Global population growth, climate change, water and land scarcity, and shifting consumer preferences are driving the need to revamp food systems at every stage, from seed to table.
Against this backdrop, AgTech – the application of technology to all stages of farming – is gaining traction as an investment area. “Agriculture has historically been viewed as a mature industry, but we are now seeing significant technology-led innovation across the sector,” says Jed Lynch, Head of Americas, Sustainable & Impact Investment Banking at Barclays. “As a result, we’re seeing a noticeable increase in high-growth startups, venture funding, M&A activity and public-market interest in this space.”
Agriculture represents a nearly $8 trillion industry globally, according to the World Bank1, so the application of advanced technology in this sector has potentially profound implications: for the planet, for people and for investors.
In this 3 Point Perspective, the Sustainable & Impact Investment Banking team looks at AgTech innovation and funding across the crop production and investment ecosystems.
Cheaper, better technology is disrupting every stage of crop production
Food production is one of the oldest industries, but thanks to the application of new technology, some very profound changes are happening in the sector, ranging from better performing seeds to novel indoor farming techniques.
“Enabling technologies, such as smart sensors, predictive analytics, automation and CRISPR gene editing, are becoming cheaper and better, and most importantly, are affecting not just one area, but virtually every stage of crop production,” says Lynch.
Gene sequencing holds the key for seeds that are more resilient, flavorful and nutritious. Bio-based fertilisers are quickly becoming a more cost-effective and efficient alternative to phosphorous-based products. Cloud computing and big data offer better insight into where and when to plant, water and harvest. Novel production techniques, such as vertical farming and hydroponic greenhouses, are less resource intense and bring fresh food closer to consumers. What’s more, the Internet of Things (IoT) offers better analytics and automation.
Applying technology to every stage of the crop production lifecycle
Venture capital is both an indicator and a driver of innovation in agriculture
The application of such technologies through the entire crop production lifecycle has captured investor interest. AgTech is moving from a nascent category to a growth one in part due to venture capital investments: more companies are seeking funding; more VC funds are focusing on AgTech; and deals are increasingly larger and in the later stages. In 2020, median deal size increased 27% and 17% respectively for growth and late-stage rounds.2
AgriFoodTech startups raised $24 billion in the first half of 2021, according to AgFunder, and are on track to break the record $30 billion raised during 2020.3 While these figures include a broader segment of food production, fundraising for startups focused on production (downstream) overtook consumer-facing startups (upstream) in 2020 and is on track to do so again in 2021.
Private capital is pouring into AgTech
Source: AgFunder “2021 Set to Break New Record for AgriFoodTech Investment”; AgFunder 2021, 2020, 2019, 2018 AgriFoodTech Investment Reports
Note: 2020 has a predicted total investment of $30.5bn and 3,093 total deals. It typically takes 12 months for the Agfunder to fully account for the full deal flow. 2021 data excludes information released after “Break New Record” report and Chinese data.
“These numbers are notable because agriculture historically has not been a venture sector,” says Lynch, noting that innovation has primarily been the result of research and development spending within the largest established companies. “As more AgTech companies are established and some reach unicorn status, it sets the scene for still more startups and funders focused on the space.”
Public-market investors have a growing appetite for AgTech
While it’s still early days, AgTech is capturing attention in public markets as well. Over the last couple of years, a new crop of mutual funds and exchange-traded funds focused on AgTech have been introduced. At the same time, ESG-focused investors are increasingly adding sustainable agriculture to their investment universe, further broadening the potential investor base and spurring innovation.
The last year has also been marked by increased M&A activity, as well as traditional IPOs and SPACs tied to this theme.
Public-market investors have a growing appetite for AgTech
Source: Pitchbook, public filings and sources.
Note: 2021 data covers 1 Jan – 29 Sept 2021.
With successful exits comes more capital––and seasoned founders––for new ideas, venture funding and deals. Lynch and the Sustainable and Impact Investment Banking team expect to see increased financing and deal activity in this sector in the near and mid-term.
1 World Bank “Do the Costs of the Global Food System Outweigh Its Monetary Value?” https://blogs.worldbank.org/voices/do-costs-global-food-system-outweigh-its-monetary-value
2, 3 AgFunder “2021 Set to Break New Record for AgriFoodTech Investment” https://agfunder.com/research/2021-AgFunder-agrifoodtech-investment-report
Jed Lynch is Head of Americas, Sustainable & Impact Banking at Barclays. Jed joined Barclays in 2008 and previously worked in equity capital markets and debt capital markets, focusing mainly on power and energy. Jed advises positive-impact companies, which are businesses with a product or service that addresses an environmental or social challenge, on capital raising and corporate strategy. He also works with large-cap companies on sustainability strategy and continues to build out awareness of the ESG themes for clients across the firm. Prior to Barclays, Jed worked for Lehman Brothers and graduated from Yale College with a double major in Economics and International Studies.