4. Trends indicating AgTech adoption
The US, with its developed corporate agriculture sector, is facing both internal and external pressure to become more
efficient and more technological- and other countries around the world will follow
Largest Exporter
Ag is 5% of GDP &
10% of workforce
Consolidated
Global productivity will
increase over the coming
years
Global food demand
(quantity and variety) is
increasing dramatically
American consumer
behavior and public policy
is changing
Resource constraint will
force efficiency gains
Land prices (rent) and
input prices increasing over
the past decade
1
2
3
4
5
American farming and
farmers changing
6
The technologies disrupting
other industries have just
began penetrating Ag
7
An emergence of acquirers
interested in growth
through acquisition
8
US Agriculture
6. Adoption barrier
While financial and market risks exist, most can be fairly mitigated, while others that are not – are of a lower risk
What are the risks
Risk Description
• Customer acquisition costly and difficult
• Technology adoption low
• Long sales cycle
Mitigation Strategy
• Grow network with trusted sources
• Avoid large technology leaps in next 2 years
• Attention to complexity and allow “simple”
usage level
Risk Level
high
Threat from
incumbents
Large players (AGCO, Cargill, John Deere) are
very active in pursuing on-farm technology
• Approach big-ag players for strategic
investment/partnerships
• Look for startups not directly competitive
with incumbents
medium
Lack of late stage
funding and exits
Not many series B+ rounds with very few
notable exits
• Co-invest / build relationships with later
stage funds and acquirers in the field
• Avoid capital intensive / high burn ventures
medium
Many trends pushing
AgTech turn out as fads
• International players can take years to catch
up and land prices could decrease
• Consumers wanting local food was thought
a trend and is now showing negative signs
• Continue to monitor global productivity
• Continue to monitor farmland prices and
consolidation trends
• Have clear ROI, regardless of productivity
low
8. Customer
Farm inputs On-farm Post-farm Distribution
The Agriculture Value Chain
While much value can be derived from on-farm clients, farming technology has the potential to create value up and
down the stream, increasing exit valuations and providing large market cap acquirers
Seeds
Fertilizers
Pesticides
Advisory
Insurance
Input
Labor
Environment/Sustainability
Crop/Animal health
Waste
Tracing
Logistics
Compliance
Preservation
Waste
Marketing & sales efficiency,
customer adaptation, labor
efficiency, capital efficiency
Market size
Margins
Consolidation
$500B in sales
Medium-High
“Big 6” control 80%
$400B sales
Medium-Low (depend on farm type)
10% of farms = 75% of farmland
$280B in net value
Medium (depend on food type)
4 producers - $280B in sales
$330B in net value
Medium (depend on retail type)
Giant retailers / fragmented restaurants
Precision/Sensors tech
Data/Analytics
Computer vision
Imagery/Remote sensing
Software
Drones/Robotics
Data on input efficiency
Data for insurance &
investors
Improved traceability &
regulation compliance
Lower variability =
Supply guarantee
Adaptation to consumer
demand
Cost reduction, yield
improvement Data: FAO Stat & USDA
10. Biotech
Information
Technology
Software / Cloud
IoT / Analytics
Computer Vision
Sensor prices
2005 till 2012: Most AgTech investments in Biotech 2012 till today: 5X-10X increase in Agriculture IT investments
ERPs and data storage
Sensors and big data
Remote sensing, drones
Seeds, fertilizers, pesticides
Micro-biology & Biochem
Plant and animal health
Bio-informatics
Phenotyping, gene-mapping
Genomics
These technologies, along with “software eating the world” create
a new opportunity
This opportunity is enhanced with improved connectivity
infrastructure, smart device ubiquity and compliant farming
infrastructure
What is the technology in play?
Biotech and IT are the two dominant forms of innovation in Agriculture today, with their combination producing very
interesting companies. This report focuses on IT in AgTech.
11. Precision
pesticide/fertilizer
Precision
Seeding/harvest
Precision WeatherPrecision Irrigation
Precision agriculture is a very broad category that has been around for over a decade, but has not yet made use of sensor
technology, remote sensing, cloud, analytics or big data technology, which is why it is rejuvenating
Precision Agriculture
Why now?
