Looking toward the future of AgTech investing

Investors target agriculture because of its size, importance and potential for innovation. Agricultural technologies (AgTech) specifically have drawn growing interest as the industry seeks to modernize and solve widespread challenges, like labor availability.

But even as agriculture looks for the next big innovation and investors seem ready to fund ambitious new projects, a “valuation reset,” where farmer and investor timelines were out of sync in the early 2020s, have made collaboration harder to navigate.

As startups attempt to make the next big stride in innovation, investors seek out profitable ventures and farmers manage their daily operations, here are three core takeaways defining this era of AgTech:

Investors must spend meaningful time learning about agriculture

Aside from valuations, industry knowledge is a common point of contention between investors and farmers, going in both directions.

Farmers and AgTech companies with deep knowledge of production agriculture understand crop return cycles, labor woes and other common issues plaguing the industry. This may be a learning curve for investors seeking to break into the space.

For example, a private equity investment firm with multiple successful exits in the consumer services space may be familiar with a five-year cycle time, where they can buy, sell and profit from a portfolio company in half a decade or less. Agriculture financials tend to operate in 10-year intervals, due to the year-to-year volatility of weather, pests or prices that make yields unpredictable.

This longer period travels up the ladder all the way to investors, which can cause misalignment between those who are “boots on the ground” and those who are looking at the profit and loss statement from the top down.

Labor continues to be a key issue among agriculture producers

We consistently hear that if farmers had to list their top three issues, they’d be: 1) labor, 2) labor, 3) labor.

There just aren’t enough people to work on farms, which is why robotics, automation or other AgTech products aimed at cutting down on labor needs is the top priority for many farmers.

One reason that many AgTech products can’t pass the finish line is that they address issues that aren’t pertinent to farmer needs. If you’re interested in making a product that farmers swiftly adopt, focus on solving the labor issue.

The definition of AgTech is ever-changing

An interesting question for any stakeholder involved in AgTech is how do we actually define this space?

While AgTech seems straightforward, technology can vary wildly. Is gene editing in the same world as automated robotics? How is satellite imaging related to nanotechnology?

Similarly, what defines agriculture? Can green energy innovations have enough overlap with agriculture to be considered part of this space?

Investors will benefit from opening the parameters to what technologies can have a meaningful impact on agriculture, because it allows them to explore a variety of new business models and products with food production top of mind.

Next steps for AgTech stakeholders

Feeding the world is a challenging yet necessary task. The biggest winners in AgTech investing will be those who listen to their farmer, investor or product development partners. Understanding different perspectives leads to financial creativity and better product tuning, eventually promoting widespread adoption.

To learn more about AgTech, contact Kacey Toews at (336) 217-9147 or kacey.toews@charlesaris.com.