Throughout 2014 and the first quarter of 2015, the agriculture sector continued to see significant interest from institutional investors with increases in activity from both growth and venture capital providers. One of the most active areas for investment was in the agriculture technology (AgTech) segment, which, according to AgFunder, saw $2.36 billion in investments across 264 transactions during 2014.1 The spread of transactions represents a focus on early stage companies and a pivot from past mega-deals, with many investors now placing multiple bets across the industry. Context believes several important trends can be discerned from the activity in 2014 that will continue to impact the market in 2015:
- Strong Big Data Interest: Investors have allocated capital across the big data spectrum, with software and hardware providers both generating significant interest from investors during 2014. Combined, the Decision Support Technology, Smart Equipment and Hardware, and Drones and Robotics subsectors received $370+ million of funding across 75 deals during 2014, or approximately 15% of total AgTech funding.2
- Muted Impact of Weak Commodity Cycle: the pricing pressure experienced across agricultural commodities in 2014 did not dissuade investors from pursuing transactions and may have actually created a buying opportunity in the market for many institutions. This trend may seem counterintuitive in the agriculture sector, but reflects past behavior from institutional investors. Weaker commodity markets allow for more investment due to more moderate valuation expectations.
- Interest and Investment Across Value Chain: While data has been a key theme in agriculture, there are still many uncertainties. Where will data processing and ownership rest? Which participants, both in the sector and potential new entrants, will be most successful at creating and capturing value? What will be the structure of the next iteration of data based solutions? These uncertainties have caused investors to allocate capital across the value chain in an effort to retain exposure to all sectors with high potential, even those outside of the “data” vertical. According to AgFunder, during 2014 ten subsectors of the AgTech market received at least 5% of the invested capital, led by Bioenergy at 16%, Food Ecommerce at 16%, and Soil and Crop Tech at 13%.3
A few trends suggest investor interest will continue through at least the end of 2015.
- The recent increase in macro demand evidenced by increasing allocations to the agriculture sector by institutional investors shows no signs of immediate slowing.
- Micro interest themes continue as well with a specific focus from strategic and institutional investors on improving yields.
- Lastly, increasing technological leverage or the scalability of technology being applied to the agriculture sector promotes additional investment.
Provided by Context Senior Consultant, Dan Creagh.
1 AgFunder, AgTech Investing Report – Year in Review 2014, March 3, 2015
3 AgFunder, AgTech Investing Report – Year in Review 2014, March 3, 2015