Talking agtech with AgFunder’s Rob Leclerc

After a record breaking 2015, agtech funding pulled back a bit in 2016, though deal volume was strong.

This year is shaping up as another active one, with big deals for such companies as Plenty and Impossible Foods.

The reason is obvious. Digital technologies once focused on targets such as e-commerce and enterprise SaaS are bleeding into the rest of the economy, agriculture included.

“Agriculture is the least digitized of all major industries,” said Rob Leclerc, co-founder of agtech crowdfunding site AgFunder. “The idea is you have very big markets that have been largely undisrupted. There’s a real opportunity to be a first mover in this space.”

Leclerc said he sees investment this year pouring into more exotic areas, including one he finds interesting: robotics. However, he is skeptical of the growth of agtech accelerators and is concerned about valuations in the food-delivery segment.

VCJ recently had the opportunity to speak with Leclerc. What follows is an edited transcript of the conversation.

Q: The investment flow in agtech seems to be shifting away from robotics, farm equipment and drones. What is attracting the most interest today?

A: There was a lot of interest in the early days, sort of 2014, (in) how do we start to digitize the agriculture sector. Some of that was around ERP types of systems and basic sensors. So that was where a lot of investments went. It was going to be really hard to develop higher-tier solutions until some of that framework was put in place.

Today we have physical drone companies, we have companies like Planet Labs, which does global physical imagery. There are a lot of technologies in place to build on top. I think that is driving a lot of new investment into more exotic areas.

Q: What interests you?

A: One of the areas we’re certainly most excited about, one of the hardest areas to go after, is robotics. Farmers spent a tremendous amount on harvesting. I was talking to one grower in the valley and they were saying they spent over $500,000 on labor picking cherries, which is more than they were making on this. For them to have a robotics solution, an automated solution, particularly around harvesting in California where you have these high value crops…those solutions are very important.

We recently saw GV get behind a company called Abundant Robotics, which is developing an apple-picking robot.

We saw SoftBank’s Vision Fund invest a couple hundred million dollars in an indoor agriculture company called Plenty, which is roboticizing, or automating, the whole indoor agriculture environment.

We think that automation is sort of the holy grail around agriculture and food. We’re seeing more and more capital come into that on the grounds that the technology is starting to get to the point to make that a tractable problem.

Q: What is enabling that headway?

A: A lot of this has to do with artificial intelligence and access to data. You need both of those together. We’re seeing certainly major advances in AI technologies and so there’s a lot of enabling AI technologies that are making this possible.

Q: We just witnessed a big round for Plenty. What do you think of the deal?

A: I look at something like Plenty and, say, if they can create a more profitable version of this traditional system, that could be a company that is tremendously valuable based on the gross margins they might be able to produce, the consistency, the ability to copy and paste that model anywhere, not just in California, where land costs $25,000 an acre.

Q: But it was a lot of money.

A: From Vision Fund’s perspective, they’ve got $100 billion dollars. So what does that represent, .2 percent of their portfolio? It’s such a big fund it allows them to take outsized bets on opportunities that are somewhat moonshot. But if they do succeed, they really can be global dominating companies, which is compelling.

Q: Have we seen such large deals in agtech before this?

A: I think the Plenty deal is the largest agtech deal we’ve seen on a pure equity basis. A $200 million Series B is big by any standards, let alone in the ag space.

Q: We also saw another big round for Impossible Foods for what it seems will be a real battle with Beyond Meat.

A: Exactly. One of the challenges around food is you list your ingredients and food scientists can to some degree come back and potentially reverse-engineer it. So how much is defensible and how much is brand?

They’re still challenged around how do you scale this up? What’s your final business model? Is it a name brand? Are you licensing that technology to others? Effectively if you can convert some of the meat-eating population, from a market sizing perspective, it’s a massive opportunity.

Q: Does the food-delivery segment interest you from an investment perspective?

A: It does interest me. But what we’ve seen is valuations really get ahead of the sanity of that opportunity. People say, ‘Look, there is a $800 billion grocery market and how do we crack that open with e-groceries or meal kits of something like that?’

The fact of the matter is those companies have typically very low unit economics. Barriers to entry are very low. So some of the first companies to market showed a tremendous amount of traction. But because they didn’t have any moats around their businesses, there wasn’t anything protecting that business. Now you have to take what your margin might have been and drive that into marketing. The challenge is it becomes a bit of a race to the bottom.

Q: Sixteen agtech accelerators opened last year. What do you make of this trend?

A: We’re a little bit skeptical of the accelerator model. There are a few that do very well. A lot of them don’t do it very well at all.

As an accelerator you still need to bring in great companies. There’s still a limitation around whether you can turn a crappy company and two random people off the street into great entrepreneurs.

Where accelerators make a lot of sense, and can be more successful, is where they are going after a niche, whether that is around a vertical or around a geography. One of the first agtech accelerators that came out was a group called the Yield Lab, which started out of St Louis. With Monsanto based there you have a lot of good mentors, a lot of good technologists around there, people who could help with business development.

Q: More agtech activity is popping up abroad. Do you find innovation shifting away from the United States?

A: Most of the interesting activity is still taking place in the U.S. And it also can be very concentrated in places like San Francisco.

When you go to Europe and you look at venture capital around food and ag, a lot of stuff is done through private-public partnerships with universities.

In particular, capital availability is better [in the U.S.] than pretty much anywhere in the world. Where we are seeing some changes in that is around China. And to some degree India.

Photo of Rob Leclerc, co-founder of agtech crowdfunding site AgFunder, courtesy of the firm