Low-Hanging Fruit Gone, Ag & Food Tech Investors Pay More for Deals
[Updated 9/25/17, 5:18 pm. See below.] Food delivery startups are catching on with more consumers, and that demand is whetting investor appetites.
The $400 million that grocery delivery startup Instacart raised in March marked the largest deal for a U.S. food technology company in the first half of the year, according to new data from online investment marketplace AgFunder. San Francisco-based Instacart’s Series D round also led the way for California, which tops all states in deals made and dollars invested in agriculture and food technology startups.
Global investment in agtech and food startups totaled $4.4 billion in 369 deals during the first six months of the year, bucking the investment declines in the sector last year, according to the AgFunder report. It defines the agtech and food sector as technologies used on the farm, in the supply chain, by retailers, and by consumers. The report covers companies throughout the world.
Though the dollars invested represent a 6 percent year-over-year increase, the total number of deals declined by 27 percent. Among the factors AgFunder cites for the decline are investor fatigue in “me-too” companies across the ag and food tech sector, as well as a fall off in seed-stage investments. Seed deals declined by 37 percent. Nonetheless, the dollar value of seed-stage deals is on the rise. The median size of a seed-stage investment in the first half of the year was $535,000, up from $250,000 in the first six months of 2016. AgFunder says the increase tracks with trends in global venture capital investments and could also mean that a lean startup model does not work for all startups in the sector.
“While there are still significant green field opportunities, much of the lean low-hanging fruit may have been picked clean,” AgFunder says in the report. “Investors are going to have to get comfortable with larger seed investment rounds for opportunities that require more go-to-market capital.”
AgFunder says that the dollar totals reflected in its report were skewed by a handful of large deals. The biggest investment was the $1 billion that Chinese restaurant marketplace ele.me raised in a Series H round of financing. AgFunder classifies that company under the Restaurant Marketplaces category, which encompasses delivery of prepared foods. With $1.7 billion invested in 30 deals, that category was the largest for the first six months of 2017. Companies in the eGrocer category accounted for $788 million invested in 40 deals, making it the second largest category. Without Instacart’s investment, the eGrocery category would have shrunk by 31 percent.
Investors are continuing to bet on food delivery companies. On Sunday, Deliveroo announced it had raised $385 in funding which it would use to fund further expansion. The U.K. based startup, which says it offers food delivery services in 150 cities in 12 countries, told Reuters that the number of locations it delivers to has increased by 60 percent in the last year. [Paragraph added with Deliveroo funding.]
Meanwhile, consumers are influencing ag and food tech innovation in areas beyond food delivery. They’re demanding new technologies, such as track and trace capabilities that help make the food industry more transparent, according to John Dombrosky, CEO of Research Triangle Park, NC-based AgTech Accelerator. Speaking last week at Nagoya University’s AgBiotech Roundtable in RTP, Dombrosky said that farmers are also driving demand for new technologies. The average age of an American farmer is now 51, he said. As they’re replaced by younger farmers, the new generation will bring an entrepreneurial approach to farming that includes more technology. “The next five years will see more dynamic changes in agtech than the last 25,” Dombrosky said.
Developing new ag and food technologies requires a change in the model for agtech investing. Government support for life sciences research is heavily tilted toward human health, Dombrosky said. The National Institutes of Health dedicates approximately $32 billion in funding to medical research, Dombrosky said. By comparison, the U.S. Department of Agriculture’s entire $158 billion annual budget leaves just … Next Page »