Scaling barriers
Size of market
Defensibility
Total Score
Investment Strength
Competitive landscape
While precision-ag has been around for a while (primarily precision steering), only now we are seeing
the use of data analytics, which have the potential to improve the “precision” dramatically
Besides the underlying adoption problem, hardware precision technology requires sales, maintenance
and support expertise that is currently not found in traditional equipment dealers
Precision technology has the potential to reduce labor and input costs by double-digit percentages-
and for a $400B dollar a year market
As precision technology usually involves a software and hardware combination and pretty
sophisticated algorithms (some with strong IP), copying is relatively difficult
Besides the large amount of startups entering the field, the large incumbents (Deere, Trimble, AGCO)
and smaller but also veteran players (Raven, Novariant, Netafim) make the space highly competitive
12. Drone Startups involved in Ag Image analytics
The drone competitive landscape is difficult, with successful players from other industries as well as new players
specializing in Agriculture filling up the space- all with the underlying risk of substitute technologies
Drones and Remote Sensing
Why now?
Scaling barriers
Size of market
Defensibility
Total Score
Investment Strength
Competitive landscape
Ag-OnlyCommonly used
in Ag
The combination of drones and remote sensing have the potential to reduce significantly one of the
more labor and energy intensive processes on a farm- scouting. Just with highly improved accuracy.
On the more practical side, drones, LiDAR and hyper-spectral technology represent a giant technology
leap for farmers today (more so than improved tractors), besides the dealer-problem
As scouting costs farms tens of billions annually in labor and energy, as well as the technology’s ability
to improve crop health, precision inputs (irrigation, fertilizer, pesticide) the market is big
As the image quality is usually determined by the camera in use (an outsourced component), flight
time, price and complexity become the only differentiators – not too sustainable. Analytics is better.
The playing field is scattered with drone companies, some large players that specialize in other sectors
and some Ag-only, it has become highly competitive. Again, the analytics side is a bit better.
13. Lighting
Controlled environment agriculture is not as big in the US as it is in other parts of the world with more land constraint,
but urbanization and demand for supply guarantee, along with new technologies, is changing the economics
Controlled Environment Agriculture (CEA)
Why now?
Scaling barriers
Size of market
Defensibility
Total Score
Investment Strength
Competitive landscape
New Farming Techniques
CEA’s lab-like conditions are ideal for implementing data and automation technologies. The rise in
alternative farming technics, cannabis regulation and consumer trends also make timing perfect.
The assembly of greenhouses is primarily controlled by local players, which are hard to reach and are
price sensitive. Reaching existing greenhouse growers is even more difficult. New farming techniques
are also very capital intensive and take a long time to complete.
While controlled environment agriculture is smaller than traditional and applies to less crops, it is
growing in the US (fueled by the rise of cannabis) and is already pretty big in Canada and Mexico.
In the lighting sector, defensibility is a big problem. As most companies have different iterations on
LED technology (which is basically commoditized), it is hard to find unique players. New farming
technics also seem like something that is easily copied and almost impossible to defend.
Competition around CEA technologies is tough in certain areas (lighting) but much less fierce in the
areas of temperature control, humidity, energy efficiency etc.
14. Livestock
Service Providers
Farm Management Software
Farm management software is the first step in efficient farming, and has a variety of use-cases, which is why we believe
more than a handful of players can win, but low barriers of entry and proprietary technology- investors must tread softly
Asset management Agronomy
Farmers
Why now?
Scaling barriers
Size of market
Defensibility
Total Score
Investment Strength
Competitive landscape
While it is unclear why farms were not utilizing farming software at scale until now, it is clear that the
software of the recent years makes use of the massive data collection tools and gives much more value
Farmers, while used to buying hardware of different sorts, are not used to buying software. In
addition, the ROI of software is not immediately demonstrated, which makes it more of a challenge.
