Investors bet on big data blossoming in agritech

The hyper-connected tech industry is a world away from the rural farm towns where America’s food is grown. But as today’s farmers are faced with increasing the global food supply against the backdrop of less arable land, water scarcity and labor shortages, technology is instrumental to ensuring food security.

High-tech sensors, robots, satellites and big data offer promising solutions for farmers seeking financial and environmental sustainability.

The realities of implementing these solutions can be a challenge. The economics of farms, particularly the many small ones within the United States, are tough to begin with. So the costs of implementing, maintaining and using tech are no small matter.

But that has not dissuaded venture capitalists from pumping billions into agritech startups, hoping to efficiently and profitably bridge the gap between technology and farming.

Agritech startups received $4.6 billion in funding in 2015, about nine times the $500 million that was invested in 2012, according to a report from AgFunder, an online investment platform for food and agriculture technology.

But the space has not been immune to the overall venture pullback, and the first half of 2016 saw investments decline to $1.8 billion. The number of deals, however, rose 7 percent.

John Hamer, managing director at Monsanto Growth Ventures, the agribusiness giant’s in-house venture greenhouse, is optimistic about the prospects of technology on the farm. But he notes that farmers are apprehensive about adopting it, especially given that commodity prices are currently sluggish and inherently volatile.

“There are challenges with commodity prices being down,” he says. “It can make farmers wary of spending too much money on tech.”

Ingrid Fung, an associate at Verdex Capital, says farmers tend to be less willing to experiment with unproven technology because it can wreak havoc on razor-thin margins if it fails. “For every $1 spent, a farmer has got to make $3 to $4” as a return on investment, she says.

Today, 91 percent of U.S. farms are considered small, but that makeup is shifting to larger and fewer farms. As it does, Fung says agritech’s potential increases.

“Big farms are better about implementing technology because they need to reach economies of scale,” she says. “ Farms are going to grow in size, so there is a lot of opportunities to implement tech .”

The potential for technology, and in particular data, on farmlands was brought to the investor forefront when Monsanto acquired the analytics firm Climate Corp for $1.1 billion in 2013.

The San Francisco company had raised more than $110 million from Khosla Ventures, New Enterprise Associates, GV, Index Ventures and Founders Fund, among others, to fuel the idea that farmers could increase productivity and manage risk with machine learning and advanced analytics.

At the time of the deal, Monsanto said Climate Corp’s data-science capabilities presented a $20 billion opportunity beyond its core business.

To explore and build on agritech opportunities, Monsanto created Monsanto Growth Ventures, which invests in startups at the seed stage and beyond. In January, it announced its first venture portfolio with nearly a dozen companies.

Among its investments is Blue River Technology, the Sunnyvale, California, company that’s using computer vision, machine learning and robotics to determine in real time whether a plant needs weeding or treatment with pesticides.

With Blue River’s tech, farmers use a targeted approach, applying chemicals only when needed, reducing their use by 90 percent. So far the technology has been adopted by 10 percent of U.S. lettuce fields. The company plans to expand its use to other crops.

Blue River has raised more than $30 million from MGV, Syngenta Ventures, Khosla Ventures, Pontifax AgTech, Data Collective Venture Capital and Eric Schmidt’s Innovation Endeavors .

Last year, Verdex teamed up with Finistere Ventures and Bayer CropScience to raise a $150 million FVII Fund to invest in early-stage deals.

One of its investments is CropX, the Tel Aviv developer of an adaptive irrigation system that aims to reduce farming’s strain on the environment.

Using wireless sensors and an app, its tech gives growers data to prevent overwatering, again cutting costs and protecting and increasing yields. CropX has raised $10 million from FVII Fund, Innovation Endeavors, GreenSoil Investments, Robert Bosch Venture Capital and Flextronics Lab IX.

Kleiner Perkins Caufield & Byers, long known for tech investments, has also had its on eye on agriculture. It first invested in the field five years ago and now has multiple interests in the area.

Randy Komisar, a general partner at Kleiner Perkins, likes the return potential in agritech.

“It is pretty high margin,” he says. “The economics of those businesses compare to any enterprise tech company.”

In 2014, Kleiner Perkins backed Amol Deshpande, a former partner, when he co-founded Farmers Business Network.

The San Carlos, California, company created a farmer-to-farmer network that uses aggregated data from its users to provide yield performance, benchmarking and analytics to help them manage their lands. Since its commercial launch 20 months ago, FBN has brought 2,500 farms onto its network.

In early August, the company closed a $20 million Series B round led by Acre Venture Partners with participation from previous investors Kleiner Perkins, GV and DBL Investors. This latest round brings the total funding to nearly $48 million.

Another Kleiner Perkins bet in precision agriculture is Farmers Edge. The Winnipeg, Manitoba, company has received more than $60 million in funding from Kleiner Perkins, Mitsui & Co and Osmington Inc.

Using weather monitoring, satellite imagery and in-field telematics, the Farmers Edge platform enables growers to monitor conditions on their farms field by field, so crop inputs are applied as needed to help reduce costs and maximize yields.

All the activity in agriculture has some players questioning whether a bubble is forming in agritech as one has in food delivery. But most VCs see little connection between the two.

“Agriculture still seems early, and there is more demand than supply,” Komisar says. In food delivery, “there are no barriers to entry and the economics are not there.”
As with any technology field, observers do expect some culling in this quickly expanding sector.

“Health, food and the environment has triggered a lot of entrepreneurial activity,” MGV’s Hamer said. “We can expect some consolidation over the next four to five years.”

He also doesn’t expect any public offerings any time soon.

But also like other fields, farming is poised to be transformed by big data and other technologies. And as the world’s population grows, one of the world’s oldest occupations will further modernize to meet the inevitable growth in demand for food.

Jenna Broughton is a San Francisco-based contributor. She can be reached at Jenna.Broughton@gmail.com.

Downloadable Data: startup-targets-in-the-agritech-sector

Feature photo courtesy of ©iStock.com/Teen00000