Last month, I had a conversation with another CEO of a digital ag company about venture capital, mergers & acquisitions, and adoption rates in agriculture. The notion arose of how relatively little investment is devoted to ag compared to other sectors, with the familiar weary sense that this was an essential consequence of slow adoption cycles by farmers.
Heading home, I had to wonder: How much less venture investment is
there in the ag sector? And is that really driven by slow on-farm adoption?
I’m just an agronomist (!) so I hadn’t spent a lot of time thinking about agtech as a vertical relative to other corners of the economy — but I have spent some time around the world. I lived a few years in the geographic center of Nowhere, Kazakhstan, where you see paper currency dating back years
in age, no doubt still circulating slowly, reluctantly, and with deliberation in that village. I also spent a few years in San Francisco, where I’ve seen people literally throwing new bills at each other, sometimes in derision, other times up in the air in ecstasy. The ease with which people part with their money displays a sense of how likely they are to get it back. The conversation got me wondering, where on the map between Kazakhstan and San Francisco does agtech investment fall?The Velocity of Tech Investment
Let’s take pen to paper to dig a little deeper. Defining a certain velocity as a rate (say, turnover per year) divided by a pool (say, total amount) will give us e-folding time (or, units 1/time). What is the velocity of the venture market in ag versus, say, the pharmaceutical industry?
We could slice this two ways: (1) from the perspective of the total dollar value of investment relative to the industry, or (2) to the total deal flow in the venture and M&A markets. Some statistics from 2016:Ag: $1.9Bn / $3.4T (excluding food e-commerce) = 0.06%Pharma: $9.2Bn / $1.2T = 0.9%Relative velocity: pharma 15x agtech
By this measure, agriculture is a Soviet village, while pharma is San Francisco, cycling money an order of magnitude faster. Why are people throwing dollar bills at biotech? Let’s check out the M&A activity in 2016. What’s the likelihood of a return in life sciences instead of agtech?Agtech: 2 exits / 580 deals = 0.0034Pharma: 193 exits / 544 deals = 0.35Relative velocity: pharma 100x agtech
Wow! Even though agriculture has more total deals than pharma and biotech, about a third of life science deals have some exit, whereas less than a hundredth of agtech companies have exits with some significant multiple. Perhaps some of that can be driven by the level of consolidation in the industry; whereas pharma has close to 200 players according to McKinsey
, there are just four
(or three, depending how you count) big seed and chemical companies in ag, and just six
big equipment companies (of whom only Deere shows a big interest in technology).
Yet what people usually point to is the long, slow adoption cycle of technology by farmers. I’m not so sure.A Tale of Two Farmers
The last month was a puzzler for those who study the tea leaves of agtech. Granular announced a big deal with Planet Labs. Sid Gorham, the CEO, had a great quote in Wired:
“A lot of people assume that farmers are tech-averse. I would say they are tech-impatient.” By the end of the month, a different well-funded tech startup all but ran out of money, ostensibly from lack of traction for its imagery product.
My question here is: are farmers really slow adopters, or is that just a myth?
For at least twenty years, Purdue University and CropLife magazine have conducted a survey
to dealers about their provision of precision ag services and the usage of these offerings by their customers. The earliest technologies considered were precision soil sampling and GPS yield monitors, and subsequently have encompassed satellite imagery and tractor chlorophyll mapping.
The adoption curve for technologies over time is generally modeled as a sigmoid curve that starts off exponential, and then diminishes as the market is saturated: