wheat and S&W Semillas for alfalfa.

Bioceres’ approach to the next stage — production and market access — is particularly innovative and has enabled them to succeed where others have failed, according to Trucco.

“We are not a typical tech company that relies on a well established commercial footprint to monetize for us,” said Trucco, pointing to the reliance of many ag biotech companies on the large multinational seed and ag products companies and retailers to sell their wares to farmers.

Instead, Bioceres has created its own channels by acquiring three existing businesses: Rizobacter for seeds, Chemotechnica for crop protection and Synertech Industrias for crop nutrition products.

It also formed another three subsidiaries for the production and commercialization of its products: Bioceres Semillas (seeds), AGBM (chymosin and byproducts), and Heritas (medicine solutions).

For example, through Rizobacter, which has over 40 years experience in the ag biotech space, Bioceres got access to 700 dealers.

Creating an innovative business model has not only been important for the commercial success of the business but also in attracting investors at various points in the growth of the business, said Trucco who became CEO in 2004 after first joining INDEAR.

“Business model innovation is more disruptive to investors; if I present the business as a tech company alone, I think people will be highly skeptical,” said Trucco. “But if I present the business as a platform that can identify disruptive technology and bring it to market in a cost-effective manner, without the traditional dependency on the established players, they will see significant value.”

This is particularly the case for public investors, which Bioceres is focused on; the company has planned to launch an IPO three times, but market conditions forced the company to pull back at the last minute, most recently in May after a drop in the value of the Argentine peso and against volatile international markets.

“Public investors will take deployment risk but not technology risk; the business model has to be validated, but execution risk is fine,” added Trucco.

We caught up with Trucco after AgTech Week to get a few more details about the business particularly in the context of raising venture funding and to find out what advice he has for Argentina’s agtech entrepreneurs today.

How much funding has Bioceres raised to-date in total?

Around $85m in equity.

Who are your shareholders? 

We have three type of investors: financial institutions, strategic/corporate investors [including Monsanto, now Bayer], and leading farmers, our largest group of investors.

How did you raise your first ever round of funding? 

The first round was a $12,600 round with friends and family — 21 investors, $600 each — this group still owns 20% of the company. 

How different is the agtech sector today in Argentina compared to when Bioceres started? Do you think there are more opportunities for entrepreneurs to raise those first rounds of funding?

It is very different. Today you have a more educated investor community, many of whom were exposed to the Bioceres story in one way or another or are trying to replicate the Bioceres case. Seed rounds are generally covered by a proliferating number of tech accelerators and company builders as well as some corporate money too, but Series A to C rounds are still the toughest. 

How did your first round compare to later stages of fundraising? What types of investors are available for agtech startups later?

Our most difficult rounds were our B and C rounds as there are not too many actors for these rounds, where companies still tend to be pre-profit in the agtech space. The Series D and pre-IPO rounds tend to be more attractive to investors, particularly private equity firms. 

What was the most challenging part of creating the business that Bioceres is today?

Building trust and credibility. It just takes a long time, not only with investors but also with the scientific community, with customers, with government and regulators, with partners; it is all track-record base. 

Some of your investors are farmers and I have heard other farmers investing in startups too – do you think that will be a trend for agtech in Argentina?

I think farmers are constantly looking to diversify and the agtech space is very attractive to them, particularly in early rounds, when tickets tend to be small.

In the US and Europe, agrifood companies do not always know how to respond to innovation and technology – some of them create their own CVC in-house, others invest in external agtech funds, and some participate in accelerator programs, but generally, they’re quite slow to act. Is this the same for Argentina’s leading food and ag companies? 

There is the same trend here. Many local players are trying to improve on innovation by creating CVCs, sometimes with and accelerator arm as well. I think the key is to uncouple the innovation effort from the main organization, where management tends to be consumed by daily problems and operations; growth initiatives have to be developed with external structures and downloaded to the broader organization only when they’re mature. 

We talked a lot about the importance of your business model, and business models in general in agtech. Why do startups need to be creative/thoughtful when creating their business models in agriculture?

I think that business model innovation is key in agriculture because the sector has been somewhat conservative in this regard. Companies are trying to be the “new Monsanto” or the “Amazon of Ag.” I believe that this does not work; copying what others have already done is not generally a recipe for disruption. 

Why is Bioceres going for IPO instead of positioning itself to be acquired?

Because we still have a lot to do and believe that being a public company will help us do it faster: we don’t see the IPO as an exit, but rather a means to an end.

What are the main challenges for an agtech startup in Argentina today?

Avoiding the copycat or me-too approach. Many local agtech efforts introduce themselves as the Argentinian version of a well know US tech story.