Wary of sector | Venture capitalists need help understanding how to invest in agricultural technology, says fund manager
CALGARY — Investment money is pouring into agriculture but precious little is spilling over into innovation, says a venture capital firm.
The run-up in commodity prices driven by soaring global demand for food has caused a dramatic spike in investor interest in agriculture.
Pension funds and insurance companies are investing heavily in farmland, farm operations and agriculture infrastructure.
“Those groups are chasing the real assets,” Ronald Meeusen told delegates attending the Agricultural Biotechnology International Conference held in Calgary Sept. 15-18.
“But when you get to technology it stops.”
When Meeusen started Cultivian Ventures LLC in 2008 there were 850 active venture capital funds operating in the United States.
“The number that focused exclusively on food and agriculture technology was, depending how you define it, either two or zero, which was stunning to me,” he said.
One impetus for all the new investment in agriculture was a 2012 report from the Food and Agriculture Organization of the United Nations stating that the world would need to produce 100 percent more food by 2050.
The FAO report went on to say that 70 percent of that increased food production would have to come from new technologies.
“If the 100 percent number is driving this massive investment shouldn’t that 70 percent (number) be driving investment in new technologies?” said Meeusen.
“The simple answer is no. It has hit a real roadblock.”
For every 10 or 20 deserving projects one will get funded. There has been a big uptick in corporate investment by seed technology companies but the private sector is steering clear of agricultural technology.
Meeusen thinks it is partly a cultural thing. The general public still thinks of agriculture as a collection of small family operations.
He came to that conclusion after searching an online picture database for an image to run on Cultivian’s web site.
“I typed in ‘high technology and agriculture’ and it came back with zero hits. Zero out of seven million pieces of artwork,” he said.
He simplified the search by using the words ‘technology and agriculture’ and it came back with pictures of Eli Whitney’s cotton gin.
Another knock against the sector has been the bad investment experience in agriculture’s clean technology industry. Investors lost a bundle on companies like Amyris.
But the biggest reason for investor hesitation is that they lack the skill set to properly assess investments in agriculture technology.
A person with a masters of business administration degree understands buying farmland or a dairy operation because it involves the familiar process of analyzing profit and loss and cash flow statements.
Investments in agricultural technology are made at the pre-revenue stage. There are no financial statements to pore over.
Instead, investors need to know the target market and the unmet needs of that market.
“You really need to understand an industry deeply to know what’s missing, not just what’s there,” said Meeusen.
It took two years and knocking on over 200 doors for Cultivian to raise the $34 million for its first fund. It was a tough slog even for a guy who had led the first field trial of a GM crop trait and helped develop some of the world’s first insect and herbicide resistant corn hybrids.
Despite the tough sell, Meeusen remains optimistic because there are strong signs of investor interest in the sector. Once his first fund closed he started receiving calls from other venture capital firms with $2 to $3 billion under management wanting to co-invest with him.
“These were big names and they were calling us. The message was the same. It was, ‘we’ve been watching (agriculture) for a while. We’d like to get involved but we recognize it’s different,’” he said.
Meeusen started keeping a log of the calls. He is now up to 48. There is no doubt that funds are eager to invest in agricultural innovation but they need somebody to help them navigate through the sector.
He believes agricultural universities have a role to play in that regard. They have a track record of forming relationships with seed and grain companies to license innovations.
But they have done a poor job of reaching out to venture capitalists to help form start-up companies.
Meeusen said some of these firms manage hundreds of millions or even billions of dollars that could be invested in agricultural technologies.
He also urged scientists attending ABIC 2013 to consider moving over to the “dark side” because the financial industry desperately needs their expertise.
“I’d encourage you not to dismiss the possibility of a career shift and starting to work with some of these venture funds. We really need their dollars,” said Meeusen.