by Neal Gutterson
Farmers are inundated with new technology.
For decades, salespeople lined up at the farm gate offering new plant trait technology, machinery innovations and inputs. Like any savvy business owner, farmers are keen to evaluate what technology works for them. But today, those evaluations go beyond plot trials and personal experience.
As technology like artificial intelligence is applied to everything from facial recognition in cattle to literally drive efficiency improvements with autonomous tractors, truly evaluating new technology has become even more complex.
After spending my career driving and assessing innovation at leading agribusinesses and ag tech start-ups, I believe this is where venture capital firms have an important role to play.
Before any early-stage company is funded, VCs – who are often comprised of former industry executives, MBAs, scientists, and technologists – dig into every aspect of a start-up to evaluate risk and scalability. This process also removes much of the risk farmers would take by testing unproven technology on their farms. By validating innovations, venture funds can collaborate with farmers to help those companies grow with less risk to the farmer.
Management consulting firm McKinsey & Company surveyed 5,500 farmers last year across Asia, Europe, North America and South America and found 39% of farmers surveyed globally are currently using or planning to use at least one ag tech innovation in the next two years. In North America and Europe, more than 60% are willing to try something new.
Yet another recent McKinsey report shows that most ag tech startup deals provided funding at the earliest stages but far fewer received late-stage money to keep going. A sign that these companies struggled to earn customers’ trust or scale their technology, leaving those customers who signed on in a pickle.
Farmers should rethink how they invest in innovation.
A VC’s purpose is literally to take risk to ultimately find the Tesla or Dropbox of agriculture.
Having innovations vetted, shepherded, and mentored by proven leaders with deep hands-on ag expertise helps shield farmers from that risk. After all, farmers are trying to avoid or mitigate risk in their operations and trialing new, unproven technology is not consistent with avoiding risk.
For example, as a seed and early-stage VC, Radicle Growth looks at approximately 1,000 start-ups per year, of which more than half are outside the U.S. After a thorough vetting process, the firm only invests in three to four. That means we say ‘no’ to more than 99% of the deals we look at.
After seven years and now considered one of the most successful AgTech VC funds globally, we’ve learned that out of every 10 investments we make, half aren’t going to survive. Yet some will have a huge impact on food production as they mature. Taking a portfolio approach is absolutely critical to our success.
As former CEOs and CTOs of public and start-up companies, we are operators first and investors second. Evaluating and building early-stage companies are our greatest strengths. Overall, we accept risk because we put tools in place based on our experience to mitigate it and ensure the highest risk never gets to the farmer until we have reduced the risk significantly. There are four critical areas we evaluate:
- Size of market: Size matters. New technology may work great on one farm or dozens of test plots, but a niche technology that only works when deployed on a small scale won’t gain the customer base to support it over the long term. Ultimately, the farmer who adopted early is left to find a replacement when the company doesn’t return.
- Stage of Technology: Has the technology been validated and fully tested? Just like farmers, VCs need data – lots of data to invest. As technologists themselves, VC management teams are highly qualified to evaluate the technology from every angle to ensure it delivers the best value for customers.
- A Viable Business Plan: Entrepreneurs are optimistic by nature. However, great ideas must be backed by a plan to overcome the obstacles that undoubtably arise. A business plan ensures the viability of the company by identifying financial, sales, R&D, and talent requirements. With the right business plan, start-ups can execute and scale. VCs review, question and challenge the plan before funding to ensure it’s a sound investment, but farmers don’t have this same level of access.
- Quality of the team: Often new ideas come from a highly technical team of founders. Their vision and expertise are invaluable to create the technology. However, often these founders have never run a successful business. We place experienced business and finance executives in-house to help manage those early days to ensure the business and technology development is on track. If the team isn’t coachable – meaning they are unwilling to listen, we walk away because that could indicate they also won’t listen to their customer.
We say ‘no’ to many opportunities. Farmers should too.
Growers often lament wasting time and resources testing technology from unqualified companies. And they should.
It’s challenging for even top farmers to focus on their core business while innovating for better outcomes. Yet innovation remains paramount to improve farm profitability and meet global demands for a more sustainable food system.
That’s where VCs focusing on AgTech can help.
Several years ago, farmers were approached to try new nitrogen management ideas, many of which were never viable. A farmer might have wasted an entire season or two trying something from a startup company that wouldn’t survive.
Today new start-ups developing sophisticated robotics, data platforms and biological technologies are being tested and vetted by firms like Radicle Growth. If we’re not investing, we’re seeing something wrong.
While the line out the farm gate has been long, the line for funding has become even longer. Vetting AgTech innovation is something VCs like Radicle Growth do every day. Our farmer partners are more effectively managing their risk and ultimately rewards. Something every farmer can do.
Neal Gutterson is the Partner and Chief Technology Officer at Radicle Growth. Prior to joining Radicle, Neal led R&D efforts, specifically focused on bringing value to farmers through the discovery and development of innovation, at DuPont Pioneer and later Corteva Agriscience where he served as CTO. Before that, he spent 12 years at Mendel Biotechnology in a variety of executive roles from VP R&D to CEO. The common denominator throughout Neal’s career has been value creation for farmers and converting innovation into actionable companies, products and outcomes. Neal served on the Board of Directors for several organizations, including CGIAR, Grassroots BioTechnology, BIO, and the International Maize and Wheat Improvement Center (CIMMYT).