VC funding in agri-tech shows exponential growth

VC funding in agri-tech shows exponential growth

Opportunities in applying Industry 4.0 technologies to agriculture have opened up unforeseen possibilities in agri-tech, agri-finance and e-commerce segments

Russia’s unexpected invasion of Ukraine continues to send shockwaves through global markets and put increasing inflationary pressure on the entire agricultural industry. On the one hand, food prices are directly affected by disrupted supply from Ukraine and import restrictions for Russian goods in many markets. Russia and Ukraine hold key positions in global food markets, accounting for around 7% of total exports, and together were responsible for around 21% of global wheat exports in 2021. While this has disrupted food and agriculture input supply chains, at the same time opportunities in applying Industry 4.0 technologies like Artificial Intelligence (AI), Big Data Analytics, Genetic Engineering, and biofuels have opened up.

AI transforms agriculture

The essential equipment of the modern farmer is rapidly expanding beyond traditional implements like tillers, ploughs, and tractors. These days, you can add sky- and space-based cameras to that list, as well as sensors that examine microscopic nutrients. The most important of all these new tools is artificial intelligence (AI). AI takes the vast amounts of data gathered by those advanced devices and turns it into insights that empower farmers to reduce costs while increasing productivity and sustainability.

VCs & PEs bullish about agri-tech

This revolution in agricultural technology comes just in time. Climate change is challenging food producers to feed growing populations while preserving land and protecting natural resources. Venture Capital (VC) and Private Equity (PE) funds are naturally bullish about this sector, which is reflected in the funding activity. Dubbed the era of bio revolution, the 21st century has seen a rapid ascent in bioscience breakthroughs. It has accelerated life science innovation and opened doors to global transformation across many industries, such as:

  • Agriculture – CRISPR edited crops
  • Energy– Biofuels
  • Consumer Goods– DNA-based cosmetics and plant-based proteins

Quite naturally, funding activity continued its upward trajectory in Q1 2022, as agtech companies globally logged $3.3 billion across 222 deals, with deal values up 15.5% QoQ. VC enthusiasm for agri-tech start-ups persisted in Q1 despite volatility in the public markets that have negatively affected major indexes as well as agri-tech stock prices. The agri-finance and e-commerce segment garnered the majority of agri-tech’s VC funding in Q1, logging $921.8 million across 36 deals. Many of this segment’s companies are developing solutions for emerging markets, per a Pitchbook analysis of the VC and PE investment in the agri-tech sector.

Mid-sized deals gather momentum

The majority of food production is often done by smallholder farms characterized by antiquated, inefficient infrastructure and nascent markets. Implementing agribusiness marketplaces and e-commerce tools can improve supply and demand in emerging markets and unlock the economic potential of agricultural land. Strong agri-tech funding momentum has elevated median deal sizes and valuations across most stages.

Most of the growth can be found at the early stage, wherein deal sizes climbed 59%, while pre-money valuations soared 67.0% YoY. In fact, median valuation step-ups– or the increase in value from pre-money to post-money– at the early stage were 2.7x, up 33.2% YoY. In other words, start-ups created a median of 33.2% more value at the early stage than the year prior. Despite investor enthusiasm at the early stage, we observed a softening of investor sentiment at the late stage.

Median VC deal size growth plateaued at $10.5 million for late-stage VC after climbing 45.3% in 2021. Median pre-money valuations declined 32.0% to $37.3 million for late-stage VC, only $3.9 million above the median early-stage valuation. Historically, the late-stage has been subject to valuation volatility, so it may yet be too early to determine if investors are exercising unusual caution.

Microbial fertilizers attract VC attention

Recently, microbial fertilizers have garnered significant VC funding, in part due to increased focus on soil health and environmental implications of agriculture. Record-high fertilizer prices, partly due to the Russian insurgency into Ukraine, have created a new incentive to adopt biofertilizers. Key players include Kula Bio, Indigo Agriculture, and Boost Biomes. Kula Bio has raised $61.2 million in VC funding to develop a microbial biofertilizer that converts atmospheric nitrogen into a soil-stored crop nutrient. Indigo Agriculture produces a microbial seed coating that produces more resilient crops. Boost Biomes has a pipeline of microbial agricultural products in development that address crop diseases and boost resiliency, reports Pitchbook in its quarterly analysis.

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