The past few years have seen many new players enter the agrifood tech investment ecosystem, but the topline story has been around non-sector specific funds like GV (Google Ventures), Khosla Ventures, SOSV, and Y Combinator becoming active in the space – all of these made AgFunder‘s top 15 most active agrifood tech investor list for 2017.
What’s less common than traditional tech investors turning their attention to agrifood tech is new firms focused specifically on food and agriculture emerging. So far in 2018, three such firms have announced their launch. Seventure Partners and Adisseo launched a €24 million ($30 million) livestock tech fund. Five Seasons Ventures entered the agrifood tech scene with a €60 million fund ($74 million). And the co-owner of Blue Hill Farm and Blue Hill at Stone Barns restaurant in upstate New York has launched Almanac Investments to extend the values of regenerative agriculture into venture capital with a $30 million fund.
Germin8 Ventures is another such firm that crept onto the agrifood tech investing scene early in 2018, participating in Israeli farm management software startup FieldIn’s $4 million seed round in January and also investing in Israeli irrigation and sensor technology company CropX. The Chicago-based firm is targetting $10 million but may raise up to $25 million according to Michael Lavin.
We caught up with Lavin ahead of Agrivest Israel, an initiative of The Trendlines Group, GreenSoil Investments and Israel New Tech, of the Israeli Ministry of Economy, which will take place in Tel Aviv on May 8, where he will participate in a discussion with top agrifood tech investors.
How did Germin8 get started?
Under today's unique circumstances, AgFunder is re-opening Fund III for a limited time to enable investors to join our mission and invest alongside us as LPs in a second close. Learn more here.
I come from the food industry, having been exposed to the business that my grandfather built called OSI Group, which is a large, global, privately-held food processing company producing for the major QSR brands. Depending on the product, OSI is vertically-integrated from production agriculture, through slaughter and value-added processing, to retail in some cases. This has provided a unique lens and experience that is far-ranging throughout the supply chain.
During recent years, OSI has explored innovation a bit more. During this time, I was an investment banker and I started to realize that there is a surge in agtech and foodtech activity — driven by the convergence of real tangible needs like food security and consumer demands that are not going away anytime soon, and the advancements in technologies. At the same time, the investment ecosystem is still catching up and more funding is needed.
Seeing that the big food and agriculture companies are increasingly looking outside their organizations for innovation, and believing that this will not only continue, but accelerate rapidly, the time is ripe to participate. Yes, there are all of these corporate venture arms that are forming and they can add a lot of strategic value, but that can be very challenging. Progress will best be achieved by the small and nimble.
It’s very hard to professionalize the investment activities of corporate venture arms and remain independently minded and execute within the structure of large companies. It’s very tough to navigate that system and receive the respect for the processes and the autonomy you need to execute a hands-on investment approach.
Thus, the thesis for Germin8 Ventures is to be an independent and autonomous entity, supported by experienced advisors from the industry, using our personal capital, to be entrepreneurial and agile while still having strategic resources within our reach.
That positioning really resonates with a lot of entrepreneurs. I believe that’s one way we’re going to drive a lot of value. It will also allow us to explore and invest in a variety of areas throughout the supply chain.
At what stage are you looking to invest?
We’re investing in Seed, A and B rounds. Within those stages, we’re particularly interested in those that have demonstrated revenue traction. It doesn’t have to be very meaningful, but some revenue generation is what we’re looking for, coupled with a promising pipeline and related traction. If that isn’t there, then we look for a clear path to generating that in the next six to 12 months. About 85% of our pipeline, is Seed and Series A. The rest is probably Series B.
That’s a really good stage focus right now especially because many big funds are now participating in the bigger and more advanced rounds. There’s a gap in the marketplace and there is a need for a small fund who’s more selective and strategically oriented to fill that white space.
We’re a globally-focused firm. Just given our reach coming from global food organizations, we’re not shy about investing globally. And also, I have a familiarity with Israel. I lived there for a time in high school and it’s well-known that Israel has a robust startup ecosystem and is a major epicenter for agriculture innovation in the world. There are others too that we’re focusing on like the UK, the Netherlands, Australia, and New Zealand – those are key areas of focus for us.
I’d say Israel probably makes up 30-35% of our pipeline. When it came to CropX we went to Israel back in October scouting opportunities and we met with many smart irrigation and soil health opportunities back-to-back and CropX was the one that really stood out from the pack. Israel itself is also really important because the nation is such an engine for innovation and there is so much R&D and science that comes out of the universities, which effectively act was incubators. The government also provides substantial entrepreneur-friendly innovation funding and resources to commercialize the science.
Unlike most locations, Israel provides patient funding for innovative technology. It’s also very much embedded in the culture to be entrepreneurial, but also to develop based on the variety of needs that the country has and so these factors result in a very interesting microcosm and source of innovation. In Israel, and many other places too, we see a need for strategic capital to advance the Seed and Series A opportunities to the next phase.
Your first two investments were in sensing and IoT. Is that going to be a major space for you or are you going to be investing all over the sector?
We’re going to be broadly focused, yet very selective. IoT, big data and machine learning are all super exciting, and they’re all having a profound impact across industries and their supply chains. Every time there is a major technological advancement elsewhere, I really believe there are applications for agriculture to be a benefactor of it. When people think about farmers, they think about a 50-year-old in overalls who’s not really investing in technology and that’s just not the case. Many baby boomer farmers and, increasingly, the newer generations are looking for technology. They want to bring technology into the field and they’re becoming way more progressive, but cautiously progressive, and working within budget constraints.
When you look at the total universe of IoT and how it affects different industries, whether it’s improving production efficiencies in manufacturing or predicting maintenance requirements on hospital equipment or managing inventory, some of those opportunities are quite large. But the global agrifood sector represents a $7.8 trillion market and with IoT, agricultural yields can reportedly achieve potential gains between 10%-25% and some other agriculture applications can benefit from up to 60% reduction in losses. That type of impact is game-changing.
I think our first two investments happen to be quite similar as IoT and big data platforms for agriculture applications, but you’re going to see us invest in other areas of the supply chain in terms of upstream and downstream, as well as in other technologies. For example, we’re also seeking to invest in B2B and consumer-facing food tech and food science platforms.
One thing that is very interesting about investing in FieldIn and CropX is that the similarities are such that there is a network-effect driving insight and value-add. As we continue to invest in other companies, it’s not just about the usual merits of an opportunity, but we’re thinking very strategically in terms of that network effect and that, along with our hands-on approach and strategic capabilities, will distinguish us from other capital sources.