3 Investors Weigh in on the Future of Agriculture
I like understanding the perspectives of investors.
Analyzing the big picture, investors stake their money and their livelihood on on their convictions. Success usually means manifesting a future that today only exists in their ideas. This is an ideal vantage point for the “Future of Agriculture” podcast and blog.
I believe in the adage of “follow the money” when you’re trying to really get to the root of an issue, story, or industry. With billions being poured into agtech, if we want to understand the innovations of tomorrow we should try to understand the motivations behind the investors making them possible.
I have interviewed several investors, and decided to take a small sampling to share with you here in this post. These three were chosen because they each have distinctly unique perspectives and approaches. Each plays an important role in advancing the industry of agriculture.
Steve Sarracino, Activant Capital
Steve Sarracino is a Venture Capitalist with the Connecticut-based firm Activant Capital. They invest in various industries, including ag-related startups such as Indigo Ag, Benson Hill Biosystems, and Turvo.
Steve believes that the successful agtech startups are going to be those who can create partnerships with farmers to help them capture more value.
“We’ve had this expectation of technology driving change, not only on the farm but throughout the supply chain. We haven’t really seen it come to fruition.”
Steve points out that while we are seeing unprecedented investment into agricultural technologies, farmer profitability hasn’t been this low in a long time, and farmer suicide has never been higher.
“The sad part is that if you look at the technologies that have been introduced, most of them are also trying to take economic rent from the farm. Very few of them are actually partnering with and/or charging a percent of yield gain or some sort of metric that will improve farmer profitability. Most have been SAAS or recurring charges.”
This partnership model is often easier said and done. This year, Bayer Crop Science introduced a new “outcome-based pricing” model, which was met with strong skepticism by many farmers (to put it delicately).
Still, the team at Activant Capital are looking for growing companies that can truly work in collaboration with farmers as partners. Steve admits that switching business models like this is risky, so companies have to de-risk that equation for farmer partners.
Steve and his team are looking for companies that have a world-class team, a disruptive product and/or business model, and a clearly-defined data mote.
“Data is the new oil. The only way that you can apply the latest technology, machine learning and AI, is to actually have access to and/or own the data.”
These clearly-defined data motes can also allow for network effects. Each customer that the company adds can allow for more data and better decisions for all customers.
But Steve is not predicting a linear path to the future of agriculture:
“In hard sectors, where it just takes a long time, investors tend to pull away…AgTech was pretty hot in 2017 and 2018…if I was forced to predict, I think we will see a slow down in investment in agtech (in 2019). Which is ok because I think investors are going to calibrate towards business models that are bringing more of a partnership model vs just selling things directly.”
Euler Bropleh, Vested World
Euler Bropleh is the Founder and Managing Director of Vested World, which is a VC Firm that specializes in investments in developing countries. They focus on early stage company creating a more equitable and prosperous world.
With an eye on high growth industries, Vested World targets early stage companies with potential to create meaningful jobs, provide fair wages, and fuel widespread economic progress throughout their communities and regions.
Born in Liberia and educated in the U.S., Euler has traveled extensively around the world. He worked as an attorney specializing in corporate transactions before founding Vested World.
So far, the investment company’s primary areas of investment are in Ghana, Nigeria, and Kenya, but they’ve also been active in Tanzania, Rwanda, Uganda, and Ethiopia. Most of their investment interest is in agribusiness, consumer products/services, and enabling technologies.
Tomato Jos is one great example of an investment that could be both good for building community prosperity and investment returns. The company is based in Nigeria, which is the 14th largest grower of tomatoes but the top importer of tomato paste in the world. The reason they have to import so much is a lack of processing capacity.
As is common in the developing world, the solution is not so simple as to just build a processing facility. The average tomato yields for Nigerian farmers is around 5 metric tonnes per hectare. Compare this with an area like California where the production is closer to 150 metric tonnes per hectare. This lack of efficiency would make it very difficult to keep a processing plant running. Tomato Jos’ thesis is that with an investment they can both build processing capability and at the same time help farmers increase their productivity to at least 80MT/HA. If successful, they will end up with a profitable tomato processing plant and more prosperous local farmers. Additionally, they reduce the country’s dependence on foreign tomato paste imports.
