The funding journey for agtech startups has been a turbulent ride lately, and it’s not solely due to the broader macroeconomic climate impacting most industries. Agtech itself has unique challenges that have contributed to slow adoption and limited exits over the past decade, says Mark Brooks, Managing Director of FMC Ventures. While some argue that the venture capital (VC) model isn’t well-suited for agtech, Brooks believes it’s here to stay, albeit in a transformed state over the next decade.
FMC Ventures, the venture arm of the US-based agrochemical company FMC, was launched in 2020 and has since backed a range of startups including Traive, Agrospheres, Niqo Robotics, and Trace Genomics. Brooks, a former academic and ex-Syngenta Ventures professional, recently discussed various topics with AgFunderNews, from generative AI to the investability of biologicals, and the future landscape of agtech VC.
When asked if agtech’s funding drought is solely the result of macroeconomic factors, Brooks responded, “It’s a little bit of both.” He pointed out that while venture capital across all categories is currently experiencing a downturn in terms of deal flow, dollars invested, and valuations, agtech has its own set of challenges. Over the last decade, around $30 billion to $40 billion of venture capital has flowed into agtech, with very few significant exits to show for it. “The exits that have occurred are weak compared to sectors like pharma,” Brooks noted.
He attributes this partly to the unrealistic expectations set by the Silicon Valley mindset, which anticipated quicker exits and faster growth than is feasible in the agtech sector. “Agtech is slow compared to other categories of innovation. The adoption curve is not particularly steep, and the exit landscape is small,” he said.
Despite these challenges, Brooks is optimistic about the role of venture capital in agtech. “I can’t think of a single type of innovation that will have more impact on the future of our planet and food security,” he stated. He believes that while big incumbents are good at core operations, they are not as adept at disruptive innovation, which is where startups excel. Venture capital provides the necessary runway for these startups to succeed, something that traditional bank debt cannot offer.
Looking ahead, Brooks predicts a significant shift in the profile of agtech investors over the next decade. He expects fewer ag-specific funds and more impact, sustainability-focused, and ESG funds entering the space. “This will help de-risk portfolios,” he explained. Corporate venture capitalists (CVCs) like FMC Ventures will play a more crucial role. “We understand the space, the go-to-markets, the channel dynamics, the regulatory stuff. Our parent companies could potentially be acquirers,” Brooks added.
When discussing the investability of ag biologicals, Brooks was cautiously optimistic. “Short answer, yes — with several caveats,” he said. He outlined a framework for what makes a biological company venturable, highlighting the need for a novel mode of action, effective delivery technology, and robust data capabilities to target the right genes. “A lot of what I see is companies that have one or maybe two of these elements, but not all three,” he observed.
Brooks anticipates more mergers and roll-ups of startup companies in the coming years to combine these capabilities. For instance, a company with excellent data capabilities but lacking delivery technology could merge with another that excels in delivery but lacks data analytics.
In conclusion, while the agtech sector faces unique challenges and a slower adoption curve, the future of agtech VC looks promising with a shift towards more specialized and knowledgeable investors. As Brooks puts it, “The next generation of venture capital in agtech will be more informed, more sustainable, and ultimately more impactful.”