Agri-tech startups are changing production dynamics, but who is making money?

In the previous article on the food industry, we had talked about the sea of innovation underway as consumer tastes and preference rapidly in favour of veganism. But that is hardly the only strand of innovation taking place closer to food production. ‘Upstream’ start-up, which implies, the ones closer to farms, are making waves too.

According to a UBS report, global funding to upstream agri-tech startups grew by over 40% from 2017 to 2018 to $7bn. This is a little over 40% of the total funding garnered by agri-tech startups during the year, with the rest going into downstream ones. The largest proportion of this funding is going towards late stage funding, suggesting that some degree of maturity is already visible in these startups. This is not to suggest that newer startups are not to be found in the segment. The contrary is the case if anything.

New wave natural produce

These upstream agri-tech companies are themselves of three basic kinds in terms of the nature of products and services they provide – production of newer natural products, production support technology and business support for upstream agri-tech companies.

Relatively new companies in the business of production include the likes of Scottish Bioenergy, which was founded in 2010 in Edinburgh. The company grows spirulina, which it uses to produce food colourants and also as a food supplement to be sold to consumers. As consumer make more conscious choices, moving away from artificial colourings to natural ones, demand for the company’s products is likely to increase.

It is anticipated that the industry will be valued at $500m by 2020, a 10x increase over the past five years. If it is any indication of the industry, and indeed the company’s value, it had an over-subscribed funding round two years ago. It’s had two funding rounds so far, according to Crunchbase, with the last one in 2018, which raised £2m for the company, from Kelvin Capital that was also a seed investor and Oghma Partners.

Environmentally sustainable technology

But production-based agri-tech companies are hardly the only ones gaining investor attention. Companies providing technological support to agriculture are mushrooming fast, and with innovative technology that’s also environmentally conscious.

Consider the instance of Rootwave, founded in Warwickshire in 2012, which eliminates plant weeds without the use of chemicals. This not only promotes sustainability but is also in line with consumer demand for chemical-free food. It has raised £2.5m so far from an agri-tech focused accelerator and Horizon 2020, the European Union’s funding programme for innovative solutions for sustainable growth.

LettUs Grow is another production support technology provider that has managed three seed funding rounds so far, raising £1m from UK government’s Innovate UK grant and Bethnal Green Ventures, an early-stage venture capital firm focused on companies that are using technology to solve social and environmental problems. The Bristol-based company provides irrigation technology for greenhouses and vertical farms. Its unique selling point is the improved production, using far less water than traditional agriculture and zero pesticide usage through its aeroponic grow beds.

Farms get business support

There is a fair bit of concentration on the third type of companies as well, that is, the ones providing business support to agriculture. In fact, some of the best funded agri-tech startups can be found in this segment. For instance, companies like London-based Farmdrop, which delivers ‘organic groceries and ethical home essentials’ to consumers, and has raised £21m is at one end of the spectrum.

At the other end are comparatively fledgeling startups like Provenance, which are making companies’ supply-chain transparent in terms of their environmental impact to allow consumers to make educated choices about the products they buy through technologies like blockchain. The London-based company’s raised $1.2m in five funding rounds, with Merian Ventures and Digital Currency Group as its most recent funders. While the former focuses on female-founded technology startups, the latter invests in bitcoin and blockchain-based companies.

Somewhere between Farmdrop and Provenance is KisanHub in terms of funding received. The Cambridge based firm has raised $7.7mn so far in four rounds from Sistema, Calibrate Management, IQ Capital and Notion. With annual estimated revenue at $2.2mn, the firm provides agriculture intelligence for aspects like supply chain, harvest tracking, weather monitoring and irrigation services. It claims to enable 25% gains in field management’s time.

And the companies outlined here are the tip of the iceberg. There is much innovation taking place across various aspects from aerial imaging to robotic technology, from precision application to crop input development and a specific focus on bettering the business model. It is estimated that between 2019-25, the global agri-tech market will grow at a compounded annual growth rate (CAGR) of 18% according to research provider ResearchandMarkets.com. It is not hard to fathom that growth will continue to sustain beyond this period given the changing demands of the consumer as well as greater emphasis on sustainable growth.