Editor’s note: This interview is part of a series on agrifoodtech corporate VC investment strategies and insights. The series is produced in collaboration with the OnRamp Agriculture Conference, which brings together the agriculture and food industries’ leading corporations, investors, and startups, and highlights innovations disrupting agriculture and the future of food. Sign up now to receive the forthcoming report on corporate VC strategies later in Q1 2021. Catch up on the previous CVC interview in the series with Syngenta Ventures here.
German agri-chemicals giant Bayer made headlines in 2018 for acquiring US rival Monsanto for a whopping $63 billion. The two years since have involved a painstaking harmonization process, watched over by regulators and market analysts alike.
The merger has left rival corporates and budding startups curious about what the new entity’s corporate venture activities would look like (among many other questions). Monsanto Growth Ventures already had a sizeable portfolio, which has since been folded into the umbrella of Leaps by Bayer, Bayer’s innovation department which also holds the (much smaller) Bayer Growth Ventures portfolio and a very large healthcare portfolio too.
With a large conglomerate scouring the horizon for new business models, the muscularity and dexterity of its venturing arm not only matters internally but also sends reverberations throughout the industry. One area Bayer is exploring through Leaps might seem counter-intuitive for a high-volume chemicals seller: agri-chemicals reduction. It has targets around other agrifoodtech themes too including protein supply and digitization and claims to invest through an impact lens.
AFN spoke with Leaps’ head of agriculture Derek Norman to learn more of what to expect from Bayer’s venture investing ambitions. Norman joined Bayer from Syngenta Ventures, which he headed from 2016 to 2019.
AFN: What do you see as Leaps by Bayer’s mission as a corporate venture arm?
Derek Norman: Our mission is to catalyze breakthrough innovations through a process of active incubation, and by [allocating capital to] create or invest in new companies. We are focused on what we call paradigm-shifting technologies that will have a significant impact on, and returns for, humanity.
We’ve always been defined as an impact investor, so our investments not only target breakthrough technologies, but also specific challenges that would have a positive impact on society and humanity. We very much screen for that when we’re looking at investment opportunities.
Other agri-chemical companies might be a bit coy about saying they’re impact investors. How do you define your approach to impact?
There are many ways to define impact and there’s no one approach that fits every investor. The way we approach impact is through what we call the ’10 Leaps’ – these are 10 specific challenges facing humanity that we believe would have a positive impact if solved. As we’re both a healthcare and an agricultural company, not all ‘Leaps’ are related to agriculture.
We have one Leap [that aims to] to reduce the environmental impact of agriculture. We have another to develop a sustainable protein supply. We have several that overlap with both healthcare and agriculture: ‘driving digital business models,’ ‘eradicating insect-borne infections,’ and ‘curing through microbiome health.’
Why is it important to promote chemicals reduction, if Bayer is also a high-volumes seller? A lot of people might question the incentive there.
My view — and this is broadly understood by a lot of our stakeholders — is that new technologies [for] crop protection are going to come whether or not we invest in them; it’s just a different way of doing the job of controlling weeds or pests. And we actually have a lot to bring to the table: we know the customer, we know the challenges, we know the agronomic systems and the weed challenges. It is just [that the solutions are] doing the job in a different way than has been done traditionally.
What we need to figure out is a new business model that is able to grow these technologies at scale. These technologies could actually then be an area of future growth for Bayer.
How do you support companies that are solving, or at least addressing, ‘Leap’ issues?
First, we try to support companies by providing access to enough capital to develop and test the hypotheses behind the breakthrough technology. When [Leaps by Bayer] was founded, Bayer was doing a majority of the investment itself, and we have evolved that model so that we now aim to bring in a strong syndicate at an early stage of the company’s life.
We also look at Bayer’s own assets and capabilities and look for opportunities to utilize those with a portfolio company to address the Leap. For example, our new company Unfold, which we co-founded with Temasek, is a great example of both creating access to capital and [leveraging] Bayer assets.
Co-founding entire companies outright — like Unfold — differs from many corporate VC initiatives, which edge into existing companies with small but strategic investments. Why is Bayer taking this approach?
We’re not uniquely focused on co-founding companies, and we do invest across the early stages. But I guess we’re unique in that we’re looking at [questions like], ‘What’s the Leap? What technology is needed? Who are the potential partners?’ And does that require founding a new company, or is there a great company already out there that can help solve some of these challenges that we can invest in?
We get very involved in the co-founding process – helping to build out the management team, helping to define the brand and strategy of the company. There are a lot of Bayer in-kind resources that are given to these companies to help them get a jumpstart on developing the technology, such as Bayer expertise and know-how. This is certainly the case for [Unfold], Oerth Bio, and many of our other Leaps investments.
To what extent are you called upon by Bayer management to generate novel ideas?
There have been many areas where we do get more involved, like working with colleagues on climate-related topics such as carbon credits or digital agriculture. Bayer is working to help growers create carbon credits. So that’s an area where we have discussions with the management team around the kinds of technologies and capabilities needed to create a new value stream for growers while solving a major environmental challenge, and how to continue to make that [new] business model a reality.
Could you highlight an example in your current portfolio of a company addressing a ‘Leap’?
I always like to mention CoverCress. CoverCress was an investment made by the Monsanto Growth Ventures team [now integrated into Leaps by Bayer after the Monsanto acquisition]. But it fits what we’re about at Leaps. They’re converting a wild crop called pennycress into a commercial cover crop for growers in the winter. It improves soil health, and it is also a cash crop: the grains or the seed can be used as animal feed and the oils can be used for biodiesel.
CoverCress is a great example of what we’re aiming for at Leaps. It’s a breakthrough. They’re taking a plant that’s never been farmed and creating a completely new commercial crop that would have a major positive environmental impact and would also create new value for growers because it allows a third crop to grow and harvest between a corn and soybean rotation.
What they’ve done is very similar to what was done with oilseed rape, from which canola was bred. They had to remove some of the negative qualities of the original plant. CoverCress just followed that same playbook, but they are using gene editing and traditional breeding tools to do it.
I think this is a space that will get an increasing amount of attention. There is so much attention being paid to agriculture and carbon credits, and cover crops like this can really help to significantly reduce net carbon emissions.
If these companies make ‘the leap’ to success, what happens then?
At the outset of an investment, we have a very straightforward strategic lens for our investments: we try to hypothetically determine whether Bayer would buy the company if it’s successful. It’s a simple question to ask, but hard to answer, because you’re asking: ‘What will this technology actually look like versus the future strategic plan of Bayer?’ But that’s really the question we’re trying to answer here.
Like many corporate venture investors, we see an acquisition by Bayer as the best outcome. It’s a validation of the financial return on investment. But it is also the strategic return, which is that we’ve helped create and develop a company whose technology or products can then have a meaningful impact for Bayer, as well as that ‘return on humanity’ that we’re looking for. That’s the ultimate goal of what we are trying to accomplish at Leaps by Bayer. Of course, if there’s a buyer that’s willing to pay the market price, that’s also a great outcome and provides the necessary financial return on investment [required] to manage any corporate venture group.