Content ID


Ag Tech Investing Drops 30% in 2016

In a report released by AgFunder today, investments in ag tech dipped to $3.2 billion – a 30% drop from 2015. Although the money flowing in this year may have decreased, the number of deals closed saw a 10% increase compared with a year ago, says the AgTech Investing Report Year in Review 2016.

“The dip is really part of the wider dynamics of the venture capital markets where there was pullback, and a cooling off in some sectors. Ag-tech-specific investors continued to keep pace with their investments, but there was a slight dip in activity from non-ag investors, which the industry relies on,” says Rob Leclerc, AgFunder.

Cautious investors

The fourth quarter, which is usually the most active, saw a dramatic drop in both ag tech and global venture capital (VC). Analysts believe the pullback by investors is due to a renewed focus on profitability and execution as portfolio companies underperformed, IPOs were flat early in 2016, and rounds were also down. Political uncertainty in both the U.S. and Europe, the report says, also contributed to the pullback in ag tech and global VC.

The report goes on to say that while ag tech specific investors were continuing to invest and didn’t feel the pullback as acutely, there was caution from outside investors that cast its shadow, as some investors struggled with start-up valuations getting ahead of revenues and traction. “This is not specific to ag tech,” he explains. “Valuations have gone up over the last few years as more investors in the market entered and chased deals and drove up valuations. It was relatively easy to raise money for entrepreneurs, and they got used to higher and higher valuations. Now investors are looking more closely at business models, traction with customers, etc. when valuing start-ups.”

Subsections that took the biggest hit were drones (fell 68% to $105 million), bioenergy, and food delivery (fell 25% to $1.3 billion).

Yet, other areas thrived. For example, investment grew year-over-year in four categories: ag biotechnology (150% to $719 million); farm management software, sensing, and IoT (3.7% to $363 million); novel farming systems (63% to $257 million); and supply chain technologies (3% to $180 million). 

“Interest has cooled in some areas for different reasons,” says Leclerc. “For drones, from a tech standpoint, there was a lot of hype backed by a lot of funding in 2015, and now companies are working through the technology, regulations, and adoption to prove their efficacy in agriculture. There’s also cyclicality in the investment cycle as most of the big investments were made shortly after the FAA passed new guidance early 2015. Drones will be part of agriculture in the long run, so right now there’s somewhat of a wait-and-see for how this technology will develop.”

Food delivery, he says, was overheated in 2015. “Low barriers to entry and questionable unit economics have created a lot of competition. The business models proved challenging leading to some closures in 2016. But, as you see, there are still bets being made in the space, which will ultimately be part of the future food chain, where consumers want increased efficiency and convenience.”

While Leclerc notes that bioenergy had a lot of momentum, falling gas prices meant the economics did not work for a number of the technologies. “That, and it’s big capital outlay,” says Leclerc. “This contributed to investors backing off and a number of the companies in the space pivoting to other markets and other products, including other parts of the agtech space such as biological crop inputs.”

Even though the numbers may be down, he adds that there still remains a lot of interest in the sector. “The backdrop hasn’t changed,” says Leclerc. “The food system needs an upgrade from a health, safety, and efficiency standpoint, and there are headwinds for farmers such as labor constraints, environmental concerns, and yields. It’s now a question of working out which business models and technologies work, and what makes sense for venture capital to invest in, given these business models. The sector represents about 10% of global GDP but only 3% of total venture investment, so we think investment will continue to rise to reflect agriculture’s share of the economy.”

Below are other key takeaways from the report.

Seed stage deals accounted for 57% of activity. This reflects the growing number of early stage resources for ag tech entrepreneurs, such as accelerators and incubators. “There’s a broad trend of accelerator activity in early-stage investing that has been across industries and tech,” he says. “Ag tech fits into that. For agriculture, in addition, there are a few specific factors behind the uptick in resources. You have regions that have historically had ag tech knowledge, and they want to capitalize on it and become the Silicon Valley for ag tech. You also have a sense that more vertical expertise is needed for start-ups in this sector, particularly if no team members have that domain expertise, so these early-stage resources help companies develop the right products for the right markets.”

Accelerators, he continues, also have a much lower bar to entry than a VC firm. “Accelerators can bring together a group of local investors and raise $5 to $10 milion, whereas a VC will have to go out and raise $50 to $100 million.”

Series B stage investment grew to $791 million across 55 deals, which was 14% more in funding dollars than in 2015.

Series A rounds declined 43% in dollar terms, and 31% by number of deals year-over-year. U.S. start-ups accounted for 48% of deal flow during 2016, down from 58% in 2015 and 90% in 2014.

Start-ups in Asia drove the increase in funding to non-U.S. ag tech start-ups: 10 Chinese deals raised $427 million, 53 Indian start-ups raised $313 million, and four Japanese deals raised $8.9 million.

• There are 14 active ag tech funds with at least a first close, worth over $850 million combined. The firm believes that number will increase in 2017 with a few already established players closing additional funds, and a few smaller funds joining the market for the first time.

• The lack of exits continued to be a talking point among VCs as mergers and acquisitions activity from the large agribusinesses remained far too low. “Investors need exits to return their funds and make money for their limited partners,” says Leclerc. “The way they do that is through mergers and acquisitions and listing on the public markets via an IPO.”

These exits, he explains, serve as the investors’ internal performance metric, and help them raise more funds. “That’s how the VC business model works,” continues Leclerc. “What we’ve seen in ag is that there have been few companies that have had big exits, and the exit activity has been relatively quiet. Part of the problem is that big ag companies, which are the likely acquirers for many ag tech companies, are conservative and have been timid. Also, many of the large players have a lot going on from a business standpoint (big mergers), so innovation will be less of a focus.”

To view the full report, visit




Read more about

Talk in Marketing