The agrifoodtech sector, once a burgeoning field of innovation attracting significant venture capital, has hit a rough patch. Investment in agrifoodtech startups has plummeted to its lowest level in six years, raising concerns about the future of this critical industry. According to the freshly published AgFunder AgriFoodTech Investment Report 2024, this sector now accounts for a mere 5.5% of all venture capital sector dollars, a notable drop from the 6.7% in 2022 and even more so from the 7.6% in 2021.
In the days of pre and early-Covid, the agrifoodtech sector benefitted from inflated valuations and a surge in venture capital interest. However, the current investment climate paints a starkly different picture. Startups are facing down rounds, leading to dramatically reduced valuations. The average and median deal sizes have shrunk, and there’s been a noticeable freeze in early-stage dealmaking. This slowdown can be partly attributed to founders holding onto high valuation expectations, but in some instances, the market correction has arguably overshot its target.
The case of Beyond Meat is emblematic of the broader trend within the industry. The plant-based company, which trades on the Nasdaq stock exchange, has seen its valuation dwindle to just 1x revenues. This is a significant departure from the 3x-5x revenue multiples typical of acquisitions or publicly-listed consumer packaged goods (CPG) companies, and even further from the 8-10x expected for tech enterprises.
Venture capitalists, who often rely on the revenue and earnings multiples of publicly listed companies to model potential outcomes for early-stage investments, are now viewing valuations with increased scrutiny. As Rob Leclerc, founding partner of AgFunder, pointed out in a recent communication to investors, even a $15 million valuation for a Seed or Series A startup may now seem excessive.
Investor interest in areas like foodtech and alternative protein has waned significantly, despite the attractiveness of the opportunities. These categories had previously drawn generalist investors to the agrifoodtech sector, but with the current spate of downrounds and failures, these investors are retreating. The investment landscape is further complicated by the disappearance of some of the first agrifoodtech venture capital firms, which have struggled to raise follow-on funds.
While the current scenario may appear bleak, it also presents a unique opportunity. The downturn is forcing new companies to adopt leaner business models and more realistic valuations, which could ultimately lead to a healthier market. AgFunder, for instance, has closed its largest fund to date, indicating that there is still investor interest in well-positioned agrifoodtech ventures.
Despite these challenges, the underinvestment in agrifoodtech seems incongruous when considering the vital role food and agriculture play in the global economy. These industries contribute at least 15% to global GDP, employ over half the world’s workforce, and are responsible for a third of greenhouse gas emissions. The lack of substantial venture capital exits in the sector, which are desperately needed to stimulate investment, may partly explain the cautious approach of investors.
As we navigate through 2024, the industry is bracing for what may be a painful period, especially for more mature agrifoodtech companies. However, this could also be the year that lays the groundwork for a more robust and sustainable agrifoodtech ecosystem. The question remains: has the market correction been too severe, and what will it take to rekindle investor interest in agrifoodtech? These are the pressing questions facing an industry at a crossroads, as it seeks to align its critical importance with the financial backing it requires to innovate and thrive.