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What venture capital looks for in agricultural start-upsqrcode

−− Despite tight on-farm margins, venture capital continues to move into agriculture.

Nov. 5, 2018

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What venture capital looks for in agricultural start-ups

Agricultural start-up firms with great ideas but no funds can tap venture capital firms for cash. Despite the downturn in agriculture, venture capital continues to move into agriculture. In 2017, AgFunder said $4.2 billion had been invested globally into the agricultural sector, says Derek Norman, head of corporate venture capital for Syngenta Ventures. Norman spoke at this week’s Syngenta Media Summit in Minneapolis.

Farmers are seeing and will continue to see the outcome of these investments, he says. For example, Syngenta Ventures helped fund Blue River Technologies, a firm that has developed See & Spray technology that precisely sprays weeds only where needed. John Deere acquired the company in 2017. So, what makes the cut? It’s analogous to the Hall of Fame baseball Wee Willie Keeler, who once was asked the secret of his hitting success: “Hit ’em where they ain’t.” Norman says Syngenta Ventures aims to find those novel technologies that fill a niche no other firms are filling.

 “We are always looking for novel things that hit the novelty button,” he says. “The companies that are successful have visionary founders. They have to be quite persistent. If they were doing what everyone else is doing, they would not be entrepreneurs. They have to be edgy to believe in their vision but somewhat grounded in the real world. That is a fine line.”

Blue River Technologies was one of those, he says.

“It was doing something quite novel in that it was treating every plant in a field separately,” he says. “Nowadays, more companies are tackling that challenge. But they were the first, and he (Jorge Heraud, who cofounded the firm with Lee Redden) attracted a great team. So, it’s about more than things like spreadsheets. You have to focus on the team.”

“Not every investment will be successful,” he adds. “If they are, we are aiming too low. Just like in R&D (research and development), there will be successes and failures,” he says.

Sometimes, start-up firms can veer off in different directions than they initially intended, he says. The Climate Corporation – purchased by Monsanto in 2013 (which Bayer bought this year) – initially started off as WeatherBill, which focused on weather insurance before it ventured more into digital agriculture.

What it’s investing in

Syngenta started in the venture capital business in 2009. Since then, it’s invested in start-ups globally, including the U.S., Europe, South America, India, and Australia. Areas it targets include next-generation agricultural inputs like:

•    Genome editing
•    Biologicals
•    Synthetic biology
•    Breeding technologies

It’s also funded new digital technologies including:
•    Sensors
•    Aerial imagery
•    Precision ag
•    Farm management systems
•    Risk-management tools

The area is moving quickly. In 2009, many tools on the digital side of the equation didn’t exist, says Norman.

Typically, Syngenta Ventures funds two to four companies annually out of about 200 it initially considers, he says. “Initially, we meet with firms to learn about different technologies and the entrepreneurs,” he says.

Learning about the firms takes time. “You cannot judge them from one meeting,” he says. “You also have to judge the quality of the team.”

Typically, Syngenta Venture investments make up 5% to 20% of the start-up’s ownership. Typically, the investment time frame is three to seven years, but some can be longer, he says. “This area has become a lot more competitive, too, with more investors looking at this space,” says Norman.

What’s up next

Jon Hjelm, a managing director with Piper Jaffray, sees start-ups and venture capital firms helping to move agriculture in these directions into 2030.

•    Use of technology to further connect growers with consumers, including traceability. “This is an increasingly complex value chain,” says Hjelm. For example, there are customers who specifically want to know more about where grain is produced, such as in central South Dakota. “Many companies are looking at how to deliver this,” he says.

•    Producing more while lowering environmental impacts. This is challenging, particularly with more volatile weather occurring, he says. “We are looking at things that allow these farmer CEOs to be more resilient,” he says.

•    Food as a health tool. “We are seeing more and more companies embedded in the food value chain,” he says. To do this, companies will tap new technology to boost food quality and health benefits, he says.

•    More on-demand localized production and access to food. This delivers on consumer demands, he says.

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