Welcome back to the Agrifintech newsletter!
💭 Navigating the turbulence
In this issue I want to look at the funding environment briefly with some data I've gathered.
Also some thoughts on news from
📣 Fractal Ag
📣 Updates from Captain Fresh, Nature Metrics, Steward
First up, will you be at World Agritech in London?
If you would like to book some time that week, just respond to this email with some time suggestions and we can go from there. 😁
Please do come along to the session below on 27th to discuss digital financial services and draw on thoughts from Bayer, Munich Re, Oxbury, Ucrop.it and Sandbox Industries.
Navigating the turbulence
Venture funding has inevitably slowed down. This has been compounded by rumours of major investment writedowns, with Indigo Ag news, getting a lot of attention in recent weeks, which is likely to move to other VC backed companies in future.
So, where are we? Is Agrifintech as a sector in trouble?
Not really, this is happening across all sectors but there is a healthy debate happening about the future of venture funding.
I don't want to opine on any specific companies as I don't know enough, but rather share some things I've learned in the past 12 months which shape my thinking.
❶ Tech and software has its limits. When I wrote previously about Blockchain, I sounded a sceptical note about its prospects in Food and Agriculture. Why?
It really only works for fully digitised sectors or value chains. I don't think there are any of these in food or ag, or any real world vertical for that matter. Hence, we see a lot of innovation around anything generated by code such as images, gaming or even currency.
The bits and atoms of physical value chains require something different. But let's expand those limits with things like IOT or API connections.
❷ VC funding. I've run some numbers from the companies I track and it isn't pretty but it's actually OK.
The half time call report for 2023 was $427m of investment (i.e. to the end of June). That compares to $751m in 2022 and $239m in 2021.
There have been some announcements since then (below), some yet to be announced but also some great companies that may not make it to the end of the year.
I like researching these numbers but am too aware of their limitations. Behind the scenes tells a different story, with an encouraging uptick in corporate VC activity. The partnership and ecosystem shuffling excites me more.
❸ Value beats volume.
We talk about value chains, not volume chains, and figuring out how to capture value is sooo important.
If we 'unbundle the corporation' we can get three distinct business models.
Customer - centres on customer relationships, driven by share of wallet and value.
Product - develops innovative products and services, driven by a combination of volume and premium pricing.
Infrastructure - build repetitive operational tasks, driven by volume.
Where do you think your business sits? What about Food and Ag as a whole?
I would say the sector is dominated by volume with some, but not many, opportunities for premium pricing. Agtech is aiming for Infrastructure with some Product plays.
Agrifintech successes tend to be Product and Customer focused, veering more towards share of wallet by adding value. Fractal referenced below are a good example of this.
There are some infrastructure opportunities, but you could count them on one hand and some of the spots have already been filled. Again, Bushel below, are a case in point, but with their payments capacity are aiming for share of wallet.
Share of wallet means understanding and accessing some financial data and why I think fintech models are so important for any agtech company.
As usual, I'd love your thoughts on this.
📣 Bushel $26m oversubscribed
Bushel announced a $26m oversubscribed round last month and it was great to see existing investors - mostly corporate VC's - back the Fargo company. It was even more notable to the round was led by a dedicated Fintech investor, the Banc Funds Company.
The BFC have backed mainstream Fintech names such as Lending Club but also core banking technology provider Nymbus and Banking as a service (BaaS) provider Synctera.
⦿ Nymbus recently spoke about their ambitions in the Agriculture market and were reportedly discussing tie ups with lenders earlier this year for a banking product aimed at millenial farmers.
⦿ BaaS is also one strategy component of embedded finance, a theme I believe will become increasingly relevant for Agrifintech.
⦿ Rabobank are one well known financial investor in agrifintech but other banks and funds such as BFC are starting to join them. 👀
⦿ It is also a clear statement of intent. I've observed a few Fintech investor led rounds in the agrifintech space, such as Stable and Acretrader, who went on to develop more regulated offerings such as Insurance and becoming a registered Broker Dealer respectively. It is likely, we will see Bushel continue to develop their payment capacity and possibly feature some other products.
In short, the Banc Funds Company are joining some exciting dots here.
Farmland investment is getting funky and I love it. It is still going to be a huge field. 😉
Fractal formally launched its equity financing platform last week. Their model allows producers to expand their land by accessing growth capital for purchases by releasing a minority portion of their existing holdings for cash.
Fractal then receive some rent on this portion, plus appreciation over the medium term, which they can pay to their own investors.
One notable feature is their sustainability thesis, which they back by giving discounts for qualifying practices such as in season nitrogen and no-till.
⦿ It seems like a lot is happening in this space currently with innovation in the tools available for investors and farmers (e.g. FBN and AcreTrader) but also in structures such as this from Fractal and some other option type products recently coming on the market.
⦿ Farmland values have been growing strongly in recent years with ultra low interest rates, so one challenge for these products may be withstanding any stress in valuation once existing medium and long term financing begins to reprice in coming years.
⦿ One of the darlings of Indian Agrifintech, Reshamandi, has been in the news as struggling to recover bad debts.
The quantum discussed is sizeable - if my calculations are correct - this is in the region of $250-300m which is a huge amount for any venture backed company.
The devil is in the detail and I'm not sure how this debt is structured i.e. if it relates to secured or unsecured facilities or even if the retailers referred to are upstream ag retail or downstream buyers of silks or yarns.
⦿ Captain Fresh raised $20m to expand its markets to Europe and the U.S. Captain Fresh is active as a farm to retail platform in fish, seafood and ... checks notes... sheep.
⦿ Naturemetrics raises £10m to expand its biodiversity eDNA technology.
⦿ Crowdfarming business Steward "are seeing multi-million dollar allocations from family offices who want to move capital towards climate solutions such as regenerative agriculture".
And that is everything this week folks - did you enjoy? I'm always here for some feedback.
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