Unlike the heavy capital investment sectors of AgTech, most of the software in the space is
affordable. This makes it accessible to smaller and large farms, increasing the market considerably
Besides partnership networks (which are not sustainable), no real barriers to entry exist in the farming
software space, explaining the intense competition
While corporate farms, which are the big spenders and have easier access, are heavily contested by
Conservis, Granular, FarmLogs and FarmLink, the mid to small specialty crop market is much better
15. Fishing Innovations
Why now?
Scaling barriers
Size of market
Defensibility
Total Score
Investment Strength
Competitive landscape
As demand for fish rises, especially in developed countries, startups increasing efficiency and improving yields are
operating in a blue ocean, as most fish farms are not advanced
Aquaculture Open-water fishing
Along with the rise of the past few years in fish consumption, the ability of data and sensors to
improve the environmental, sustainability and efficiency issues that plague the industry are massive.
Fishing is very local, and while there are large fishing fleets, the vessels are mostly owned and operated
by individual fisherman. Aquaculture is better, though the problem persists there as well.
The aquaculture market alone is a $25B market globally with an 8% CAGR (FAO), and it is much
smaller than the open fishing market. The efficiency gap is wide as well, making for a sizable market.
Fishing technology startups usually involve a combination of deep-water and maritime knowledge,
complex hardware and unique software, making the companies relatively defensible.
Due to the lack of teams knowledgeable in the fishing market and technology, as well as the emerging
aquaculture market, startups in the space are rare. The incumbents are also very low-tech.
16. Post-farm innovation
While much value can be derived from on-farm clients, farming technology has the potential to create value up and
down the stream, increasing exit valuations and providing large market cap acquirers
Preservation Food Safety Food Logistics
Why now?
Scaling barriers
Size of market
Defensibility
Total Score
Investment Strength
Competitive landscape
Waste management
Unlike the on-farm market which has been barely tapped until recently with IT, the post-farm market
has been industrial and consolidated for decades, making the “why now” issue an important one
The sector is very consolidated and is much more adaptive to new technologies than farmers. They are
also much more geographically dense than the wide-spread farming sector.
Food processing, logistics and preservation is a much higher value-add part of the value chain than
on-farm. The room for efficiency improvements is smaller, but it’s offset by market size.
Technologies in this area are commonly a combination of IT, Bio-tech and advanced physics, materials
nano-technology and more. IP is much stronger in the space as well.
As there are many different use-cases as can be seen below, there is less competition. On the other
hand, the space has been “hot” for a while, so established private companies have strong footholds.
19. The “Adoption Problem”
Barriers to adoption Mitigation strategies
• Risk averse
• Technology adoption
• SMB segment not very approachable
• Low skilled labor (also language barrier)
• Clear ROI needed to persuade
• Gap between what companies are selling
and current state of farms
• Capital Expenditure capabilities low and not
used to complex financial instruments
• Trusted sources needed to reach farmers
• Not susceptible to process change
• Low on time (time adding activities, even if
yield-improving, are a hard sell)
• Connections with the different “trusted
sources” assists penetration
Crop Board
Crop Advisory board
Local Farming Bureaus
Universities & Research institutes
Dealer chains
Trusted and networked large farmers
• Products that don’t make a giant technology
leap and rely on existing processes
• Dumb-proofing and language proofing
• Better to set initial markets to large growers
(not necessarily field crops)
• Time creating, not time consuming
innovations at the product-market fit stage
20. Why should we invest
Global productivity will increase over the coming
years
- In developing countries, especially India and China,
it is much lower than the developed world
- Farm consolidation and land prices across the world
will increase efficiency
The US, with its professional and consolidated agriculture sector, is facing both internal and external pressure to become
more efficient and more technological
Global food demand is increasing across all food
types, especially for meat, fish and dairy
- A rising middle class in India and China
- Completely off-sets developed countries reduction
External pressure to increase efficiency Internal pressure to increase efficiency
American consumer behavior is changing
- Health awareness to food showing significant increase
- Millennials, leading this trend, are increasing in buying power
- Organic food segment growing by over 10% the past 3 years (5%
of total food)
Resource Constraint expected to force efficiency gains
- Water crisis expected to persist with climate change
- Input prices on the rise since 2005 (fertilizer, seeds, pesticides)
- Labor shortage states as no. 1 problem faced by growers today
Land prices increasing over the past decade
- Rent increase leads to more efficient farming
- PE acquisitions and follow-on efficiency improvement
American farms and farmers changing
- Farms becoming bigger, virtually or actually consolidated
- If not selling, farmers hand off keys to young, more techy, kids
21. Global Ag-investing trends
From $50B AUM to $80B expected by the end
of 2015, primarily due to farmland investing
$5B in high quality
farmland
Combined $1T AUM looking to
increase agriculture holding to 1.5%
Yield improvements
Secondary market for technology
Pressure on developed agriculture economies to adopt technology to
remain competitive
Aside from record profits, another incentive investors are hard pressed to ignore is
farmland’s role in the elusive goal of US energy independence. Biofuel production,
which received $1.3 billion in federal subsidies in 2012, is the most obvious factor.
