Editor’s Note: Kevin Zussman is an agtech investor with Cultivian Sandbox, a venture capital firm that invests in food & agriculture technology startups. Cultivian Sandbox is a joint venture between Cultivian Ventures and Sandbox Ventures, and is one of the most established agtech-focused venture capital firms. It’s currently investing out of Fund II, which closed on $115 million in February last year.
Here Zussman writes about pivoting into food and agriculture from other industries.
When our team meets entrepreneurs we almost always ask, “What’s your story?” to better understand both the history of the startup and its technology. After nearly a decade of venture investing in the food & agriculture sector, we have heard over 2,000 of such stories. In the last few years, we have noticed some interesting plot twists: more and more companies are leveraging technologies first developed and commercialized to serve the military, energy and healthcare sectors for application to the food & agriculture sector. We believe funding these types of pivots with the right team may yield outsized returns for investors.
If asked to describe the early days of a typical startup, most of us would think about Steve and Woz working late into the night in a dimly lit garage or Bill or Mark working just as late in an equally dimly lit dorm room. While we don’t normally associate Uncle Sam with innovation, there are 21 Federally Funded Research and Development Centers and 38 Research Installations of the U.S. Army and Air Force across the country. Many of these research institutions have developed technologies for the military to improve national and global security. Interestingly, these same technologies are currently being adapted to address major issues in food & agriculture.
- Descartes Labs develops machine learning software to provide actionable data from satellite imagery. The founding team is a group of scientists from Los Alamos National Laboratory (LANL) where the underlying technology was incubated for 7 years with over $15 million of U.S. government research funding. Originally, the software was used to solve national and global security issues in real-time. Now, the technology is used to measure the health of global commodity crops daily, in order to quantify their acreage and yield with granularity down to the county and farm level.
- 915 Labs provides an innovative food processing and packaging technology. The core technology, developed at Washington State University, received early funding and support from the U.S. Army Natick Soldier Research, Development & Engineering Center. The technology was originally developed to improve the taste and quality of ready-to-eat meals for U.S. soldiers in the battlefield. A significant market opportunity exists to exploit this technology as an alternative to retort and other conventional food processing methods used by multi-national food companies. 915 Labs is currently working with food companies all over the world to produce healthier foods with cleaner labels that taste great (the enchiladas were my favorite!).
- SafeTraces provides biological tracers, or invisible, edible, odorless and tasteless barcodes applied directly to food at a significantly lower cost than competitive technologies. The technology, which was developed at Lawrence Livermore National Laboratory, was originally used as a biostimulant to enhance our response capability following an intentional or accidental release of a biological agent. Currently, SafeTraces is developing a complete food source assurance solution for source verification, adulteration protection, on-food traceability and food safety.
Rising oil prices, which grew from over $40/barrel in January 2005 to over $130/barrel in June 2008, helped fuel nearly $24 billion in venture capital investment into cleantech startups during 2005-2008. As prices began to drop sharply in the summer of 2008, the economics of many of these businesses were called into question. Lower oil prices combined with high capital expenditures, complex manufacturing and scale-up processes, and longer-than-anticipated payback periods, forced many cleantech firms to re-evaluate their strategies. In recent years, we have seen energy firms pivot into the food & agriculture sector.
- Agrivida produces high-value enzymes. Originally, the company was focused on biofuels and biomass crops, which produce their own enzymes for cellulosic ethanol or other biofuel production. Now, the company is focused on animal nutrition. By producing feed enzymes in corn grain, the cost of goods sold is reduced to roughly 25% of current fermentation production.
- Midori creates novel oligosaccharides that interact with innate microbes to support gut health in animals. Originally, the company developed a platform designed to turn cellulosic biomass into essential sugars for biofuels. Now, the company is developing solutions for animal nutrition.
- Solazyme develops microalgae-based products. Originally, the company was focused on alternative energy and industrial applications. Recently, the company announced that it is pivoting to food, nutrition and specialty ingredients under a new name: TerraVia.
There is a natural connection between human health and animal health, nutrition and food safety. Like the military and energy sectors, we’ve seen a number of technologies, including gene-editing, single domain antibodies and bioprinting, originally developed and commercialized for healthcare that are now extending or completely pivoting into food & agriculture.
- Cellectis, a biopharmaceutical company founded in 1999, develops immuno-oncology products based on gene-edited T-cells for cancer treatment. Gene-editing uses “molecular scissors” to insert, delete or replace DNA in specific locations of an organism’s genome to express a desired outcome. To leverage gene-editing technologies for agriculture applications, Cellectis founded Calyxt as a subsidiary in 2010. Calyxt is using transcription activator-like effector nucleases, or TALEN, a gene-editing tool, to deactivate a specific enzyme, which results in potatoes with extended shelf life and healthier French fries.
- AbCelex utilizes its core technology to discover and develop single domain antibody-based products for improving animal health in order to increase production performance and food safety. Single-domain antibodies are antibody fragments produced by the immune cells of certain animal species and have significant cost and production advantages over conventional antibodies, holding great potential in addressing pressing health issues. While AbCelex is currently solving problems in animal health and food safety, the company was originally focused on creating innovative new products for rapid diagnosis of a diverse set of disease-associated biomolecules.
- Modern Meadow is developing cultured animal products with no animal slaughter and much lower inputs of land, water, energy and chemicals than conventional processes. The company, which was founded in 2011 by Gabor and Andras Forgacs, is essentially “bioprinting” animal-free meat and leather products with an initial focus on the latter. Led by the same father-son leadership team, bioprinting was first commercialized by Organovo, a regenerative medicine company that designs and creates functional human tissues using 3D bioprinting technology.
Food for Thought
According to AgFunder, over 500 food & agriculture technology startups raised $4.6 billion in 2015, as entrepreneurs tackle a vast array of challenges, including reducing food waste, increasing food safety and improving supply chain transparency. To meet these challenges and feed a growing population will require investments in disruptive technologies. From machine learning software to biological barcodes, several potential solutions that were developed and commercialized to serve other sectors exist today to address major issues in food & agriculture. But these technologies will require both vision and funding to adapt to the food & agriculture sector.
As a venture capital firm focused exclusively on investing in food & agriculture technology startups, we are excited about this opportunity. Our job is to not only invest in cutting edge technologies, but also to leverage our domain expertise and strategic network to support entrepreneurs who are applying existing technologies to food & agriculture. We believe that these opportunities may be particularly attractive from a venture capital perspective since we are able to leverage existing investments in research & development from other sectors. Funding these types of pivots can be more capital efficient because the technology is already partially de-risked. Therefore, we think there’s potential to realize returns commensurate to early stage startups while taking on risk commensurate with later stage startups — think Series A returns on a Series C risk profile — while improving the productivity of our food system.
Have news, tips or want to write a guest commentary? Email [email protected]