The current zeitgeist suggests that investor decision criteria for evaluating and deciding where to put their money in technology or innovation will be different in 2023. Whether or not the there is an actual recession money has become more expensive very quickly, so investors in innovation and startups are naturally taking a harder look before they leap into an uncertain investment. In our experience this has been even more true for agtech, which has traditionally attracted less capital than other sectors.
Given that agtech investing is fraught with doubts at the best of times, and with traditional markets being hit hard, some stocks are looking like bargains, while rising inflation and interest rates are making bonds look good value again. Where should you put your money? We see three emerging themes in investor evaluations:
1. Pathway to profitability.
Does the startup have a clear pathway to profitability, and how quickly is it likely to get there? While profits have been seen as irrelevant to tech companies in the past decade the desire to see companies that can make money the ‘old-fashioned way’, by charging more than it costs, returned with a vengeance in 2022 and looks set to continue in 2023.
2. Managing the burn rate
Whether or not there is a clear timeline for reaching breakeven and profit generation, is there an ability to moderate costs enough to extend the time before a further raise is required? Turning the dial down or up on spending is hard but exceptionally important, especially in the coming year.
3. Clarity on the Exit?
Who can and will be willing to buy your business? Without being able to name at least half a dozen possible acquirers the seller runs the risk of the unknown. Timing when it comes to who might purchase an asset is a notoriously tricky thing to predict, and not made easier when a recession is potentially imminent.
Keeping these three themes in mind, we have identified 10 examples of companies that AgriTech Capital believes will be successful in 2023, and that collectively might indicate the direction of investment this year.
(NOTE: This article is not meant to be used as investment advice! As always, it is important to do your own due diligence before making any investment decision. Full disclosure: AgriTech Capital has invested seed capital in several of the following companies.)
1) Harpe BioHerbicide Solutions
The business of weed killers as an aspect of crop protection has faced headwinds for over a decade, with headlines dominated by Roundup lawsuits. Weeds are the costliest challenge to crop production globally, resulting in over $50 billion in economic losses from reduced crop yields, but until recently there have been no viable alternatives to Roundup. A natural alternative would have a ready market, and the newest entrant in this category is Harpe BioHerbicide Solutions. The Harpe team combines experienced leaders from the world’s largest crop technology companies, and they have developed natural herbicide formulations using active compounds commonly found in plant extracts, combined with natural inert ingredients to help effectively eliminate tough-to-control weeds. Harpe uses multiple modes of action and acts at different sites within the weeds, with a specific focus on the 500+ weeds that have evolved resistance to traditional herbicides. Harpe’s strengths are R&D, navigating the regulatory landscape, and developing a deep portfolio of intellectual property. They have ongoing collaborations with half of the leading global crop protection companies, who contribute to the development process, and are likely partners in any exit. Overall, Harpe meets all three of the criteria we believe will be essential for success and can make strategic decisions in 2023 to scale the business or look for the right partner as a conduit to bring their products to market.
Labby is an MIT-based startup that has created an AI-driven, real-time, lab-quality milk testing technology for use on dairy farms. Traditional testing programs are unable to either provide individual animal results or real-time data. Labby’s technology can help improve herd health through earlier detection of mastitis, an infection affecting about 25% of cows, which is associated with $32 billion in economic losses annually. It can also monitor milk composition and help farmers adjust animal nutrition and change milking practices to improve farm profitability. The dairy industry has a clear advantage over other types of agricultural production in that output can be measured each time the cows are milked, two to three times a day, and the metrics from Labby’s technology can convert that into actionable insights. Labby is seeing strong growth in its target markets, along with increasing commercial and strategic partnership opportunities with large farms and milking equipment companies. They have also received recognition, awards and funding at innovation conferences such as Grow-New York and TechCrunch San Francisco, along with National Science Foundation (NSF) grants. Taking all those factors together, Labby is a promising company with a clear path to profitability.
ag.supply runs a European eCommerce platform aimed at simplifying the procurement of original equipment manufacturer (OEM) and aftermarket spare parts for agricultural machinery, seeds fertilizers, and crop protectors. Sometimes called Europe’s Farm Business Network (FBN) the platform provides the advantages of a massive farm product catalogue, with over 3 million items on their platform serving as a one-stop shop to their 30,000+ customers. ag.supply works with suppliers to help farm customers avoid time-consuming searches at various dealer shops or websites, reducing additional purchase costs. The ag.supply team has deep experience, consisting of specialists in farm equipment, agronomy, and logisticians, with access to an external support network, that support and help farmers make the right purchase decisions. Currently undergoing a rebranding and sales optimization effort, an increase in short-term costs is expected in 2023. However, new customer growth and careful cost control are already showing margin improvement and ag.supply has all the metrics required for success as European farmers become more familiar with ordering online. Evaluative metrics including first time customers, increased orders per customer, increased repeat business, and expertise in search engine optimization, (which is increasingly complex with new Google advertising algorithms) are strongly positive, as ag.supply has embraced Facebook, WhatsApp, and new software to increase the efficiency and automation of the customer experience. Recent involvement with RockStart (an early stage investor/accelerator group) demonstrates this team is clear on their pathway to profitability.
