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The Future of Venture Capital at Bayer-Monsanto: It’s Complicated

June 6, 2018

It’s official. The Bayer-Monsanto merger will finally close on Thursday. The new entity will keep the name Bayer and cast off the name Monsanto.

Though the physical closure of the more than $60 billion transaction will take place on Thursday, June 6, US regulators require the two companies to continue to function as separate entities until Bayer’s seed division, along with a few other portfolios, can be sold to BASF, as announced in April. Thanks to European regulators, this transaction likely won’t close for another two months, Liam Condon, CEO of Bayer CropScience, told reporters on a call Monday. 

Until the divestments to BASF go through, Bayer is not legally allowed to gain access to Monsanto’s “confidential data,” as Condon described. Though Bayer will own Monsanto, it can’t look too deep under the hood just yet.

What we know so far about the post-merger reality (and it’s not much) suggests that casting off Monsanto’s name may be more of a gesture than a literal representation of the new reality. Bayer announced a handful of top executives at the integrated Bayer three weeks ago, but on the media conference call, Condon said that further details are likely to be delayed a few more months.

What About VC?

What does that mean for the future of venture capital investment at the integrated Bayer? Condon said that the structure of venture capital at the new entity is a “hotly-debated” topic internally.

He lauded Monsanto’s venture arm, Monsanto Growth Ventures (MGV), leaving open the possibility that a combined strategy of MGV’s more traditional VC investment tack with Bayer’s preference for grander schemes could be the result — while making no promises.

“We’re very excited about what we see and what we know of Monsanto Growth Ventures. We think it’s a great model. We think it’s a model that is uniquely adapted to the need of venture capital in ag, which is a bit different than in other life science areas.”

He added that Bayer’s “Leap” program favoring larger investments via joint ventures like Joyn Bio, a $100 million JV with Ginkgo Bioworks, had been Bayer’s modus operandi to date, although it has made a few dispersed startup investments off its balance sheet.

“This is something that will continue,” said Condon of the “Leaps By Bayer” program.

“We believe that the Monsanto Growth Ventures approach is highly complementary to what we were doing, so we would be very excited to continue with that approach in the new company,” he continued.

But the terms of the merger make startup investments, especially in the style of MGV, more complicated.

The Final Proposed Judgement regarding the deal, as released by the US Department of Justice, makes several stipulations that could interfere with existing and future venture investments from the newly-merged company.

The Judgement stipulates that, for the next 10 years, Bayer must notify the Department of Justice 30 days in advance if it intends to “directly or indirectly acquire a financial interest … in any company that researches, develops, manufactures, or sells digital agriculture products or soybean, cotton, canola, or corn seeds or traits.”

The same standard applies to acquisitions. Within those 30 days, the government may request more information, which would necessarily delay the transaction an additional 30 days.

On its face, this requirement would interfere with Bayer’s ability to move quickly, as many VC deals do, particularly in the case of follow-on investments in companies already in MGV’s portfolio. When a startup raises a new round of funding, often existing investors are given the opportunity to up their investment, but this opportunity usually comes with a very short window or time to decides — sometimes as short as 10 days, according to VCs.

According to Bayer though, the stipulations regarding investment won’t affect internal venture activity.

“Bottom line, we don’t believe [the final proposed judgment] will inhibit us in any substantial way as we make venture investments,” said vice president of communications for North America, Darren Wallis to AgFunderNews. “Bayer and Monsanto will comply with the order and – once we’re integrated – we’ll simply factor this into the timeline for future investments where notice requirements apply,” he continued.

Wallis added that the judgment only covers investments and acquisitions in digital agriculture, seeds, and traits in major crops.

“This doesn’t prohibit venture investment or acquisitions in specified areas and in fact, the notice requirement does not apply to several areas where Bayer and Monsanto already have made recent investments,” he said.

Bayer’s startup investments have traditionally come in the form of joint ventures and not direct investments into startups’ funding rounds as MGV has done.

MGV has been one of the most active corporate venture offices coming from the major strategic players in agriculture. It was the second most active corporate venture office in 2017 behind Syngenta Ventures, according to AgFunder research. 

AgFunderNews sources indicate that Monsanto Growth Ventures is actively searching for new leadership.

Though Monsanto has been adamant that its venture arm is still fully operational, sources close to the situation, and in the VC community, suggest that it would be very difficult for Monsanto to attract experienced venture capital talent to fill the vacant positions considering the pending merger, which after tomorrow will no longer be pending. Monsanto did not comment in time for this report.

In addition to forming joint ventures, Bayer is also a limited partner in several agrifood related venture funds including Cambridge, MA-based Flagship Pioneering (formerly Flagship Ventures), Israel’s Trendlines, and San Diego, CA-based Finistere Ventures. Since the DOJ judgment requires notification of both “direct and indirect” investments, these may also be affected, but Finistere’s managing partner Arama Kuktai said that it would not.

“Our fund investment isn’t impacted operationally,” said  Kukutai.

What About R&D?

Bayer has previously announced that its US headquarters will be in Monsanto’s home of St. Louis and not Research Triangle Park, NC where Bayer’s US headquarters is, which could indicate the importance of Monsanto’s physical facilities.

R&D priorities though will not be formally set until the companies can be fully integrated in August, said Condon. All we know so far is that the head of R&D at integrated Bayer will be Dr. Robert Reiter, currently technology integration planning lead at the company where he has worked for 20 years.

Condon said that when the companies finally integrate, the new Bayer will have 35 R&D sites, 175 breeding stations, and 8,000 R&D personnel.

“Once we have integrated the two companies, we will sit down and look at all of the projects going and look at the overall footprint and reassess the current priorities that we have,” said Condon, who was able to confirm that the very recently opened startup incubation space, the CoLaborator, in West Sacramento, CA, where Bayer’s biologicals research facility is located, will remain. The 3,000 ft space is a collaboration with the Greater Sacramento Economic Council (GSEC) to help identify promising startups across the agtech space.

Clean Slate?

Condon kicked off the call by saying, “It’s always good to remind ourselves why on earth did we do this?”

He answered by explaining that the two companies have a similar strategic intent to bring a leading crop protection and a leading seeds and traits business together to address a growing population, limited natural resources, and land, thereby increasing access to food without harming the environment.

Historically, Monsanto’s method for meeting those goals has been controversial, and by dropping the name, some of that controversy may fall away, but whether its personnel or technology, Bayer will acquire Monsanto’s troubles with its triumphs — a fact of which Condon seems fully aware.

Regarding the choice of name, Condon said, “Just changing a brand name doesn’t change a reputation overnight. We simply had a strong belief that the Bayer brand has strong positive recognition and this is something that we couldn’t say about the Monsanto corporate brand,” he said.

Regarding the public conversation ahead, Condon put it this way: “We’re going to be engaging in a dialogue about why farmers need more innovation.”

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