Research Triangle Park, North Carolina’s Agtech Accelerator launched in May of last year with a new model for developing agtech startups.
AgTech Accelerator is more of a venture development organization than an accelerator according to our definition in the Guide to Startup Resources in Food and Agriculture. One of AgTech Accelerator’s key tenets is to commercialize technologies coming out of leading ag universities. It also aims to fund these businesses throughout their life cycle, either through its own fund or with its strategic partners.
The firm closed its second tranche of investment in November, bringing the fund to $20 million with animal health company Elanco and the Bill & Melinda Gates Foundation coming on board. Other investors include Syngenta and Bayer CropScience, and a mix of venture capital firms: Alexandria Venture Investments, the venture arm of the real estate business, which has led the initiative from the start, ARCH Venture Partners, agbio-focused VC Flagship Ventures, and a group of life sciences-focused VCs from Durham, New York, and Nashville, Harris & Harris Group, Hatteras Venture Partners, Pappas Capital, and Mountain Group Capital. A representative from all of these investors has a seat on the board of directors, which assess every deal.
Agtech Accelerator made its first two deals this year, leading a $10 million Series A round for synthetic fungicide startup Boragen, and a $5 million Series A round for animal health startup Skyline Vet Pharma.
We caught up with CEO John Dombrosky to find out how Agtech Accelerator is progressing and how he thinks about the health and challenges of the agtech ecosystem.
We are democratizing access to venture capital. Learn how you can invest with us.
Since your investment model is longer and you start working with companies very early, how many portfolio companies are you planning to have at any given time?
Accelerator is in our name, but we don’t offer a class, put a business case together, and give enough funding to go out fundraising. That’s not what we do. We have this built, world-class, blue-chip consortia that stands ready to lean into really interesting deals. There is no prescriptive timeline for a cohort. We do highly-curated deep dives into pipeline deals with the scientific founders that we’re interested in and we can step into a Series A round like we did with Skyline and Boragen, or we can do a straight-up new company formation, which I think we’re going to do a lot more of.
So, to answer your question, I think we’ll end up doing five, six, or seven, really early stage new company formation deals every year. We consider ourselves a venture development organization so what we do is bring the capital and the space and the management team and the acumen and a great network in ag to allow scientific founders and their teams to focus on the science and then bridge into, in 19-24 months time, a brilliant company that is ready for their next round of funding. We’ve built this incredible 10-seat board with really neat perspectives and when we get them all the in the room, it works incredibly well to form businesses that otherwise wouldn’t have been formed.
How does it work investing in companies at their very start? How are you evaluating the teams that haven’t proved out their technology yet?
That’s something we struggle with every day and it’s actually something I think agriculture in general really struggles with. There is always risk aversion to assess technology. You’ve done it in an academic setting, but not in the field and then technology stalls.
That happens a lot and I think there’s arbitrage – there is mispricing of that technology because there is such a risk aversion in ag historically, that we can step into and allow some small modicum of proof of concept (POC) work with an economically viable model. We can get $500,000 of POC work done over 12 months and have a really manicured, professional, replicable way to go about assessing early-stage projects and programs and then pivot those into our venture development organization. 70% of my time is focused on the pipeline and helping build bridge networks through our partners, university organizations, and other organizations that can get access and sniff out technology. We’re always in the market for something new and novel.
With such a close relationship to the big strategics, what is your perception right now of their appetite to facilitate exits? Do you think that is going to proceed apace of innovation?
If you have a virtuous circle like you see in other industries, like in biopharma, external development models pushed more of the early stage risk into the entrepreneurial ecosystem and venture capital progressed into the earlier stages. From research to development, to regulatory, to commercialization, biopharma looked at the early stage research and wanted that development de-risked by someone else. Ag is just at the forefront of realizing that that’s probably what they need to do as well.
I think Agtech Accelerator can be a key component to solving that riddle. But all the way through that circle, you have to have the exits. There are not as many IPO opportunities in ag as there might be in biopharma. To stand up a standalone organization is certainly something we would like to do, but its not as common in ag yet and so trade sales have to be part of the ROI equation for a venture-based development organization and the volume isn’t there yet. In my estimation, we will eventually have really sophisticated M&A models to build bridges into those big companies because they’re going to have to. Its just going to be a natural efficiency model that ag evolves to.
The impetus seems to be there now. How is that going to happen?
I think the consolidation of those organizations is going to bring efficiencies that are going to, by natural market forces, require them to look externally for new ideas. There will be some friction, but we’re already seeing it happen. We’re seeing the success at Monsanto Growth Ventures and Syngenta Ventures and what they’ve done at Bayer, which is not a venture organization inside of Bayer, but a really unique external development model. Elanco does the same thing.
When you scan the landscape for large venture players, they’ve all decided that they’ve got to do more than have an R&D component to scouting, their R&D organizations have to include some venture development. Because ag consolidation will likely tighten their ability to do their own internal research, I think it’s going to naturally tend to lean on more external development organizations to help them bridge that.
What is the state of funding for ag research at the universities you work with and how is it affecting how you operate?
From a macro level, the basic research funding mechanisms need to be looked at. In the US we have $33 billion that goes toward National Institutes of Health (NIH) research for human medicine. When you look at the USDA budget and you try to ask what parts of the granting mechanism go all the way back to the institution level for basic science research in food and ag, it’s very small. I’ve penciled out a number between $200-300 million vs. $33 billion.
If it’s not being funded by the public markets, through the land grant universities, then it’s going to have to be driven by either private funding or by crossover technologies. So that’s what I think we at Agtech Accelerator have started to look at more. How can we crossover technologies that worked really well in other disciplines – human medicine or life sciences – and pivot them to ag by asking some basic questions that are informed by our investment hypotheses? We ask those questions to people who might not think of ag very often, if at all, and we get some incredible responses.
When you think about the funding mechanism for basic research across the board in life sciences vs. in ag, it’s a bonfire next to a lighter and we gotta go where the bonfire is.