Agriculture technologies are increasingly capturing the imagination of investors and consumers worldwide. The image of drones whizzing over farmland, satellites capturing thermal images and farmers working the fields with an iPad in hand, is the stuff Back to the Future was made of. A revolution is occurring.
The last revolution in agriculture — dubbed the “green revolution” — focused on mechanization (tractors, combines, harvesters), seed science, and chemical inputs to increase yields. And the companies that provided these offerings grew into large multinational players, like Monsanto, Agrium, Syngenta, and Deere.
Today, agriculture technology startups could become the next generation of food and agriculture companies as they focus on giving farmers the tools to produce more food, using fewer resources and promoting sustainability, in an arguably unsustainable global food system.
Investors are now starting to bet on this revolution — with the hope of backing the Uber or Google of agriculture — and investment into agtech has more than doubled over the past three years to reach $2.06 billion in the first half of 2015 (nearly reaching the total amount for the whole of 2014).
But for some investors, unless you are an agribusiness with technological ambition, or a venture capitalist familiar with the sector, it can be hard to know how to access this fast growing and diversified sector.
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Here at AgFunder, we see three main ways to access the sector, each with their own characteristics and suitability for different classes of investor: the public markets, direct private equity investments, and collective venture capital or private equity funds.
1. Public markets
While not the most prevalent sector on the world’s stock exchanges, there are a number of publicly-traded companies across the agriculture value chain. Their main (maybe current?) focus may not be in agriculture technology, but many of the large players are going to offer some exposure to agtech as they are either developing or acquiring new technologies.
The public markets offer liquidity and are accessible for investors of all types.This investment route requires research, however; not just to understand how each company is positioned in agtech development, but also how likely an agtech innovation will succeed compared to the company’s other businesses and actually make money.
Alternatively, an investor can hire an investment manager to invest into a selection of agriculture equities through an agriculture fund or other suitable vehicle — and get diversification that way — but this would be a much more watered-down and general play on agriculture. It would be hard to know how much actual exposure to agriculture technology you have.
2. Venture capital and private equity funds
Bearing in mind that the average age of an agtech company is three, the vast majority of agtech companies are still private. As the alternative and private investment markets continue to boom and attract capital from investment communities globally, it’s no surprise that a collection of investment management firms have started serving the agriculture technology sector. The majority sit in the venture capital community, but there are private equity funds investing into more mature technologies too. Agtech-specific venture capital funds include Cultivian Sandbox, Finistere Ventures and GreenSoil Investments, which are mandated to invest in agriculture technology companies only. There are also a number of more generalist tech VCs that are investing into agriculture technology, (but of course here the exposure to pure agtech would also be watered down alongside other tech sectors).
While investors rely on the expertise of the investment managers handling the fund, venture capital funds tend to raise tens, if not hundreds of millions of dollars, meaning the minimum allocation by an investor is usually around the $1 million mark. This is fine for large institutional investors such as pension funds, insurance companies, banks, corporates or family offices and high net worth individuals, but makes VC funds less suitable for accredited investors.
3. Direct private market investing
For an individual, accredited investor wanting to get exposure to the sector, directly investing into companies might be their best bet, especially as the process for finding deals has become a lot easier in recent years.
Over two years ago, before the Securities and Exchange Commission (SEC) updated its rules on private investment, investors could only find these companies through friends and family— they knew someone who was starting a company and might invest to help them get the business off the ground, acting as angel investors.
But in 2013, the SEC added a new rule under the Jumpstart Our Business Startups Act (JOBS Act), Rule 506(c), that allows private companies that are raising funds to use general solicitation to market to investors, as long as the investors are accredited (individuals with $200k in annual income in the past 2 years or a net-worth above $1M).
Online equity investment platforms such AgFunder, OurCrowd and FundersClub are an easy way for individuals to invest in private companies in the venture space. Some brokers or other money managers might also have visibility on some of the technologies and startups emerging in the space, and help their clients find investment opportunities. But investment platforms provide an easy way to compare a few companies in one place.
Minimum investment on these platforms is usually $10,000 – $25,000, but some might offer the opportunity to pool alongside other investors into a special purpose vehicle if those minimums can’t be reached. AgFunder is the only online investment platform dedicated to agriculture technologies, but other generalist sites have a wide variety of investment opportunities which might include some that are agriculture-related. OurCrowd recently invested into the $9 million Series A round of funding for CropX, an adaptive irrigation service, for example.
Investing in early stage private companies should be considered a high risk investment that is not suitable for all investors, and it’s important that investors do their due diligence on these opportunities.
It’s also worth noting that these site differ greatly from crowdsourcing sites such as Kickstarter, where individuals can contribute money to campaigns in exchange for credit towards a product or simply goodwill.
Whichever way an investor decides to invest, it’s clear that there are a growing number of options and avenues for investors to gain exposure to the agriculture sector. Farmers are looking for new ways to produce more food, which using their resources more efficiently and improving the characteristically tight margins of food production. Investors, get involved!