Farm Technology Startups Raise $1.13bn in H1-2017, a 56% YoY Increase

Farm technology startups, a subset of the broader AgriFood Tech market, raised $1.13 billion in early stage funding in the first half of 2017, representing a 56% increase year-over-year, according to the upcoming AgFunder AgriFood Tech report.

Funding levels for the subsector are still below the record-breaking 2015 when technologies deployed on the farm to grow food and other agricultural products raised $1.3 billion in the first half of the year and a further $670 million in H2-2015. And deal activity was 14% lower than in the first half of 2016.

But the subsector, and the global venture capital market in general, appears to be recovering from the pullback of 2016, which saw global VC funding drop 10% year-over-year, according to VenturePulse.

Farm technology startups constitute a major part of the AgriFood Tech landscape, representing nearly a quarter of total AgriFood Tech funding in H1-2017, and accounting for seven of the year’s top 20 deals in the upcoming AgFunder AgriFood Tech midyear report. This subset of AgriFood Tech encompasses all technologies used at the farm level.

Startups were drawn from the following categories which appear in the farm tech section of the report. We’ve excluded any technologies from these categories that are not being applied at the farm/production level:

Agribusiness Marketplaces raised the largest amount of funding during the half at $299m, representing 26% of total dollars invested. Next is Ag Biotechnology with $262m (23%) and Farm Management Software, Sensing and IoT with $213 and 19%. With a big jump in funding compared to 2016, Novel Farming Systems represented $198m and 17% of the half’s total.

Investment increased year-over-year in five farm technology categories: Agribusiness Marketplaces, Bioenergy and Biomaterials, Farm-to-Consumer, Midstream Technologies, and Novel Farming Systems.

On the flipside, the Ag Biotech, Farm Management Software, and Farm Robotics categories experienced a contraction in funding.

GV (Google Ventures) was the half’s most active farm tech investor, investing across satellite imagery, ag ecommerce, indoor farming, and robotics, followed by a combination of generalist VCs and agrifood tech specialists.

Investors in farm technology startups continue to diversify especially as national media become more aware and excited by visually captivating technologies like Novel Farming Systems. Highlighting this diversity is the $34 million Series D round for vertical farming company AeroFarms; it raised the funding from United Arab Emirates government-backed holding company Meraas, global asset management firm Alliance Bernstein, Chinese VC GSR Ventures, and agribusiness PE group ADM Capital.

The growth in farm technology investment in H1-2017 was largely attributable to two categories: Novel Farming Systems and Agribusiness Marketplaces.

Novel Farming Systems Wake Up With a Bang

There’s no doubt that Novel Farming Systems startups, which include hi-tech vertical farms and insect farming, as well as the production of new living ingredients like algae, have captured the imagination of the public, if the wide range of news articles on the topic are anything to go by. But the category has failed to collect investment reflective of this attention, raising just $56 million during the record-breaking 2015, and $141 million in 2016.

This half, the category raised $198 million across 17 deals, a 560% increase year-over-year. With the inclusion of Plenty’s $200m financing in July by Softbank, expect a blowout number for our 2017 full year report.

Leading deals in Novel Farming Systems highlight the wide range of technologies and processes at play in this category. The year’s largest deals included an insect farming group (Protix), two high tech vertical farms (AeroFarms and Bowery Farming) and cannabis farms (Aphria and Cannabco Pharmaceuticals.)

A small but notable raise in the category of Novel Farming Systems was a $2 million Series A round for California-based shellfish farming company Catalina Sea Ranch. We expect to see more aquaculture and algae startups raising funds in the future as demand for their products increases. The algae market alone is predicted to reach $45 billion by 2023.

Agribusiness Marketplaces Get Growing

The trading of agricultural commodities has typically taken place regionally via in-person meetings, telephone conversations, and handshakes, often meaning farmers and suppliers are limited in their ability to market their product by the relationships they have. This also means they’re limited in the prices they can demand for their wares. The same goes for how they purchase inputs such as seeds, machinery, and other supplies.

Entrepreneurs are now trying to disrupt the status quo to bring farmers greater transparency and optionality through online marketplaces.

Agribusiness Marketplaces accounted for a large chunk of the growth in farmtech investment in H1-2017, raising $299 million across 17 deals. This represents 2,490% growth in funding and 42% growth in deal activity.

Farmers Business Network (FBN), one of agtech’s earlier and best-funded startups, recently pivoted its main business model from a subscription-based farm data service to an online marketplace, helping farmers to procure chemicals at cheaper and more transparent prices, as well as sell their commodities to potentially new customers. FBN’s network now encompasses roughly 3,500 farms throughout the US, covering 13 million acres of farmland, including both commodity and specialty crops.

High profile venture capital firms and specialist ag investors clearly see the value in providing this service to farmers.

FBN raised $40 million in Series C funding co-led by Google’s venture arm GV and San Francisco-based impact investor DBL Partners. 

Monsanto Growth Ventures invested in FarmLead, a grain marketplace that raised $6.5 million in Series A funding, alongside other ag investors Avrio Capital and Serra Ventures. And Cultivian Sandbox, one of agtech’s first venture capital funds, backed equipment leasing platform HarvestPort in its $4.25 million Series A, alongside Taylor Farms, one of the largest vegetable producers in the US.

Entrepreneurs and investors in other parts of the world also see value in improving how farmers purchase and sell their wares. China’s Maihuolang raised a $150 million Series A from three Chinese funds this half, representing slightly more than half of the category’s funding dollar total.

The category’s second largest deal came from Produce Pay, an online platform that connects farmers directly with distributors and pays them for their produce the day after it’s shipped through a lending platform. CoVenture, a software-focused VC from New York City, arranged a $70 million debt facility for the startup alongside leading its $7 million Series A.

The trend around Agribusiness Marketplaces typifies why we at AgFunder felt it necessary to create the AgriFood tech report encompassing the entire value chain from field to plate because the links in that chain are shortening and rearranging with new technologies and business models.

Ag Biotech: the Steady Stalwart

The large agribusinesses have been innovating in biotech for many decades to increase crop yields with synthetic fertilizers, pesticides and genetically modified seeds, and have created multibillion dollar businesses out of it. But startup companies are now adopting, embracing, and developing new capabilities in plant breeding, gene editing, biologicals, microbiome research and more to create new, more sustainable input products to disrupt the status quo in ag biotech. On the livestock side, consumer backlash against antibiotic use is pushing startups to create alternatives.

Ag Biotechnology startups raised $302 million in H1-2017 across 30 deals. This was a 6% drop in funding dollars and 29% in deal activity, however, the category still accounts for 23% of total funding.

Ag Biotechnologies focused on crop production raised the majority of funding and the largest number of deals ($120.5m across 17 deals) while startups producing products for both crop and animal production raised $24.5 million in 4 deals, and those targeting animal agriculture only accounted for $64.3m and 5 deals.

The largest deals in the category are a diverse group including aquaculture feed technology (Calysta), biological crop inputs (Inocucor Technologies), computational ag genetics (Benson Hill Biosystems), genetically modified salmon (AquaBounty), and animal diagnostics. And they attracted some high profile investors, including Singapore state investment fund Temasek, TPG Alternative and Renewable Technologies (TPG ART), an arm of the $70 billion global private investment house TPG, and Andreessen Horowitz.

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