Where does corporate VC fit into food and agriculture in 2022? Global Venturing asked industry figures at one of Europe's largest agricultural technology conferences to find out.
Food and agricultural technology is more important than ever as political insecurity and global heating affects crops and supply chains. Global Venturing saw everything from robotic weeding systems to a vaccine platform for bees at the World Agri-Tech Innovation Summit in London, but where does corporate venture capital fit?
“I think the question is ‘how can we focus the farmer the most’,” says Daniel Kreuzer, a junior corporate venture manager at agriculture and infrastructure services group BayWa.
“The question is ‘how can we focus the farmer the most’.”
“What does he really need? For agriculture we will always need seeds, technology on the field, we’ll need tractors – or something to get the work done physically – and I think there is where there has to be the most change. Everything else needs to support that but will never replace it.
BayWa runs a formal CVC unit called BayWa Venture but also provides funding for startups off its balance sheet, most recently for plant-based egg developer Neggst earlier this month. Its key areas of interest include biological input factors – in essence the ingredients and raw materials – for cleaner and more sustainable alternatives to products like fungicides, stimulants and pesticides.
“In the end, a digital solution is only as good as the physical action on the field, and we have to work on that and bring the innovations in seed development, in gene editing, in biostimulants to the actual field and the farmer, and convince him that this is worth the price and the effort to engage with the technology,” Kreuzer adds.
“We are not a typical fund. We don’t have to do investments or bring money to the market but we are always searching for fitting opportunities. There are many out there, and we are especially searching for alternative input factors. So, where can the portfolio really change and when can those input factors really be transformed into more sustainable ones?”
“It’s very critical to the corporations that there is innovation in the space”
A corporate like BayWa will generally talk about the areas it is interested in and what it can provide for portfolio companies. But what about the startup’s perspective on the agriculture technology sector?
“It’s somewhat harder to get your traditional venture-scale returns, but it’s very critical to the corporations that there is innovation in the space,” says Jeff Feldman Sparks.
Feldman Sparks is chief operating officer for Guardian Agriculture, which has raised over $16m in funding from investors including biotech producer Bayer and agribusinesses Wilbur Ellis and FMC to develop its drone-based crop monitoring and protection system.
All three have a direct interest in the product, to the extent that Wilbur Ellis ended up being Guardian’s first commercial customer, and Feldman Sparks sees agtech as a sector which is particularly strategic for corporate investors.
“Most CVC in this space is very aligned with the company’s needs,” he says. “It’s not greenfield or looking for a standard venture return, it’s about what the company sees as an existential threat or what does it need as a technology to continue operating?”
“It’s not looking for a standard venture return, it’s about what the company sees as an existential threat.”
“In both of those cases, we kind of fit the bill. Bayer sees a world where we’re applying less chemicals to a field but with greater precision, and this is a critical tool to do that so they invested in us.
“Wilbur Ellis does a huge percentage of all custom application in the West Coast of the United States and parts of the Midwest. They realise they need a tool that’s going to be autonomous and can deliver better for farmers while still making sure they provide the best experience for customers.”
Corporates prove a better fit for capital-heavy technologies
Thea Pease leads the agrifood and industrial biotech practices for commercialisation firm Rapid Innovation Group and is currently helping an alternative protein developer raise funding. Corporates are a natural fit not only because they have a direct interest in the market but because of their willingness to work with startups on infrastructure.
“Traditional VCs are a little bit more reticent to invest in capex-heavy projects, which is what most alternative proteins require at the moment because of the lack of fermentation capacity [means] most people are having to build their own factories,” she says.
Corporate mandates for carbon reduction make alternative proteins a viable option for a wide range of corporate investors. Packaged food providers are exploring the space because of the growing demand for vegan and vegetarian diet options while agribusinesses are interested in providing the feedstock.
“We talk to a lot of consumer goods companies, a lot of producers,” Pease says. “People who produce traditional commodities crops but are looking for uses for their waste streams for example.
“It’s a real gamut. The requirement to lower carbon emissions is pan-industry so we’re getting a lot of people looking at using what would be considered waste or how they can rehash their supply chains to become more sustainable.”
“You have to team up with an existing player to truly grow”
Of course, not all corporates invest directly and as with other industries, there is a demand for accelerators which can grow startups they then introduce to the corporates for partnership opportunities.
StartLife is a food and agtech accelerator with 15 corporate partners including Döhler, Lidl, Cosun and PHW, and managing director Jan Meiling believes they can help startups in the sector face a range of challenges that include substantial requirements for knowledge and capital.
“But we also face the problem that it is impossible for these companies to scale, because the value chain is so complex it’s almost impossible for a startup for example to get decent access to raw materials or marketing or distribution channels,” he adds.
“So, you have to team up with an existing player to truly grow, and you need to organise your exit at some stage. The fact that most startups actually need to partner up with an existing player made us decide we need to proactively collaborate with established corporates who want to engage with early-stage ventures.”
StartLife’s latest partner, Kraft Heinz, was announced last week, and it is offering access to its marketing expertise, network and research and development facilities while seeking ways to improve yield for crops like beans and tomatoes, food processing and its product range.
When a corporate backs an accelerator, there is often a reason why they want to get involved at such an early stage.
“When a company has done its first seed round they end up in Crunchbase or Pitchbook and everyone gets to see them,” Meiling says. “Sometimes you want to really have something special, something no one’s seen before. What we see is corporates like to engage with early-stage ventures and sometimes to invest and even acquire very early.
“We have seen examples in our portfolio where companies have been acquired by strategics before doing a decent investment round. This was not always the main preference of the founder, it was just the way it happened. For us it’s okay because it’s all about transferring knowledge to a vehicle, which is often the startup, and then to the corporate for mass impact, because it’s almost impossible for a startup to create that impact in the short term.
“The challenges are there, and we need to speed up innovation, try every model that is there and get things through the channel and to larger companies as soon as possible, because they are able to scale.”
Feature photo courtesy of Felix-Mittermeier via Pixabay.