22. Farming Structures in the US
Over age 68
35%
9%
15%
55%
70%
4%
4%
0% 20% 40% 60% 80%
200 Acres or
less
1,000-2,000
Acres
2,000 Acres or
more
Farms Farmland
Won’t hand off
to children
75%
Family Owned
97%
US farming will undergo major change that will support technology adoption
Consolidation
Lease to professional operators
Sale to PE or corporate farms
23. Financial Indicators
Venture Capital investments on the rise Large Acquirers starting to gain interest
15 M&A in the past 4 years, most undisclosed, averaging
less than $100M
Climate Corporation acquired for $1.1B, since then acquired
3 precision-ag startups
Evogene and Marrone Bio IPO at $500M and $400M
Top Acquirers have large market cap and a lot to lose:
John Deere, AGCO, Cargill, Trimble and more have market
caps between $10B and $100B
Acquirers from down-stream include major food
manufacturers Nestle, PepsiCo, Tyson foods and Kraft, as
well as Dairy producers such as Land o’ Lakes
Upstream acquirers are the Big 6, with Monsanto leading
investments and M&As
A dramatic increase in early stage funding and peaked interest from large incumbents increase the investment viability of
the sector
Over $750M invested in AgTech over the past year, a
sharp increase from previous years (less than $100M)
AgFunder, the number one source of AgTech
investment data, inflates this figure to $2.7B in 2014
and est. $4B in 2015, by adding non-ag drone
investments, venture debt, food e-commerce, etc.
24. Will food demand really be a problem among
people with buying power?
By 2030, China and India will represent 40% of
the global middle class, up from 10%, so YES
Is there a food crisis?
But do we really need technology to feed the world,
or just to get inefficient countries up to par?
0% 10% 20% 30% 40% 50% 60%
Rice
Milk
Wheat
Sugar
Cotton
Fresh Vegies
Potatoes
Tomatoes
Soy
Beans
Agriculture Productivity
India / Best-Practice
If India improves half way to the best practice, it
will be enough to fill in the demand
25. Is there a water crisis?
Will water shortage really be a crisis among farming regions?
