The Future of Ag Biotechnology
What Makes this Category So Attractive for Food & AgTech Investors?
The team at Idea 2 Scale recently collaborated with AgFunder on an excellent project called the Food & AgTech Investor Sentiment Report, where they spoke with top investors across the industry to summarize their outlook on key trends and insights for 2020. This year, I was asked to share some of my insights into the state of the biotechnology sector of agriculture and wanted to share some of my thoughts that were published in the report.
Before we get started, I think it makes sense to define what “ag biotechnology” actually is. There are several definitions that have been used, but I agree with Louisa Burwood-Taylor’s interpretation that ag biotech “applies to all technologies used on the farm involving biological or chemical processes”. Several categories of technologies from plant breeding, seed genetics/inputs to microbials/biologicals and animal health all fall under the ag biotech umbrella.
With shifting consumer preferences towards fresher and more sustainably grown food, a spotlight has been placed on biotech products such as fertilizers, pesticides, antibiotics and genetically modified crops. Consumers are now demanding more sustainable and environmentally-friendly versions of these products, which has created significant market opportunity for innovation among up-and-coming startups trying to compete with the incumbent ag biotech corporations (i.e. Corteva Agrisciences, Syngenta, BASF, etc). This is also driving significant investor interest in the space — the report says that 58% of investors surveyed chose Ag Biotechnology as the category they are most excited about for 2020, which just inched out Innovative Food (56%), a sector that is still riding the wave of optimism caused by the recent success of companies like Beyond Meat and Impossible Foods. It is also interesting to note that IOT and Sensors came in third on this list of top categories to invest in; I have begun to see companies like Olombria take the approach of merging biochemicals and data capturing devices together into one solution. This may be an indicator that we will begin to see more startups creating services that blurs the line between biotech, innovative food, and connected devices.
So what do I think about the future of ag biotech? This leads me to the two questions that I was asked to give my opinion on in the report (p. 11):
Why do you think there is such interest in this space from investors at present?
Ag Biotechnology is a fascinating space. On one hand, it’s an area of ag with high barriers to entry, long periods of time from idea inception to commercialization, significant regulations and challenges with market adoption. But the industry is also likely to grow 10%+ each year for the next few years. With consumer preferences shifting very sharply towards fresher and more nutritious food, biologicals, inputs and seed genetics will really help to modify plants for better yield and higher nutrition. Furthermore, ag biotech solutions can have significant upside to farmers from an environment/climate change standpoint. Right now, there’s a significant movement around carbon sequestration and putting carbon back into our soils. A lot of the innovation that will help achieve this will come from the biotech side with new fertilizers, pesticide alternatives, soil health and plant growth solutions.
What are some key technologies and opportunities emerging in Ag Biotechnology?
There are significant ag biotech solutions that could really make a difference for farmers and growers. Seed genetics to grow disease and pest-resistant crops with higher yields and more nutritional capacity is currently a high adoption technology among farmers. Nutrient supplements for crops in the form of specially formulated microbes and biostimulants will also see increasing adoption as the mechanisms for delivery become more sophisticated.
To conclude this analysis, I want to take a brief moment to explore how barriers to global investing will affect the growth of ag biotech.
The ag biotech industry is growing rapidly, and enough consolidation has happened in the space over the past few years (i.e. Bayer’s acquisition of Monsanto in 2018, Dow and DuPont Pioneer’s merger in 2017, Corteva’s split from DowDuPont in 2019, etc) to give ag biotech startups a boost in confidence towards building their companies towards getting acquired by one of the incumbent large corporations. However, this report extrapolated another interesting data point that founders in the space should be aware of:
66% of Investors identify ‘Route to Market’ as the biggest reason founders struggle in agri-foodtech
I think a major contributor to this challenge is the significant regulatory threats that ag biotech startups face. Regulations are stringent and oftentimes controversial. There are many political and regulatory forces that are shaping the ag biotech industry and affecting the speed with which a biotech startup can commercialize and go to market. An example would be the regulation of CRISPR gene editing technology across several industries, which mandates that any genetically engineered products be safe for humans, animals, and the environment. These regulations also introduce rules and standards for techniques to use such technologies, which can also affect the overall R&D expenditures, economies of scale and product development of a startup. You can imagine that when the U.S. Department of Agriculture chose not to regulate a new mushroom genetically edited by CRISPR-cas9, controversy ensued, which has since made it significantly more difficult for other gene-editing startups in the ag biotech space to de-risk their business and scale up. If you really get into the weeds of FDA, USDA and EPA regulations, you’ll see the web of rules, definitions, tests and other processes that goes into receiving approval for a new product. Regulatory challenges can be a huge headache for biotech startups.
Another contributor to the high barriers to entry in the industry is the background of the founding team. Most ag biotech founders come from research, science or other technical backgrounds and are more suited to a Chief Scientist or Director of Product role than CEO or COO. Many of the founders I come across in the ag biotech sector have never built a company, taken a product to market or otherwise had to put on a sales, strategy or operations hat. This lack of experience in key business competencies makes it challenging for teams to effectively grow the company and sell to farmers, growers and other stakeholders.
Jonathan is an investor and startup mentor dedicated to helping impact-driven entrepreneurs scale and grow their business. This year, Jonathan was invited to be a speaker at the Forbes Under 30 Summit, was selected as part of the 2019 AgGrad 30 Under 30 class and is a member of the NationSwell Council, an invite-only cross-sector community of service-minded leaders and innovators who are tackling the nation’s most critical issues. Jonathan has a BA in History from Rice University and an MBA from the Johnson School at Cornell University.