The commercial distribution of agriculture technologies, and how to get them in front of farmers, is one of the main hurdles that agtech companies and their venture capital partners face, according to speakers at the World Agri-Tech Investment Summit in London this week.
Without a clear path to the widespread distribution of agtech products, investment returns will be impacted and exits will be much more difficult, regardless of the efficacy of the technology involved, argued venture capital speakers at the event.
“There is a hole in the market as there is no distribution company to take applied technology to the market,” argued Dan Hodgson, managing director at Linn Grove Ventures, the angel investor group focused on the sector. Distribution can be expensive so he argued it was important to test which technologies have “pull”, and he has been partnering with very large farmland operators in his network in Eastern Europe to test and create demand.
“It’s hard to build a market without pull,” he said. “If everything you bring you have to push, it’s hard. So the question is, where is the tipping point, and how can you find it and make money?”
Linn Grove Ventures is not the only investment firm aligning itself more closely with the farming industry; AgFunderNews heard about a handful of new initiatives and funds which are partnering with farmer organizations and large agribusinesses to gauge interest, create demand, and help with commercialization.
But for many technologies, distribution will remain a challenge, and this could impact investment returns for venture capital investors, according to Alex Steel, head of corporate venture capital at Syngenta Ventures. He said he was worried that the amount of capital flowing into the industry over the past 2-3 years might not produce the returns expected by the venture capital industry.
“A third of the investment capital is going into broader digital technologies, but it’s far from clear where those exits will come from, where the value creation come from. That doesn’t mean those companies won’t be successful. But there’s lots of complexity in there and it’s far from clear how it will evolve. For me, it’s about allocation of capital. I think you can make good venture capital returns in ag, but I’m not sure if the capital is being allocated to the right areas.”
Ignacio Martinez, a partner at Flagship Ventures, expressed concerns that some investors and entrepreneurs active in the sector do not understand the complexity of agriculture. “They are looking at it as a clean tech, sustainability play, but creating a Facebook in the ag world is not as easy as in the consumer space; ag is not a simple business,” he told delegates.
But there is light at the end of the distribution tunnel with the generational shift that’s occurring in agriculture across many agriculture markets, argued Gideon Soesman, managing partner at GreenSoil Investments.
“Distribution is the main challenge, but also an opportunity,” he said. “You have probably all heard that the average age of a farmer is 58, but what does the young farmer do when they don’t have the experience their parent had? I think there is a chance to cooperate with these guys and bring technology to the large farm operators, as one of our companies CropX is doing.”
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