Recent market corrections have posed challenges for agtech companies seeking to raise finance. We’ve gathered insights from nine leading agtech investors to shed light on the substantial shifts that have characterised 2023, the challenges faced by early-stage companies and how the industry can be a game-changer for commercial success.

What changes have we seen in the investment landscape throughout 2023? What shifts are we likely to see as we approach 2024?

Peter van der Vlugt, General Manager, KUBOTA INNOVATION CENTER EUROPE: “The rise in the interest rates, accompanied by high inflation rates and weakened market conditions, has affected the valuations of all the start-ups and agtech is no exception. In previous years, investors have put up substantial amounts in private assets. In 2023, constant increases in interest rates and worsened global trade environment, led to lower valuations, creating considerable dilution effects for funds seeking founders. Subsequently, the aggregate exit value dropped as well with very low IPO activity and severe decreases in the number of deals, especially for early stage start-ups. Still, the expected interest rates’ cut-off starting in Q1-24, could foster higher valuations. It should be noted though, that the valuations and the overall industry activity (# of deals) will take longer than that to return, if it will ever return to pre-crisis levels.”

Michael Lee, Managing Director, SYNGENTA GROUP VENTURES: “In 2024, we are likely to see more outright failures (perhaps even of entire agtech subsectors), CEO transitions, roll-ups (some of them just compounding the problem) and secondaries of entire funds. Yet, there are going to be applications of new emerging technologies such as Artificial Intelligence, robots, biologicals, soil health, fintech and e-commerce, all of which might blossom. The outlook for agtech unicorns hence remains muted in the near term but for the medium term I believe that lots of agtech could bring extra value not only to farmers but also to the consumer at the very end of the chain. T’was thus after both the dotcom bubble and the credit crunch, and I expect the same here which will lead to appropriate venture returns in the future.”

Kieran Mahanty, Investor, Teachers Venture Growth,ONTARIO TEACHERS PENSION PLAN: “In my view, these are all welcome corrections and set the scene for the very best companies to thrive. Capital scarcity forces efficiency and will result in funds flowing to the best operators, who will increasingly stand-out from the rest.”

Hadar Sutovsky, ICLHadar Sutovsky, VP External Innovation, ICL PLANET STARTUP HUB: “As we approach 2024, I assume we are likely to see a delay of capital reinvestment into agtech start-ups in the medium- to long-term due to continued slowdown in exits and the delay in investors seeing their ROI. Having said that, it’s important to note that technologies like blockchain, AI, and computer vision being leveraged to improve crop yields, supply chains, and sustainability are gradually transforming agriculture industry into the next high-tech sector. In terms of market value, it is estimated that by 2025 the global agtech industry will surpass $22.5 billion.”

Ananya Manna, Investment Director, ECBF: “Investors have been more cautious in their investment approach and sensitive to valuations in 2023. There has been a greater focus on the fundamentals of the businesses, path to profitability and optimal use of financial resources as investors analyse new investment opportunities and follow-on investments. To a large extent, this is a trend that I believe will continue as we approach 2024 as well. In the meantime, start-ups with clear value propositions for the industry will emerge as winners and there would probably be some consolidation in the industry.”

Anne-Valérie BachManaging Director, CAPAGRO: “The relative ease to raise money in the past few years allowed riskier business models to be financed, i.e. more Capex or Opex intensive ones. Investors will become more cautious about the use of the proceeds towards more profitable business models, or at least with a clear path to profitability. “Test and learn” time is over, teams need to be more efficient to tackle all aspects of the business at once: product, go to market, resources – experienced and multidisciplinary teams will probably raise with more ease.”

What successes have emerged from different start-up models, from university spin offs to corporate partnerships and VC-backed approaches? 

Amanda Donohue-Hansen, Partner, SANDBOX INDUSTRIES: “A bright spot in funding for early-stage start-ups are public grants and corporate venture capital. We’ve seen a number of startups continue to invest and advance their technology development through SBIR grants, implementation of Inflation Reduction Act credits, and new grant opportunities from the EPA’s Greenhouse Gas Reduction Fund. Further, the recent Q2 2023 Pitchbook & NVCA report spotlighted an increase in deal count and participation by corporate venture capital in venture deals continues to increase. Corporations have been increasing their venture activities and investment in recent years, and now with tighter capital availability in the market and more rational valuations, we’re seeing more CVCs fill the gap from institutional investors.”

Kieran Mahanty: “The defining challenge of agtech is the extraordinarily long development cycle: while software platforms measure release cycles in hours and minutes, agri-tech products often get one shot per year. That makes developing a killer product and demonstrating market-fit extremely challenging. In my view, the solution has to come via early and sophisticated engagement with incumbent strategics. As in the pharmaceutical industry, established players are alert to disruptive innovation and can be an attractive source of early stage capital, guidance and channel support. Strategic partnerships also give external investors comfort on the technical quality of the team. Taking strategic money early is tricky because you don’t want to tie yourself to one player and limit your exit opportunities – but this can be managed by bringing in multiple strategics and by being careful in the rights they are given.”

Michael Lee: “In agtech, the problem is compounded by a smaller number of potential acquirors (each with a smaller M&A budget) and generally less receptive public markets. Agriculture has a ‘last mile’ challenge, with customers geographically widely dispersed instead of being clustered, which makes it tougher to deliver products than in other sectors. Finally, farmers are necessarily cautious to replace the current way of doing things when upsides are limited and downside risks are real. This slow uptake could be solved by governments providing subsidies to reduce deployment costs, analogous to those previously used to support green energy at scale. This would incentivise uptake where there is a tragedy-of-the-commons situation, such as technologies that reduce use of water, chemicals or fertilizer. My favourite start-ups are addressing a large market and the uniqueness of the offer in the eyes of the customer initially and then the buyer at exit.”

