The “Push or Pull” Distribution Challenge for Agtech Startups and VC Returns

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.

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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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2 thoughts on “The “Push or Pull” Distribution Challenge for Agtech Startups and VC Returns”

  1. The ag data business will remain a primary a push industry until it is realized how to repurpose the landscape data and create value. The swarm is currently around precision ag, but that value of the data remains internal. You mentioned the investors and entrepreneurs do not understand agriculture production, but most of agriculture production does not understand the sustainability industry, which is the wide open space for repurposing the data, actually creating a new, visible value stream and creating pull. One such model is called a multi-sided shared governance platform – a combination of a multi-sided business platform with the characteristics to address the “other’ values aspects of agriculture sustainability as it relates to NGO, governments and utilities…does Des Moines Water Works ring a bell? The seemingly negative values attacking agricultures are part of the gold mine everyone thinks is a good idea to avoid.

  2. An interesting article. However there is also a need to stand out. How can there be any serious money to be made by simply creating incremental improvements to current practices? – or along overly long supply chains?

    In our field (where we have no need for land…) of protected edibles we need a revolution. Some are trying to make a success of bringing the rural greenhouse business model and place it in a peri-urban warehouse. As far as we concerned this will never be economically viable or sustainable. Trying to copy a model that might work in an almost deserted town in the US where buildings have been abandoned cannot make sense in a thriving city where the costs of a building can reach 20,000 times agricultural land per unit area. Swapping a few motorway miles (the cheapest element of transport) for a very expensive building will never stack up commercially.
    From day one we set out to create a new business model. In Europe the majority of food retailers are using modern steel framed warehouse construction techniques. No sensible retailer would allow every day access to a low pitched roof where they are dumping heat and CO2 from the retail space. However by automating the transfer and rooftop care of growing crops with out patent pending technology we can make use of the heat and CO2 and avoid the need for transport and transport only packaging. All of a sudden we have done away with a huge amount of cost and can offer fresher produce.
    The real benefits come when we work with the retailer to and use their data to create cropping plans that allow a ‘grow to order’ business model.

    So it’s not so much the farmer we need to get in front of – we are creating new farms – we can show a large retail outlet has the equivalent of an unused 500 acre farm above the retail floor. Worse still they already pay for and waste most of the energy needed to make it productive. The best bit is that the capital cost of automating our systems is largely offset by avoiding the need to construct foundations leaving a very similar cost to a rural greenhouse but with substantially lower running costs.

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