In order to find investment opportunities like Tomato Jos in the developing world, Euler evaluates potential countries for investment on what he calls the FIERCE risks:
F — Fraud
I — Instability
E — Expropriation
R — Regulatory
C — Currency
E — Enforcement of Contracts
Euler’s overall thoughts on the future of agriculture on the African continent:
“I hope that African countries are able to address a lot of the food security issues that some of these countries are facing. Especially as we’re staring down significant environmental challenges such as drought, disease, pests that could effect crops. We still have not seen the green revolution that many other places around the world have experienced in Africa. So several decades from now, I hope we can look around and say ‘we did it’. We’ve increased yields around the continent, people are more prosperous. people are not hungry. We’ve addressed all of the food security issues and these economies are thriving as a result of developing their agricultural sector, and they’re now as efficient and producing similar yields as to what other countries around the world are. Our processing materials (will be converted) into finished goods as rather than simply exporting them to other countries for them to be finished. There’s a whole lot of basic metrics, so 60% or so of the world’s uncultivated arable land is in subsaharan Africa.”
Aaron Ratner, Ultra Capital
Aaron Ratner is the Managing Director and Head of Origination at Ultra Capital, which invests at the project-level in real asset initiatives in agriculture, energy, water, and waste.
Distinctly different from venture capital, Ultra Capital is interested in funding capital projects which both create a more sustainable planet and produce long-term contracted cash flows. They usually plan to be involved with a project for 10–20 years or more.
These investments, which can range from $5M — $150M, are around $35M on average. Ultra Capital relies on “developers” — entrepreneurs who source and present these opportunities — for deal flow. These developers will have identified the problem to be solved, the infrastructure to solve that problem, and the potential long-term buyer for the final output.
For example, Aaron and his team invested in a project in North Dakota that takes in 500k tons/year of post-harvest agricultural waste. Their project converts this “field waste” into ethanol. In this case, the developer that brought them the deal had been doing research on this opportunity for years. He had secured the rights to acquire the raw material (post-harvest waste), researched the technology to make sure it would work, then worked with Ultra Capital to secure a long-term contract for the ethanol and by-product. Ultra Capital invested $80M to make it all possible.
Ideally, Ultra Capital likes to finance multiple projects with the developer. One key metric to success is to generate so much cash flow for their developers that those developers no longer need their capital.
This is an under-served niche, as many lenders will not provide capital based on projected cashflows. Also, in many cases getting a long term sales contract can be difficult without accepting a steep discount. Ultra Capital is willing to share in the risk with the developer to solve for these issues.
Aaron sees a future in which Ultra Capital can help developers create a more circular economy. He believes there are real returns to be found in building infrastructure to add value to excess capacity and/or waste.
Before making an investment, Aaron and his team will be evaluating:
The track record and/or unique advantage of the developer
The regulatory environment especially related to the building site and required permitting
Ability to secure the feedstock/input stream
Market for the output
Likelihood that the proposed technology and infrastructure can be built on-budget and will work
Capability of the proposed operators of the facility upon completion.
Ultra Capital’s approach is unique not only in the fact that they are taking project-level equity, but they are focused on distributed infrastructure.
“We think that the days of large, monolithic projects, whether they’re power production or waste processing, are really coming to an end. The efficiencies that are being created by local processing of waste, localized food production or fertilizer production or feed production, localized wastewater treatment, storage of electricity — all of those efficiencies are now more technologically feasible. So from an economic return perspective, it has started to make a lot more sense to finance distributed projects rather than investing significant amounts of capital in large infrastructure projects that take multiple years to develop and build.”
These three investors are putting money on the line to create the future of agriculture. I hope you’ll listen to each of the podcast episodes posted above to understand their vision and the impact these efforts will have on the industry.
This is just a small sampling of the diverse investment landscape in agriculture. Subscribe to the “Future of Agriculture” Podcast for interviews with investors, innovators, founders, and farmers shaping the future of this industry.