In China, rice growing regions are
safe, but soy, wheat, potatoes and
corn areas are in danger
In the US, the Midwest and
California are both with high to
extreme water stress
More than 54% of India is exposed
to water stress
26. High dependency on equipment dealers for sales, marketing, support and trust limits penetration
Incumbents putting precision as top priority, but primarily with precision steering as the only success
Big differences between farms and within farms in process, inputs, labor, season, geography, crops, etc. causing
both many startups to fail in finding product market fit, but leading to a multi-winner market
Farmers still finding it hard to accept full automation of processes and prefer “decision support”
With per-acre pricing, high-yield crops have higher willingness to pay, but on the other hand, field crops (low yield)
are more consolidated and are a larger market than permanent / specialty crops
Complex and cumbersome implementation (requiring high maintenance and support) limits scaling
Estimated that less than 1% of farmers use precision technology today, as it is perceived of increasing complexity
rather than simplifying
Irrigation startups not only save water: up to 50% of nutrients are lost, primarily due to over-watering. This is both
wasteful and not environmental (with new regulations threatening to make it even more costly)
Precision Agriculture- notes
27. Drones aim to disrupt one of the most energy and labor intensive farming processes- scouting
Many farmers perceive drones as too much of a technology leap to adopt at the stage they are in
Drone flight time is limited 20-40 minutes, making their use in large field scouting less practical (though some
can capture up to 2,500 acres in one flight- eBee)
While we don’t believe remote sensing and sensor technologies are a sum-zero game, there are elements which
sensors are more efficient, and the opposite
Two recurring problems with imagery for ag applications are the accuracy and frequency problems
With advancements in the Space sector (Planet Labs & Skybox), drones (and aerial) imagery may become
obsolete as the quality and frequency of satellite imagery becomes better
Drones have shown high ROI in many case studies
With upcoming regulation around drones (who can fly, where, what images can be taken, etc.) there is a risk of
the market shrinking considerably
Drones and Remote Sensing- notes
28. Management of the environment, nutrient solutions, growing systems, light, water and energy are the
fundamentals of controlled environment agriculture
Guarantee of supply in urban areas (with urbanization continuing to rise across the world) is a growing issue for
food processors and distributors
Although US sector still small (compared to Central America, Mexico and Europe) Sector showing high growth,
more than 10% growth in hectares year over year since 2006 in North America
Lab-like conditions perfect for data collection and precision
Greenhouse assemblers (who control the inputs and are price sensitive) are very fragmented, with thousands of
local players each controlling their region
Indoor/roof-top small but growing secondary markets
Cannabis an emerging market in the US and Canada, with high margins and a need for controlled environment
Indoor Ag still a very small industry with less than $1B in sales, but rapidly growing (especially in Asia)
Many of the new farming techniques do not yet have a proven business model.
Controlled Environment Agriculture (CEA)- Notes
29. Success very much determined by quality of software, which for investors is harder to analyze.
Due to this, Silicon Valley based startups have an advantage (quality of SW developers), but a disadvantage in
how well they know the agronomy side of the business
Few players trying to “take it all”, aiming for all crops and all functionality
Some believe this leads to using only a fraction of the functionality the software provides)
This could make room for crop / process specific software to succeed, except multiple interfaces also
an issue for growers
First mover important, as switching costs (as with any ERP) are high
Primary value proposition around efficient management, then data analytics and benchmarking
Has strong potential to be an enabler for other AgTech (precision, drones, robotics, etc.)
Penetration rate still low, but growing rapidly in enterprise farming, with many expecting percolation
Strong presence of all big incumbents (Trimble, Deere, Raven, Monsanto, etc.), with generally high competition
Farm Management Software- notes
30. Aquaculture is split into three major categories- Mari-culture (containments in open water),
Extensive/Intensive and RAS (the most advanced, with high Capex and low penetration)
Along with the rising demand for fish as a protein source, and the unsustainable open-water fishing practices,
aquaculture is rapidly replacing open-water fishing
Very large fish farming projects (not venture financed) have been set up around the US and rapidly increasing
around the world
While aquaculture is a more efficient method, it has many environmental and health issues
Open-water fishing startups are rare, although it is unclear why- the industry is still very large and operates
with high inefficiencies, with a few major fishing fleets that have high purchasing power
Aquaculture startups are mostly targeted around 3 areas:
Water treatment
Feed efficiency
Fish health
Fishing Innovations- Notes
31. Post-farm innovation- notes
Food processors are highly connected to consumer demand, therefore looking down the stream will provide
good insight on what the market needs
Global packaging costs are increasing along with GDP, especially in developing countries, with significant
focus on preservation of meat, fish and fresh produce
Increasing usage of hyper spectral imaging for food safety (from farm, through processing and packaging, all
the way to the consumer)
Food processors have extra incentive to work with waste-reusing startups as they currently pay for waste
removal
