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Seedlings crops in soil
Photo credit: Dylan de Jonge / Unsplash

Using microfungi & melanin, this soil carbon startup just raised $6.9m in a round led by Li Ka-shing’s VC

June 24, 2020

Australian startup Soil Carbon Co has raised A$10 million ($6.94 million) in seed funding in a round led by Horizons Ventures, the VC firm set up by Hong Kong tycoon Li Ka-shing.

Horizons was joined by Grok Ventures, a VC firm launched by Atlassian founder Mike Cannon-Brookes and his wife Annie Todd. Lowercarbon Capital – a climate-focused fund established by early Uber and Twitter backer Chris Sacca – also participated, as did the Australian government’s Clean Energy Finance Corporation.

Based in Orange, New South Wales, Soil Carbon Co is seeking to solve two, related problems: too much carbon dioxide in the air, and too little carbon in the ground.

The startup is developing tech that allows for crops to be inoculated with symbiotic micro-organisms. Not only do these microbes improve the host plant’s fertility and protection against disease, but they also help the soil around the plant’s roots to store carbon more effectively, leading to better quality soil for future planting.

When a crop absorbs carbon dioxide via photosynthesis, around 30% of it is transformed into carbon-containing sugars that are exuded through the plant’s roots and into the soil, explains agronomist Guy Webb, managing director of Soil Carbon Co’s nonprofit affiliate SoilCQuest.

“That carbon flow is very significant, but turns back into CO2 at a fairly rapid rate through reaction with oxygen and diffuses back into what we think of as the carbon cycle,” he tells AFN.

“We’re putting an intermediary between the soil and the roots: specific types of fungi that live inside the plant. We then take some of that sugar flow and in return get some benefits, but convert some of those sugars into a more stable form of carbon.” This ‘more stable’ form is less reactive with water, and happens to be melanin – the same compound responsible for skin pigmentation in humans.

These microscopic, mutualistic fungi deposit this melanin deeper under the surface where there is less oxygen, potentially keeping it securely stored for centuries.

“That’s what really inspired us as the ‘a-ha!’ moment,” Webb says. “It was like switching the lights on. With all these other ways of building carbon, we tend to lose it quite quickly. But here was a mechanism to stabilize it and trap it in the soil long-term.”

Going commercial

Webb and his co-founders, farmers Mick Wettenhall and Frank Oly, developed the solution — which they call ‘microbe-mediated carbon sequestration’ — after attending a talk given by University of Sydney professor Peter McGee, who had undertaken extensive research in the area. As McGee was retiring, Webb, Wettenhall, and Oly decided to acquire the intellectual property. In 2016 they launched SoilCQuest, a nonprofit organization aimed at continuing research and development around the groundwork laid by McGee.

“The professor was retiring and the funding stream had dried up, so it kind of fell into our lap. We couldn’t let this research die; it was too important for farmers,” Webb says. “As momentum built, we got a few more results that helped prove it out, and finally got to the stage of attracting external funding.”

The SoilCQuest team realized that, for their microbe-mediated solution to go mainstream and have a wider impact, they’d need to commercialize it – and to do that, they’d need venture backers. That’s when they teamed up with Guy Hudson, who previously ran SparkLabs’ Cultiv8 agrifoodtech accelerator and fund, and agricultural policy specialist Tegan Nock to launch Soil Carbon Co last year.

SoilCQuest, which remains a “grassroots” charity aimed at improving farmers’ livelihoods and promoting a healthy environment, is Soil Carbon Co’s biggest shareholder.

“We’d started looking at how we could combine a not-for-profit and a for-profit business into a hybrid model. We gave [SoilCQuest] the role of working with farmers,” Hudson, who’s now Soil Carbon Co’s CEO, told AFN.

BBC license fee pays off

However, this hybrid model did present some challenges when it came to looking for outside investment. 

“For us, it was always really important [Soil Carbon Co] was driven from a position of scientific integrity and robustness, and accurately represented the needs of all stakeholders, beyond just the shareholders,” Hudson says. “That took some really inspiring and forward-thinking investors to see the value in that. It’s not the most vanilla model and hence not the easiest to fundraise for,” he admits.

“But particularly with our lead investor Horizons Ventures, Solina [Chau, Horizons’ co-founding partner] immediately understood what we’re trying to do and has been very supportive in terms of helping define the path forward and build the wider fundraising group.”

As chance would have it, Chau first found out about SoilCQuest and Soil Carbon Co’s tech while watching a BBC news bulletin in May last year. Wettenhall had been invited to speak about fungi’s role in soil health in 90-second slot on the BBC’s World News channel.

“We got a call from her about 10 minutes later,” Hudson recalls. That led to discussions with the Li Ka-shing Foundation and eventually to signing a term sheet with Horizons.

Hudson says that Soil Carbon Co’s exact business model is still “to be decided,” though he indicates that the startup is likely to work directly with farmers in combination with its affiliate and majority shareholder, SoilCQuest. Beyond that, there’s also potential to work through third parties by way of licensing agreements. “What’s important is to roll out as widely as possible, not only for farmers but also for the potential to mitigate climate change at a large scale,” he says.

Rewarding farmers

The funding announced today will be used to scale up Soil Carbon Co’s operations across Australia, where it’s conducting field trials. It has also established an office in the US to benefit from both Northern and Southern Hemisphere growing seasons, and is hiring more scientific talent to fill out its ranks.

Some of the capital will go towards the development of a platform to reward farmers for storing carbon. “[It’ll be] something that puts farmers first, is really economically viable, and easily adoptable for those farmers. With current schemes to reward farmers, the majority tend to be quite complex, and the economic value for farmers isn’t as high as the value we’re providing in terms of ecosystem benefits by storing that carbon,” Hudson argues.

“We’re looking at creating a really efficient ecosystem, initially in the voluntary space but later with governments and others, to make sure farmers are getting the best possible price [for carbon].”

Webb reiterates that SoilCQuest and Soil Carbon Co see their technology as a farmer-focused solution; any further developments, such as carbon trading capabilities, will have to reflect that.

“We need to get farmers to see this tech as something they definitely want to use, and see the soil as a carbon sink. So the whole project for us is about making this tech attractive to farmers, on the trading side, the agronomy side, and as a social good,” Webb says.

“The gateway is the farmer’s chequebook. Whatever makes it attractive to them is how we need to proceed.”

Got a news tip? Email me at [email protected]

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