Climate reporting, automation, and physical products. These were the three categories of agtech that three corporate representatives think will deliver the next agtech exits.
Speaking at the Agrivest conference today in Tel Aviv, Israel, Shubhang Shankar, managing director of Syngenta Group Ventures, Ranveer Chandra, CTO of Agri-Food for Microsoft, and Covadonga Fernandez, corporate development at Kubota Corp talked to Startup Nation Central’s Ido Yosovdon about the challenging exit market in agtech. With few exits for venture capital investors over the years, a spate of low-value mergers and some consolidation, and poor-performing SPAC exits, agtech venture funds are becoming increasingly anxious about how they will make a decent return for their investors.
All three agreed that mergers & acquisitions were more likely to deliver the next big exit over public market listing via IPOs and SPACs and that the next big exit will be below $300 million – disappointing!
Syngenta’s Shankar argued that physical agtech products were the most likely to achieve exits in the near term.
“Ag innovation has typically been packaged into a physical product – chemicals, seeds, machines – so I think the best opportunities to exit are those startups with a physical product of some kind,” he said. “One can sell machine vision and analytics or slap on precision spraying and offer as a product; I think there’s more opportunity for the latter to succeed as it’s something you can sell to the farmer and he never has to see you again.”
Shankar specifically pointed to an expectation of exits in the biologicals space — not surprising given his company’s focus although it is probably time we saw something happen there. He compared product-based startups with those offering services, which he described as almost becoming “a mini ag company” themselves, which is less acquirable.
Kubota’s Fernandez largely agreed with Shankar highlighting tangible products as future key targets for acquisition, going one step further to define robotics and automation as the most likely next big deal. She mentioned the extensive interviews Kubota has conducted with growers that revealed farmers’ main pain point: “labor shortages everywhere.” As a machinery company, automation is obviously important to Kubota but Fernandez added that other agtech categories are less relevant to Kubota right now as the company itself embarks on a journey of digitization; “we are taking time to develop our software and data skills in-house,” she added.
Microsoft’s Chandra thinks that the next space to see some exits will be in environmental, social, and governance reporting, particularly climate reporting such as carbon measurement and markets. “There could be a lot of potential [acquirers], not even traditional ag players, but maybe food CPG or big tech, looking for more reliable reporting.” He referenced the large number of startups working on improving the reliability of soil carbon measurements and recording, of which Microsoft has itself invested in: Regrow. It’s likely Chandra is pointing to a specific pain point at Microsoft, which is one of the biggest purchasers of ag carbon credits. Microsoft has expressed concerns about the quality and reliability of carbon data baselines and does not fully count each credit towards its offsetting targets as a result, deducting about 10% and effectively increasing the price of each credit, according to this report. “As clearer standards permeate the market in this decade, we expect to make fewer such internal deductions,” reads the report.
Picking up on the question of who will be the most likely acquirers, the panel expressed hopes that the pool would widen from the traditional incumbents that have made the majority of acquisitions but have slowed down significantly. Shankar pointed to the potential for banks or insurers to acquire agrifintech plays but also for large private equity firms to step in and start making acquisitions too.
Chandra hinted that Microsoft could be an acquirer, highlighting a deal the tech giant made in the health tech space . “We are bullish about the space but we think that a big reason agtech is not taking off is a lack of data; we’re missing out on a lot from farms. More than 40% of the global population does not have internet and 70% of US farms do not have internet. If you don’t have data, how can you drive insights? People are trying with work arounds, but they are still work arounds — that’s the issue with agtech. If anyone can really solve for that, that could be a big breakthrough and drive disruption in the sector.”
