The Agtech startup market, like much of the startup scene, has seen explosive growth in investments in recent years, with total investments increasing more than eightfold since 2010. The total $4.6 billion pie went, for the largest share to food e-commerce and delivery, followed by irrigation & water concepts.
The agriculture startup market has boomed since 2010, jumping from $400 million to nearly $4.6 billion. Like with the global venture capital market’s investment into startups, which according to KPMG saw investments spiral to $128 billion last year, a new report by Agfunder (‘Agtech investing report’) finds that agriculture too is enjoying an investment soar as new technologies and methods converge to transform business model and industry segments.
Agtech investment booms
The value of the agtech investment activity jumped considerably in 2013, up 75% to $900 million, following three years of relative stability. The jump was in part catalysed by a number of mega deals, including BASF acquiring seed treatment company Becker Underwood for $1 billion, and The Climate Corporation’s $1 billion exit to Monsanto at the end of 2013, supporting a $2.4 billion result in 2014. Last year completely eclipsed these figures, with investments jumping 94% on 2014 volumes, to hit $4.6 billion (526 deals). The capital flowed to 499 companies, attracted across 526 rounds of financing. High profile investors making bets in the space included Google Ventures, the Bill & Melinda Gates Foundation, and Kleiner Perkins Caufield & Byers, among others.
The large increase in capital inflow marks, according to the authors of the report, a sign that the market is picking up ground previously lost in the innovation and startup scene. The agriculture market represents about 10% of global GDP ($7.8 trillion), agtech investments however accounted for <3.5% of the total $128 billion invested in venture backed companies in 2015. Furthermore, agtech investment represents less than 0.5% of the entire agriculture market. In other words, the agtech landscape faces considerable potential for (further) expansion, in particular in light of the growing global demand for food and the convergence of technologies that is paving the way for new, and more efficient operations.
There are signs for concern as well, state the authors. The main fear is that part of the the market may be heading towards a bubble. The food e-commerce sector continues to be overheated against a backdrop of questionable unit economics and increasing competition, and the rest of the market is undergoing a financing challenge, with few deals of over $50 million in size. In addition, the globe’s key economies currently has relatively few agtech dedicated funds, and those in place are still small in size.
The deal space, in terms of number of venture capital backed investments, as well as their values, varied considerably in 2015. The seed stage saw only a fraction of total funding, at $130 million, while involving 260 transaction. Series A funding was relatively robust at $786 million – suggesting that startups with seeds that are likely to grow into maturity face relatively good access to capital. Series B and C represented 46 and 27 investments, at $692 million and $1 billion respectively. Grant/non-equity crowd funding managed to pull in around $10 million.
Particularly seed stage companies and B series companies saw declines since the previous year, suggesting that many early stage agtech companies continue to struggle to raise capital despite more capital entering the space.
The sector with the most investment is food e-commerce, which pulled in more than $1.65 billion in 2015, a more than 300% increase from 2014, and a total 36% of the pie. A few large deals pushed up the irrigation & water sector segment, which attracted 15% of the total available funding. Drones & robotics came in third, at 8%, while last year’s top investment choice, bioenergy, fell to a share of 7% of total investments.
Across the board, the future remains relatively bright for the sector, say the researchers. “Gone are the days when Agtech encompassed simply seed genetics and biofuels. Today, Agtech is being driven by a confluence of technologies. We continue to believe that agriculture industry is proving to be an excellent first market for many of the most exciting technology developments because there are still so many problems to solve.”