Weekly Update

Building awareness in Silicon Valley for agtech

When thinking about the next hot sector ripe for innovation, we might think of the efforts in the share economy or even next generation technologies like 3D printing or robotics that will be applied to manufacturing. But we don’t generally think of farming.

But for those who caught Christopher Nolan’s latest film Interstellar, in which the future is dominated by blight and food shortages where employers want farmers not engineers, the idea that we’ll need a tremendous amount of innovation in agriculture in order to meet the food demands of a 10 billion strong population by 2050 isn’t that crazy. Unfortunately for the earth’s ability to provide food, population growth hitting 10 billion isn’t fiction. Initial estimates are that food production must increase by 70 percent by 2050 to meet demand.

Still, Silicon Valley hasn’t remained terribly interested in agtech. The reasons for that are complex. Testing and validating products isn’t that easy as access to farms and hardware facilities can be hard to come by (many VCs are understandably much more comfortable with easy to scale and easy to test software solutions that can quickly scale to address resource problems). Distribution models for selling products to farms also can be tricky and drawing talented engineers to startups focused on agriculture can be even harder. (For an analysis of the state of the agtech market, see my research note “Big Data and Big Agriculture.”)

But despite the hurdles, there are efforts to bring Silicon Valley to the farm. Prior to Thanksgiving, VC fund Innovation Endeavors and Felxtronics’ investment arm Lab IX announced Farm2050, a collective of industry partners intended to help spur interest in agtech among entrepreneurs and provide resources for them.

Right now the partnership is fielding pitches from startups. But the hope is that the collective, which includes a number of tech and ag players including DuPont, Google and AGCO, will make it possible for startups to easily get access to manufacturing facilities, test labs, and industry mentors. (Google Chairman Eric Schmidt backs Innovation Endeavors.) Put another way, while one can focus on the amount of capital going into agtech, capital allocated to agtech is likely to grow if it becomes easier for startups to commercialize products. Innovation Endeavors sends out about 25-30 million per year in startup funding to seed and early stage companies and the hope is that Farm 2050 may produce startups attractive enough to fund. Lab IX also has capital available.

And there are signs of change. Despite a lot of funding for agtech coming from the Midwest and Northeast, about 20 percent of agtech deals originated out of Silicon Valley in the past two years. Monsanto’s $930 million acquisition of Climate Corp at the end of 2013 got Silicon Valley’s attention as two ex Google employees took their software and analytics expertise and applied it to weather insurance. The first six months of 2014 saw about $400 million flow into agtech deals versus just $100 million in all of 2012. The agricultural industry is a $46 billion industry just in California.

If there are lessons from the last few years in cleantech, it’s that startups focused on capital light technologies that employ cloud based software-as-a-service models and analytics to produce efficiency outcomes (and improved crop yields), will find it much easier to find funding. Relatively inexpensive sensor technology could also be a part of this strategy. Strategies that attempt to build hardware could succeed. But as has been learned from startups like FarmLink, where the company monetizes both the combines it rents and the data benchmarking services it sells, there’ll need to be some type of reliable monetization from hardware investments.

The realities of population growth aren’t going away and sooner or later increasing food demand is likely to create price pressure on commodity crops even if today global food prices are at a low. If the economic incentives to invest in agtech aren’t readily apparent today, price signals are likely to send clear messages. As always, the question is when. But investors and startups focused on the building of an ecosystem to support these technologies are likely to be best positioned for that moment even as startups that create simple solutions today to improve crop yield and conserve resources succeed.