Verticales: AgTech
AgTech: Opportunities in the food market
Agriculture is, without a doubt, one of the most defining human activities. For over 12,000 years, our species has been working the land and domesticating animals with the purpose of solving its energetic needs. By generating a permanent flux of food, our ancestors managed to establish cities and to change their lifestyle for generations to come. This constituted an unprecedented revolution, that could easily be deemed as the foundational achievement of the human civilization. Today, we are on the verge of a new revolution that could potentially transform our lives as much as those early crops resignified the lives of the early humans: we are talking about the AgTech revolution.
Digital technologies, and the development of biotech advances, are creating unprecedented opportunities for innovation in agriculture, comparable only to those the early human civilizations developed 12 millennia ago. In a world inhabited by over 8 billion people, and which it is projected to reach the 9.6 billion mark by 2050, the need to increase food production is as real as it will ever be. And it becomes even more important if we factor in that extreme poverty is disappearing as middle classes — which now account for over 50% of the world’s population — grow in most countries. This puts pressure on farmers, who need to upturn their production in order to meet the growing demand.
And while to the unsuspecting observer this could easily seem like a Malthusian nightmare, it is, in fact, a great opportunity. An opportunity to optimize all processes and increase yields, and opportunity to create more sustainable agricultural techniques, and a massive opportunity to create new very successful business models.
A vertical with a Huge Potential for Innovation
Also called “Agriculture 4.0” this revolution goes beyond primary agricultural production. A growing number of startups are working on technological solutions in fields as varied as genetics, tuning crops to increase disease and averse-climate resistance, and to make a more efficient use of the soil, thus massively increasing efficiency; robotics and automation, creating new farming equipment outfitted with Internet connectivity and the possibility to perform automated tasks; big data, to predict yields and anticipate problems — and resolve them before they even manifest themselves –; new farming techniques made possible by the advancement of technology; and innovation in other very revolutionary new fields. Among those, we should mention vertical farming, which involves creating hydroponic and aeroponic farms within buildings and warehouses built in urban areas, which enable the production of millions of tons of vegetables and produce without the use of agrochemicals and with a reduced exposure to plagues and disease. Another big advantage of these technologies is that they massively reduce dependency on large extensions of land, and that they bring production to the city, thus massively reducing transportation times, and the emissions (and costs) associated with them. Other startups are working on new disruptive foods, which may completely change the way we incorporate proteins and other nutrients.
And this is not it. A lot of innovation is also going on in the digital space, where different entrepreneurs are creating marketplaces where farmers can easily sell their productions and acquire supplies from their mobile devices; and other startups are working on platforms that make it easy to sell and distribute food; on the development of food-kits that make it easy to cook healthy meals at home; and on seemingly impossible innovations like food-printing 3D printers and cook robots, that can perfectly emulate the way a human makes food.
In this vast landscape of innovation and business potential, it shouldn’t be a surprise that, in 2017 alone, VCs invested more than $10.1 billion in 994 rounds in companies developing products and services this vertical. In 2018 this figure was even more impressive, areaching a breathtaking record of $16.9 billion in investment worldwide, a 43% increase year over year according to AgFunder.
The reasons behind this interannual growth in investment are essentially two: on one hand, there was a significant rise in the magnitude of Series B and C deals. Additionally, there was an increase on the size of Series D deals, which in 2018 averaged $115 million, versus $44.4 million in the second half of 2017. On top of this, the number of rounds in these series grew a 15% year over year. The second factor was the larger number of seed capital investment deals registered in startups within this vertical throughout the world. This was due, in part, to the fact that many funds and companies started different AgTech-focused incubators and accelerators.
While these figures may seem out of proportion, it should be noted that the agri-food business is truly massive. Worldwide, this is a $7.8 trillion industry, which employs almost 40% of the entire workforce directly and indirectly, if we take into account the whole value chain associated with it.
But in spite of its enormous reach, and the fact that these industries are vital to the survival of our species, agroindustry has proven to be a vastly inefficient sector when we compare it with other industries. It is also exposed to some very complex risks and challenges such as global warming, the lack of natural resources, its wasteful production processes, and the permanent shifts in consumer preferences. This means that there still exist some very big opportunities to invest and innovate in this vertical, in order to generate truly disruptive solutions that, in turn can benefit producers and consumers alike, and offer high returns of investment for investors and entrepreneurs.
What Projects are Attracting More Capital?
Being such an ample vertical, investments in AgTech are also very varied. In 2018 the amount of money invested in production-oriented projects marked an all-time record and harvested more series A and B deals than any other kind. Projects related to the robotization of agriculture, and which covered other innovative areas such as molecule production — both very capital intensive in nature — closed more Series C deals than any other; and projects focused on commercialization outnumbered any other kind when it came to closing Series E rounds around the world, according to AgFunder data.
With a grand total of $7.9 billion in total investment, the United States was the single market where more money was poured into this vertical, followed by China ($3.5 billion), India ($2.4 billion) and Brazil ($700 million). All these markets share two common characteristics: their huge volume in terms of consumers, and their well-developed Venture Capital ecosystems.
Latam: A Promising Market for AgTech
Latin America is, as a region, a very promising market for AgTech technologies. With many of its national economies mostly focused on primary production, high volume-investment in innovation can trigger a significant leap in its productivity.
At the same time, markets such as Argentina and Brazil have a positive track record developing innovative technologies in Agriculture and have managed to reach a level of technification that sets them apart from other countries in the region and the world.
In this context, and as more and more entrepreneurs are turning their talent to this vertical in order to develop and market new innovative products and processes, it is no wonder our region has great potential in terms of truly revolutionizing agricultural and food production. So it should be no surprise that more companies and funds are investing money developing these kinds of companies throughout Latin America.