Distynct brings the IoT to the farm in an affordable and manageable way, by replacing traditional technology with versions that have more data and/or functional capabilities at a similar cost. Distynct provides farm managers with remote management software, particularly for swine and poultry facilities. This is critical as the quantity of data being generated on farm has increased dramatically, alongside the demands for better information and more transparency from stakeholders. Livestock facilities often lack visibility of basic barn conditions (such as temperature, humidity, water consumption, manure pit levels, feed availability, and worker presence) that sensors and various IoT devices can collect. Distynct’s software solutions helps farmers save time and manpower by automating data collection and reporting. Distynct’s software collects the data from these sensors and devices, establishing a starting set of benchmarks across the production system. In turn, this allows for process improvement and identification of variable cost outliers. Through an online and mobile dashboard, Distynct users can monitor real-time data against their benchmarks. The company is successfully growing its installed hardware base and the recurring (higher margin) software business. The company’s success comes from its low-cost installation approach for its solution (at a basic level it can replace existing alarm systems at a similar cost) and from being agnostic as to which hardware/devices are generating the data, reducing the barriers to entry. The result has been rapid adoption on farms, commercial traction, and profitability. By providing a quick return to customers and investors, Distynct is in the happy position of appealing to both, simultaneously, through its success, a winning strategy.
Birdoo uses camera-vision technology and machine learning algorithms to monitor poultry houses around the clock. Its computer vision technology turns visual images captured by its cameras into contextualized, actionable real-time data. Birdoo processes images on the device (edge computing) and then sends the data to the Cloud for further analysis and presentation to users. This is a critical feature, as network connectivity on poultry farms is problematic around the world. The synthesized data allows farmers to estimate bird weights in real time, which is a game changer: typically birds weights have been ascertained through the physical weighing of birds by hand. Using data increases speed and accuracy while reducing labor costs and biosecurity risks. It gives growers getter information on when to harvest for maximal nutrition, uniformity and consistency. Moreover, because data is collected and monitored consistently through the growth process it allows better alignment with the whole poultry value chain.
Birdoo is the brainchild of a former MIT professor, who as Director of the MIT Supply Chain 2020 Project, explored the challenge of devising effective strategies for businesses to be ready to confront highly volatile market conditions in the future. A key aspect of the learning was the acquisition and analysis of real time data, which led him to focus on leveraging digital technologies to acquire operational data in the poultry farms to benefit the overall poultry value chain. Birdoo has already assembled a blue-chip list of leading poultry integrators as customers, and installations have been jointly funded by the agribusiness giant Cargill. Birdoo promises a return to poultry farmers within the first months after installation while also generating a return for its investors and plans to unlock additional value in the future through additional AI driven insights from flock patterns and mortality to improve bird health and welfare. This makes it an attractive investment for both farmers and investors.
6) SWARM Engineering
SWARM Engineering provides a SaaS platform using next generation cognitive computing to address agri-food supply chain optimization. The goal is to help producers save costs, reduce waste, and deliver environmental benefits. The SWARM platform, anchored by the Challenge Modeler, provides business users easy-to-use templates, created by industry experts, that allows them to rapidly define and understand the challenges of their operations (you can try the Challenge Modeler for free, here). The challenges are then matched to algorithms to optimize key processes like inbound & outbound logistics, supply & demand planning, and pricing optimization. SWARM’s strong value proposition has attracted customers across a wide range of sectors within the agribusiness world: commodity businesses, grain trading, perishable food products (such as milk and fruits), integrated meat producers, animal feed producers, and many more. SWARM is well-funded, with strong and supportive investors and believes there are break-out opportunities in a recession. Many of the companies they work with have significant economic headwinds and need to make big savings on operational costs. With their unique approach to rapidly defining and solving operational challenges using AI, this looks like a major opportunity for SWARM and their customers.
Austria-based smaXtec has developed a novel smart device to monitor cows and cattle: the cow swallows a bolus that tracks and monitors the animal’s health. The genius of the invention is that through the continuous measurement of cows’ inner body temperature, smaXtec alerts dairy farmers of temperature changes, which is a leading indicator infections (such as mastitis) and metabolic diseases (such as ketosis) that affect milk production quality and yield. Another product can detect acidosis (the presence of too much acid in the rumen), which shuts down fermentation and digestion, and can only be treated through dietary changes or rapid intervention to avoid considerable losses on the farm. By measuring inner body temperature, rumination, and activity, the system is a comprehensive health management solution. For example, the sensors let the farmer know when a cow will go into heat, which can help improve pregnancy rates and insemination effectiveness, as well as detecting the beginning calving earlier, allowing time to prepare ahead of the birth. The farmer has access to all this data via an easy to install cloud system. We estimate smaXtec is already being used in 250,0000 dairy cows globally to improve enterprise profitability. It can also provide information for the larger industry concerning animal welfare, sustainability, and indeed could be used to decrease the carbon footprint, a real challenge to the future of the current dairy business model. In 2023, we expect smaXtec to move to being a mainstream technology, increasingly used on larger farms in the US and other countries, and by the leading agribusiness companies involved in animal health and animal nutrition who see it as an attractive technology to acquire or partner with.
