What is Driving Increasing Investment in AgTech Sector

28 February 2022 Blog
Author(s): Andre Thiollier
Published To: Foley Ignite Innovative Technology Insights

The AgTech sector has not historically been a hotbed for investment. It was seen as an industry unlikely to yield significant returns. But that is changing. A recent Crunchbase article highlights the significant investment pouring into AgTech startups over the last year and what might drive this new industry interest.

Crunchbase data showed 5 billion dollars over 440 funding deals to VC-backed startups in the AgTech space in 2021. That is compared to $3.3 billion over 422 deals in 2020. In just the beginning of 2022, there has already been $1 billion invested in AgTech startups. One of the significant investments in 2022 so far was the $400 million Series E investment in the farming startup Plenty, which has now raised over $940 million since 2014.

So, why are investors suddenly putting their money into the AgTech space? Crunchbase points out a variety of factors driving this, including shifting consumer habits and needs, COVID and climate change factors, as well as a greater variety of exit options for AgTech companies.

Consumer habits, particularly amongst millennials, are shifting. Consumers are more concerned with what they are eating than ever before. They are looking at the issue of how food tastes and the nutritional qualities and sustainability.   This is especially true for millennials who are increasingly focused on how food is produced, leading companies to look for innovative ways to produce food, such as genetics, fermentation, and vertical farming.

Vertical farming is one of the more popular areas of AgTech investment now. It involves growing food on different levels that stack one on top of the other. This leads to water and land conservation and allows for a reduction in chemicals used in food production. All these factors are more important to consumers today, leading investors to notice.

The COVID 19 pandemic has impacted just about every aspect of our lives, and food production has been significantly affected. We have all seen empty grocery store shelves as the pandemic has wreaked havoc on the supply chain. In response, many countries are opting to increase food production to improve food security. That need for food security and increased food production is also in response to the more significant issues we are seeing related to climate change.

Investors are also seeing more opportunities for liquidity investment in the sector. AgTech startups have typically had to rely on an acquisition by a larger corporation as their exit strategy. But public markets have become more receptive to AgTech, and SPACs and IPOs are a greater option for startups in this space today. When there are more exit options, there is traditionally more interest from investors.

This interest by investors have sparked development of new technologies in major economies. With large territorial areas China and Brazil are typical examples.

The economy of China has moved away from manufacturing to homegrown development in the last several decades. E-commerce, unmanned aerial vehicles, and artificial intelligence are tangible areas of growth.

One example of this phenomenon is in Shanghai-based Vert City Farm’s use of facial recognition software to monitor goats.

Using AI to learn goat behaviors and test computer prediction models, Vert City Farms can identify specific symptoms of disease in goats, which allows for the prediction of factors like an individual's goat weight, projected output capacity, and so on. China’s expertise in AI research could foster other AgTech applications such as agricultural operations productivity, crop predictions, and specific nuances in the agricultural supply chain.

The AgTech sector is also booming in Brazil. The number of Brazilian startups focused on tech agribusiness grew 40% in 2020 compared to the previous pre-pandemic year, according to the Radar AgTech Brazil 2020/2021 report , a document prepared in partnership by the Brazilian Agricultural Research Corporation EMBRAPA, the Ministry of Agriculture, Livestock and Supply, the venture capital fund SP Ventures and the consultancy Homo Ludens. Brazil has over 1,500 tech-based companies with focus on creating solutions for the sector. The on-farm solutions represent 71% of all stages of the production chain in which these startups operate.

Companies such as Agrolend and TerraMagna providing the financial backbone to farmers at minimal cost compared to traditional finances, or Arisolus which applies AI to poultry farming, or yet EcoTrace, a blockchain-based end-to-end traceability platform ensuring reliability, security, and transparency throughout the supply chain, are just tiny examples of how vibrant the AgTech solutions are in one of the world’s largest producers of agricultural and livestock goods.

This vibrant AgTech ecosystem in Brazil has recently attracted large investment funds to the space such as recent investments made in the sector by Valor Capital and others.

With already $1 billion in investment so far in 2022, investment in the AgTech sector shows no signs of slowing down in the world. We are continuing to track this area as more investors seek to capitalize on this fast-growing area.

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