What it takes to scale an agrifood tech startup

This post is part of a collaboration with F&A Next, an AgFunder Network Partner, ahead of its fifth annual conference in Wageningen, Netherlands, 13-14 May 2020. F&A Next 2020 will focus on the impact of food and agriculture innovation in improving sustainable farming, maximizing yields, saving natural resources, and mitigating climate change. F&A Next was founded by Anterra Capital, StartLife, Rabobank and Wageningen University & Research. Read about F&A Next 2019 here.

Jurg van Vliet and his partners never meant to get into the farming business. The founding team behind 30MHz, an Amsterdam-based software company, had an idea for building an analytics and management platform for smart devices, and were agnostic as to which business applications and sectors they supported. It was only in 2017 that they realized there was a need in the agriculture sector for the kind technology they were offering.

“We were just looking for a solution for our technology—exactly the thing everyone says you shouldn’t do,” says van Vliet.

For the farming sector, 30MHz built a platform that culls and analyzes data from in-field monitoring devices, allowing farmers to remotely monitor and manage much of what happens in their fields. Recognizing that most farms otherwise relied on low-tech tools like spreadsheets and messaging apps, 30MHz says it designed its platform to be simple and highly-customizable. 

“When we grew from 50 customers to 150 customers in the first year, we knew that we had something,” he says.

30MHz is now fully dedicated to farming and agriculture–specifically, indoor agriculture–and has more than 300 customers. The company raised a €3.5 million Series A funding round from investors in early 2019 with the intention of using the capital to focus on scale.

For start-up business ventures, the proof of concept is often touted as the hardest part. Companies that can make it over that hurdle, put their product and services on the ground, and build a small base of customers are presumably more attractive to investors and have better odds of gaining market momentum. By those measures, 30MHz’s team is a success.

But the scale-up stage comes with its own unique set of challenges. A product that works well among early, forward-thinking adopters may not suit a more reactive mass market. Facilities may not be as easily replicable from an entry market into expansion markets.

Building a business strategy to overcome these issues often requires different skills and resources than founding teams have, or have readily available, says Anieke Wierenga, of agrifood tech “scale-up” accelerator, ScaleUp Food.

“When you look at the factors required for success in food and agriculture—regulatory clearance, intellectual property, building factories—that takes time and requires patience,” she adds.

Amsterdam-based ScaleUp Nation launched ScaleUp Food with backing from Foodvalley and Rabobank to provide resources and mentorship for growth-stage agrifood companies. Its curriculum is built around a 20-point checklist of what it calls “success factors” for scale-ups, including how to think about international expansion, strategic partnerships and the organization’s talent needs. So far, the program has supported 11 companies, including both 30MHz, and is going global with its next cohort. 

ScaleUp Food’s existence is testament to the evolution and growth of the agrifood tech sector, which attracted $20 billion in venture capital funding—a five-fold increase from 2015, according to AgFunder’s latest industry report. Yet, in spite of a proliferation of startup accelerator programs and early-stage investment funds, there are few dedicated resources supporting companies as they enter the growth stage. And there is little consensus in the sector about what milestones companies need to achieve to demonstrate early value in the market.

“In pharmaceuticals, investors are used to long cycles and there are agreed-upon ideas of how companies gain value, such as clearing a regulatory hurdle,” explains Wierenga. “We don’t have that in food and agriculture yet. But that doesn’t mean there aren’t quantifiable timelines and that value isn’t increasing.”

There are clear signals that the agrifood tech ecosystem can use to gauge companies’ prospects for success. “The ability to understand their value proposition and frame it in the right way—that’s what sets a scale-up apart from a startup,” Wierenga sats. “The ones that will win are the ones that understand the steps they need to take and dare to execute.”

Inevitable shifts

When 30MHz raised its Series A round, the company realized that effectively using that capital to grow would require a business shift. 

“We entered the market selling sensors at the plant and crop level with a platform behind them so people could make their own dashboard. Now we’ve shifted,” explains van Vliet. “We’ve gone from selling hardware with a modest services subscription to [focus completely on] the service model.”

Today, 30MHz is vying for customers for whom it can build software applications around their own products and services. Its first major client in this regard is crop consultancy Delphy, in Wageningen, for whom 30MHz has been helping to digitalize on-farm consulting services, which will enable them to expand their international reach.

In the case of another ScaleUp Food participant, Protifarm, the growth challenges were different.

Protifarm raises buffalo beetles at its farm in Ermelo, Netherlands, then harvests and processes the larvae into soluble powders that can be mixed into items like nutrition bars and sports drinks, as well as a into a tofu-like substance that can be cooked or grilled like meat. The company has been making an aggressive push into the “alternative proteins” market, acquiring Kreca Netherlands, a 40-year old family run insect ingredient and feed producer in 2014 and raising a Series B financing round last November to ramp up its facility production. But even with financing and decades of farming experience, Protifarm’s business has very different resource needs and learning curves than generic tech startups, says CEO Tom Mohrmann.

“At a small level, we’ve proven that we can breed the insects, but proving it and scaling it requires different approaches,” he observes. “You can build and prove a prototype on a small scale, but when you do something that’s 10x or 100x larger, a lot of things change.”

Mohrmann compares Protifarm’s current point in the growth cycle to food companies that have been producing products at scale for decades. “A company with 20 or 30 years of experience can replicate a factory, employ the best food scientists and engineers, and still end up with a different product from one facility to another. How’s that possible?” he wonders. “Imagine when you’re just starting to scale up.”

Aligned expectations

Many agrifood tech companies operating on the “upstream” side of the sector face challenges similar to Protifarm’s—perhaps more so than 30MHz’s, which is somewhat unique in its ability to operate a software-centric business in an industry dominated by land, products, machinery, and other physical assets. Mohrmann attributes much of the company’s success in making progress so far to a “just keep moving” culture that encourages team members to learn, even if that means making mistakes.

He adds that Protifarm has been lucky to find resources like the ScaleUp Food program and a base of investors that understand the unique challenges the company faces: in raising a type of animal that is not broadly farmed at scale; in doing that safely and consistently; and in replicating and innovating on the the products it makes for the consumer market. 

“Our initial investors who signed on to the original business plan went through the biggest transformation with us so far. We are still toward the same end goal, but via a bumpy and changing road,” Mohrmann says. “Agritech is so capital intensive, it’s absolutely 100% important to make sure that there’s a good investor fit upfront.”

That isn’t always easy in a sector that comprises a relatively new part of the venture capital market; there is a lot of ecosystem development and investor education yet to do, observes Richard O’Gorman, director of Rabo Food & Agri Innovation Fund.

Rabobank launched its Food & Agri (F&A) Innovation Fund four years ago with the goal of ushering more equity into the agrifood tech sector as a way of catalyzing promising innovations in the sector. The fund, which started at $20 million and has since grown, is housed in the bank’s private equity group and makes both direct and indirect investments in food and agriculture ventures off of its own balance sheet. So far, it has invested in seven companies that are beginning the transition from start-up to scale-up, including 30MHz.

In the time that the F&A Innovation Fund has been actively investing, O’Gorman says he’s witnessed a lot of new equity capital coming into the sector, but what is still lacking is investors that also bring non-financial resources and expertise. This is a gap that the F&A Innovation Fund also tries to fill.

“We are set up to get involved in the companies we invest in and lift all stones across the Rabo network that we can that will help them,” O’Gorman explains.

That kind of engagement with portfolio companies is meant to help them build necessary and “complete” alignment between the technology, finance and commercialization sides of the business and avoid a “continued scramble from start-up into scale-up mode,” he adds. “The ecosystem needs more knowledge and investors who can come into the space and create value.”