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Panelists Phil Erlanger (Aliment Capital), Audre Kapacinskas (S2G Ventures) & Kirk Haney (Radicle Growth)

Investing in ag biologicals: “We are looking for reasons to say no”

July 17, 2023

The word “efficacy” gets thrown around a lot when talking about naturally-derived crop production and protection tools, commonly known as biologicals.

In biologicals, efficacy is about whether or not a crop solution does what its creators say it will, be that fixing nitrogen, warding off pests or boosting yields. Or to put it simply, does the darn thing work?

But a panel of investors at the recent Salinas Biologicals Summit in California say this definition is too narrow, and that startups need to rethink the meaning of the word for both the sake of their pitch decks and the larger biologicals industry if they want to attract investment.

“Investors are not looking for reasons to say yes,” said panelist Kirk Haney, co-founder and managing partner at Radicle Growth. “I really want that to sink in: We are looking for reasons to say no.”

Panelists Phil Erlanger (Aliment Capital), Audre Kapacinskas (S2G Ventures) & Kirk Haney (Radicle Growth). Credit: Jennifer Marston

Make it novel, not obvious

“How entrepreneurs have been defining efficacy is, quite frankly, wrong,” said Haney.

“We look at about 1,000 deals a year, and about 200 of those are biologicals. And every deck looks the same: ‘Look at my root system untreated; look at my root system treated. Look at my yield untreated. Look at my yield treated.’ It’s the same thing over and over.”

This is no longer enough, said panelists. An increasingly crowded market for biologicals, particularly for specialty crops, has created “a lot to sift through” in terms of different products, said Audre Kapacinskas, a principal at S2G Ventures, about investing in ag biologicals. Only those that are truly novel are likely to attract investment dollars, especially in the current economic environment.

“We know that microbes add value to agriculture. We know they help with yield preservation, with the health of the plant,” said Haney. This is obvious, not novel, he added.

“What is novel and unique is when [a product] actually works in the field. “Having a microbe that works [here, he added air quotes] is one thing. But what’s the cost of goods sold? How are you going to scale this up? How are you gonna get in the market? How do you know it’s going to have the right impact in the field at scale?”

Investors want a ‘systems approach’ to biologicals

According to panelists, the answer to all of those above questions circles back to the underlying theme of the entire two-day event: the systems approach.

The systems approach as defined by event speakers and attendees is to treat biologicals as one tool inside a larger box.

Startups and entrepreneurs need to consider not just how their product works but how it combines with other products (especially chemical crop inputs, which aren’t going away any time soon), how it works with existing equipment, gets stored, its shelf life, how it will get distributed and the regulatory environment.

These are just a sampling of the other tools in the box Phil Erlanger, cofounder and managing partner at Aliment Capital, rattled off when asked onstage about what startups should consider in a systems approach.

“We’re dealing with growers who are very careful and discriminating in terms of adoption of a product. They naturally insist on data, trials, efficacy and things that may be overlooked in general discussions: infrastructure, ease of application, compatibility with existing synthetic chemicals.”

Biologicals, he said, are also “idiosyncratic” to a specific region, soil type, crop, and microclimate.

When all the elements of this system can work together to reduce reliance on synthetics, maintain or increase yields, and generate economic returns for farm farmers, then a product has achieved true “efficacy,” according to panelists.

“My advice for entrepreneurs would be, be excited with what you discover, be excited with what you have. But before you really go out to raise venture capital, talk to some advisors . . . get warm introductions to investors to give you some free advice,” he added.

“Talking to the various distribution channels, talking to other technology providers will really help you present the right plan to an investor and to get in the mind of an investor.”

Other takeaways about investing in ag biologicals:

Biologicals may not follow a traditional VC timeline

Venture capital, in particular, frequently wants startups with the potential to grow quickly and exist fast. As one CEO told McKinsey recently, “The whole start-up ecosystem necessitates moving fast.”

Biologicals — both in terms of creation and adoption — don’t necessarily cooperate with that quick-turnaround mentality.

Kapacinskas succinctly laid out some of the complications about investing in ag biologicals with these timeframes:

“Regulatory approvals take so long, but then, if your path to market is through a distributor and retailer, they want to see two to three years of trial data through their own mechanisms.”

Those trials might include nutrients trials, microbiological analysis, and trials for efficacy, toxicity and stability of a product.

Distribution can make or break a product

To all of the above, Kapacinskas added that farmers won’t get their hands on any of these new biologicals products until they have access to certain distribution networks, further drawing out the timeline for investor returns.

“With ag, distribution is king,” she says. “You [startups and their investors] really have to think through that because it’s not as simple as ‘I’m just going to show up on the farm and all of a sudden my product will sell itself.’

“There’s just a huge network of people who are involved in this and it has to be a collaborative approach; you really need to think through who all those different stakeholders are.”

Growers are ‘very careful and discriminating’

“We’re in the very early days of something [that will] potentially have profound change on sustainability and crop inputs,” added Erlanger.

“That said, we’re dealing with growers who are very careful and discriminating in terms of adoption of a product. They naturally insist on data, trials, efficacy and things that may be overlooked in general discussions: infrastructure, ease of application, compatibility with existing synthetic chemicals.”

Biologicals, he said, are also “idiosyncratic” to a specific region, soil type, crop, and microclimate.

All of this, he concluded, “creates a big challenge and a slow — but important — pace of adoption” for biologicals that investors and startups need to bear in mind.

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