Gianpiero Menza, Senior Manager, Partnerships & Innovative Finance, CGIAR: “Visionary models that harness multi-sectoral collaboration and unconventional partnerships are needed to valorise early-stage innovation. Stronger technology transfer mechanisms from scientific institutions, venture-builders and accelerators that combine market-oriented and technical support, and creative patient-capital schemes can provide a pathway to break these technologies out of the lab. CGIAR, the global research partnership for a food secure future, is navigating these opportunities through the Accelerate for Impact Platform: the venture-space to co-design, accelerate, and fund science-driven technologies for sustainable agriculture and climate action.”

Anne-Valérie Bach“Building your value proposition together with future customers, and incumbent players (and not alone in a lab) is key to address the market needs properly and save time and resources. Start-ups or labs tend to have brilliant ideas the market is not ready to adopt. Being able to establish proper connections with the market to mature your offer at the same time your market is, not faster and not lagging behind either, is key to a smooth and fast development. Ecorobotix shifted from their very visionary autonomous weeding robot to towed ultra-precision spraying systems because they collaborated very early with potential customers and distributors and found out market was eager for that. Now their market traction is outstanding. When the time comes to scale, relying on larger players for production and/distribution is very effective. “Not invented here” is still a vivid syndrome that hardly any player can afford!”

How can the industry contribute to helping companies build commercial traction?

Amanda Donohue-Hansen: “Venture is inherently high risk and consequently, high failure. We didn’t see much failure in the past few years as public markets were strong, debt was relatively inexpensive, and there was robust private capital available. The bar for late-stage funding has gotten much higher and unfortunately not all early-stage start-ups will be successful raising capital, alone. I think it’s important for start-ups and their investors to get creative and reimagine what success looks like. We’re seeing start-ups explore combinations and acquisitions with complementary or adjacent businesses or licensing their technology or products into new markets. While more complex, if successful, early-stage companies that are able to grow and become profitable faster through M&A or new revenue streams will potentially have more success raising additional capital and ultimately having successful outcomes for the employees and investors.”

Cian McCombPrincipal, Growth EquityTREÏS: “We see two primary factors that are impacting the dearth of early-stage agtech businesses going onto raise later stage rounds. Firstly, pre-2022 valuations need to realign with the fundamentals of the underlying cashflows in the target companies. Thankfully, there is evidence of a correction playing out in this regard. For the second issue, the nature of later stage financing needs closer examination. It is often the case that early-stage companies have used VC funding to develop a better way of producing an existing product or they are addressing an emerging product category. The next phase of growth usually requires significant investment to build out production capacity which gets the business out of the lab or pilot plant. The traditional models of venture and private equity have not historically been good at funding these types of greenfield developments. New pockets of capital, originating from sources that have experience and are comfortable with building large-scale manufacturing capacity from scratch, will likely be needed to effectively fill this gap. Unfortunately, the progress on this front is less obvious.”

Kieran Mahanty: “There is no absence of late stage funding for agtech; rather, there is an absence of agtech companies with proven product-market-fit and commercial traction. I would encourage all founders raising Series A and B rounds to have a clear roadmap for their use of funds which prioritises commercial traction (actual revenues and/or hard offtake agreements) as a critical milestone to achieve before seeking later-stage growth capital.”

Anne-Valérie Bach: “In the past few years, so-called ‘late-stage’ rounds were still used to finance the previous cycles, underlining the lack of efficiency from the company in its early times. Companies unable to catch up with the stage they should be in exhausted clients and investors’ patience and resources and are now at a dead end. Those who have brought a proper value proposition to the market still find ways to finance their later rounds. Not all start-ups will achieve a standalone business, but they can integrate into a larger organisation that will help them build a sustainable business on the long run. In order to do so, neither large companies nor start-ups should be ashamed or shy to partner earlier than later.”

Hadar Sutovsky: “In their journey to raise capital, existing companies must show meaningful progress towards growth milestones, regardless of their valuations. Founders will need to fine-tune their value proposition, and in many cases revisit their valuations, especially as they consider their longer-term capital needs. Start-ups should focus on conserving cash, preparing long-term plans for when the market improves. In the complexities of today’s fundraising climate, another challenge of founders is to navigate their way into to raising capital in the upcoming quarters.”

Michael Lee: “The cheap money of the last decade made it possible to keep alive companies that didn’t have viable business models, and now, with money being harder to obtain, some will be forced to undergo painful adjustments. It is worth noting too that VC isn’t appropriate for every smallco – it is seeking large markets in which a decent share can be gained within a short period of time, which requires the large investment. Few early-stage companies fit three requirements of market size, commercial traction and many willing buyers at exit, even if the founders and investors believe otherwise. Not all start-ups should secure late-stage funding, and now that the VC funding tide has gone out, as Warren Buffett would say, we get to learn which amongst the many late-stage companies in agtech were swimming naked.”

Hear from and share thoughts with all of these investors and more at World Agri-Tech in London this September. They’ll take part in panel discussions, judge start-up showcases, and lead small-group roundtable discussions. Now’s the time to secure your place and join the action!