8) Cainthus by Ever.Ag
Cainthus was acquired by Ever.Ag in 2022, so does not really represent an investment opportunity. It is, however, a clear example of how technology is being deployed and the role that investors, in this case private equity, can play in rolling up different technologies to create a house of data, allowing customers to have a single site to find all of the information they need to manage their farm. Cainthus’ computer vision technology and algorithms are being used in dozens of US dairy farms to observe nutritional, behavioral, health, and environmental activities that impact production. Using a smart camera system (AI informed edge computing) Cainthus monitors animal behavior and farm operations. Visual inputs are translated into actionable, real-time insights that can be displayed on any smart device to allow farmers to make data-driven decisions, removing human error. The technology is easily scalable, does not require any hardware attached the animals, and requires very little maintenance, and since the insights are derived from images it is possible to verify these literally with you own eyes. Cainthus offers an opportunity to combine real time information on cow behavior and management with Ever.Ag’s data on milk production, markets, nutrition, and futures in a manner so that producers can improve profitability, increase transparency for the milk processors. It is an example of how bundling startups and scaleups is the future of investing.
AgriWebb is already one of the most successful agtech startups, having conducted five rounds of funding and raising over $43 million. AgriWebb’s software platform tracks and records livestock both on ranch and through the supply chain. Although many different platforms claim to be capable of achieving similar functions, AgriWebb is the only commercial multinational provider (present today across 16 countries including Australia, US, UK, Ireland, New Zealand, Canada with more countries coming) at scale and covering the entirety of a ranching operation. By creating a virtual map of the entire farm, the application allows farmers to digitally track livestock movement, weight gain, grazing days left in a paddock, and other factors. The software then calculates input costs of production for each area of the farm, allowing farmers to gain insights on where to reduce spend and how to maximize output. Visualizing the farm on an iPad, smart phone or other device creates an ability to manage the farm, report financials, project future profitability, and address the issues other stakeholders want to understand, specifically relating to resource allocation and sustainability. AgriWebb integrates with existing and emerging IoT from remote satellite imagery to larger weigh scales through the AgriWebb Marketplace to contextualize on-ranch data into actionable information. Further, AgriWebb is the only provider working beyond the farm gate connecting ranchers, if they choose, to supply chains, advisors, and bankers, opening new opportunities for ranchers and improving their services from those they trust. Consolidation among the various providers in a very crowded field, both within individual countries and globally, and AgriWebb’s ability to both be profitable in its existing markets and fund international expansion make it a very attractive bet to become identifiable as the global leader, with both continued organic growth and making it an attractive acquisition for an agribusiness, technology, or communications giant.
EveryPig has developed software which helps veterinarians, managers, and farmworkers to oversee and communicate with all aspects of their pig operations all in one place. Described as “Facebook for pig farmers”, EveryPig centralizes and automates communications and enables the sharing of useful data across the farming operation. Over seven years EveryPig has collected 3 million+ Digital Checkups/Barn Records and helped reduce mortality from illness by facilitating real time recognition and responses to pig health challenges. Using artificial intelligence/machine learning with computer vision, EveryPig includes predictive software for health issues, recognizing up to 20 illnesses and predicting mortalities up to 7 days in advance (with 70%+ accuracy). Created by a pork producer to address global industry needs, it addresses practical issues such as automating antibiotic withdrawal period warnings and optimizing pig flow logistics. EveryPig fits all three of AgriTech Capital’s criteria for investing in 2023: Pathway to profits, ability to reduce costs and extend cash, and with lots of potential acquirers to exit.
Finally, an honorable mention to Zisk, which now has nearly half of US dairy cows on their profitability app. With a single click a producer can see what their farm profitability will be on a month-by-month basis for the next 12 months. Monetizing this kind of coverage always takes some unique brainstorming but building the mind-share of so many farmers is an achievement, and will certainly lead the founders to either business success or an exit in 2023.
Thus, AgriTech Capital’s outlook for 2023 tech investing is brighter than that of many observers- or more correctly it is for those who have at least two of the three criteria for success we have used:
· pathway to profits
· control of the burn
· clarity over the exit
If you know of other examples of agtech startups who show promise with these criteria, please let us know!