Indigo Agriculture, the Boston-based microbial crop technology startup, has closed its Series D funding round on $203 million, the largest fundraising effort by a farmtech company on record.
Increasing the round from its $156 million first close in September, Indigo brought on Investment Corporation of Dubai as an investor. The sovereign wealth fund will hold a board observer seat.
Indigo’s product portfolio includes microbial seed coatings for corn, soy, wheat, and cotton. These coatings help crops to withstand environmental stressors such as drought, high temperatures, salty soils or low nitrogen and bolster resistance to disease and pests. The company also claims its products produce higher quality crops, such as increasing the protein content of wheat.
“ICD looks for disruptive companies with potential to change industry paradigms — companies like Indigo,” said H.E. Mohammed I. Al Shaibani, CEO of Investment Corporation of Dubai in a statement. “With a strong foundation in microbial technology, Indigo has built something much broader. It has the opportunity to fundamentally improve the agriculture business on a global scale.”
Investor Strategy
Indigo has taken a different approach to fundraising to many agtech startups, targeting large, institutional investors, and using investment bank JPMorgan to arrange this latest deal. Besides the company’s incubator and founder — venture development organization Flagship Pioneering that formed the company out of university research in 2014 — Indigo has no agtech-dedicated investors. Instead, other investors include Alaska Permanent Fund, Baillie Gifford, one of the UK’s largest independent investment management firms, Activant Capital, a growth equity firm based in Connecticut, US. The company also has investment from a range of high net worth individuals and family offices.
“Every entrepreneur wants a couple of characteristics in an investor: deep pockets that have the ability to provide follow-on investment; patience and a long time horizon of at least five years but preferably over 10 years; and strategic alignment – investors that are interested in making money but have other reasons they want you to be successful,” David Perry, Indigo CEO told AgFunderNews. “We spent a lot of time and focus on investors that meet those criteria and not surprisingly sovereign wealth funds, wealthy individuals, and family offices fit the bill. These [sovereign wealth] funds are enormous, they don’t have defined time horizons — their job is to make money for their countries and state over the long term and then there is nothing more strategic than making sure you’re feeding your population. Agriculture investing meshes very nicely with most sovereign wealth funds.”
Indigo has now raised over $360 million since its launch in 2014, including raising $156 million in Series B and C funding last year.
Indigo is one of very few agtech startups that is not targeting an acquisition exit for its investors and founders; it wants to build a stand-alone business that will one day IPO and list on a public exchange, although that is still some years away, according to Perry.
“We think there’s a huge amount of work to be done [in agriculture] and that we are really well set up to do that so the opportunity for us is to build a big business and make a positive impact,” said Perry.
Product Performance
Indigo has and is using part of this funding to develop its product portfolio, which currently includes microbial seed coatings for corn, soy, wheat, and cotton. The company’s most recent research showed corn yields increased an average of 45%, or 32 bushels an acre, in regions that received only 50% of average rainfall. In some areas, yield increases reached 77%.
“With an average $3 per bushel commodity price in corn, a 40 bushel per acre increase leads to a $120 per acre increase in revenue,” said Perry. “This meaningful boost, in and of itself, could account for the profitability of a family farm.”
Indigo has filed over 250 patents to protect its discoveries that have involved sequencing the genomes of over 40,000 plant microbes, typically found in soil, and has spent tens of millions of dollars a year on its internal R&D efforts, according to Perry.
But the startup also licenses in technology from elsewhere.
One agtech venture capitalist said that Indigo’s products were not necessarily more effective than other companies offering similar products but that it was using its business model, and access to mass amounts of funding, “to hack adoption through marketing brute force.”
Innovative Business Model
Indigo’s business model, which it is deploying funds to build out across the US, Argentina, and Australia, is a core part of its offering.
Indigo does not sell its microbial coated seed product to farmers like most ag input suppliers; instead the company enters into contracts with farmers, providing them with the seed at the start of the season and then purchasing their harvest for a guaranteed, premium price.
Indigo offers its farmers a $0.47 per bushel premium for corn and a $0.43 per bushel premium for wheat, which is a 10-15% uptick.
Ex-agtech VC Gabriel Wilmoth described this as a “cashless farming” approach amid a growing trend for innovative business models among agtech startups.
In an industry where farmers are cash poor globally and there is limited information about whether new technologies work or not, companies need to get innovative about how they get their products into the hands of farmers.
“There’s no real arbiter of truth today about whether something works or not compared to other industries like pharmaceuticals where clinical trials are overseen by the FDA; this leaves the farmer not really telling if a new technology can help or not and that dramatically slows adoption,” said Perry.
“I don’t know if the term “cashless farming” really works here as, sure farmers don’t have to come out of cash for the seed, but they’re still paying for other inputs.”
While being “purposefully vague’ about how the company is able to offer farmers premium pricing for their harvest, Perry says it includes the ability for farmers to produce higher quality crops — such as wheat with high protein content or better milling quality — with an improved, more environment and health-friendly process that uses fewer chemicals or nitrogen, and traceability or identity preservation for end customers.
“We think ag is changing and we think that consumers and end users care more than ever before about how products are produced and the quality of those products,” said Perry. “Evidence of this change is growing in the specialty food market and organic segments as well as in the initiatives of the gigantic retailers like Walmart that want to reduce the use of nitrogen in the supply chain and carbon emissions. These are all examples of the whole society pushing back on the way agriculture is done today and so we believe we have an opportunity to create premium crops and allow farmers to thereby improve their profitability.”
It was unclear at time of press whether the contracted offtake price for each crop included the cost of the seed to the farmers or not.
Inconsistency inquisition
Biological alternatives to synthetic fertilizers and pesticides have been hit with claims of inconsistency and ineffectiveness for years and farmers soon distrusted so-called “snake oil salesmen” that first brought these alternatives to market several years ago.
While startups like Indigo argue that research has advanced so much since then that there’s a much greater understanding of when and how plants interact with their surrounding environment and microbial populations — the microbiome — there are still concerns about consistency even among biological startups themselves.
Perry dismissed these concerns:
“We get some version of that question a lot and it’s more a reflection on the person asking the question than the science — the biggest knock on microbes in the industry is that they don’t work all the time. Of course they do; they do exactly what they do every single time. What it means is that people don’t understand why they do what they do sometimes and not others. It’s not the microbe’s fault; it’s a lack of understanding on the part of the scientist and that challenge is real. Microbiology is much more complicated than chemistry: a chemical acts through one specific mechanism, whereas with microbiology you have an entire genome of microbes interacting with the entire genome of the plant, and that changes depending on conditions of the plant, so it’s a more complex dynamic.”
Perry added that Indigo has created a data and software platform to record and study those variables that impact plant and microbial performance to better serve different environments and situations, although he didn’t respond to requests for further comment about how the company’s products might be adjusted related to that research.
Future plans for the company will include expanding the product portfolio into new crops, continuing to research new microbes and under their modes of action, and building out the business model to suit new geographies. And with over $360 million under its belt, Indigo has a strong foundation to grow aggressively, according to Perry and other observers.
“The reason we are raising so much money is that we think there’s such a big opportunity. If you believe that the farmer is going to fundamentally change how he works and 10 years from now will be using different technologies that are healthier and more sustainable for the planet, and that people can get a premium for doing things this way, then you’re going to spend hundreds of millions of dollars to make that change,” said Perry.
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