Agrifood tech funding is down but not out, according to these leading VCs
At first glance, AgFunder’s Global AgriFoodTech Investment Report makes for pretty bleak reading, showing a 44 per cent drop in investment in the sector in 2022 compared to 2021. But beyond the headline figures, there’s a more nuanced story to tell – and looking forward, it’s not all bad news.
The AgFunder report found that $29.6 billion was invested into agrifood tech startups, globally, in 2022, down 44 per cent from $53.2 billion in 2021. However, 2021 was an outlier and record breaker, with investment up a massive 85 per cent on the previous year, inflated by: macroeconomic factors; mainstream interest in the sector; and a few very-big-ticket deals driving up numbers.
Total investment in 2022 was still up slightly on 2020, showing a trend that’s moving in the right direction, despite a few bumps in the road.
The COVID-19 pandemic exposed issues in global supply chains, with border closures and shipping disruption causing both food shortages and wastage.
“We started to see money coming into the sector as investors realised we have these massive problems in the food system, and technology is the only way we’re going to fix them,” Michael explained.
“That’s really what led to the boom in 2021 – massive figures that we hadn’t seen before.”
Early 2022, saw the invasion of Ukraine, and an uptick in global inflation.
“Confidence just drained out of the market, and we started to see a real cliff for VC investment,” Michael said.
Unfinished businesses in agrifood tech
Looking at the quarter-by-quarter breakdown of agrifood tech funding, globally, Sarah Nolet, co-founder and general partner of Tenacious Ventures – Australia’s first dedicated agrifood tech venture capital (VC) firm – said the pattern reflects global investment trends more broadly.
“It does go to confidence,” she said. “It’s not anything in particular about agriculture and food.”
Agreeing with Michael, Sarah highlighted the impact of global events in exposing serious issues around supply chains, climate resilience and consumer expectations.
“By no means have we solved those problems. Those tailwinds will continue to drive more innovation.
“Yes, market confidence is lower, but there’s no shortage of areas where we need solutions. You don’t have to look too far to see droughts and floods and hailstorms.
“We need new tools for resilience and agility throughout the whole value chain. That’s going to take research and development, on-farm innovation and venture funded solutions.”
Agrifood tech funding in Australia
In Australia, investment in agrifood tech totalled $245.7 million in 2022. In line with global figures, that’s down 42 per cent on 2021. But it’s up 10 per cent compared to 2020, and up a massive 200 per cent on 2019.
“The trend is going up. We’re moving in the right direction,” Michael said.
“Looking at the ecosystem as a whole, it’s becoming incredibly robust, and looking really, really healthy.”
Deal value skewed downstream, towards consumer-facing startups such as eGrocery, online restaurants and meal marketplaces, Michael noted.
However, we’re seeing increased focus on the mid-stream – that is, the supply chain between producers and end consumers.
Again, Michael said this is something that has drawn VCs’ interest since the onset of COVID-19.
“How do we get supply chains working in a way that is going to provide clarity and get things delivered on time in a way that is completely sustainable?”
Cultured meat startup Vow and animal-free fats startup Nourish Ingredients showed there is still interest in the innovative foods space locally.
And despite a drop-off of interest in the e-grocery segment globally, the biggest deal closed in Australia was super-fast delivery startup Milkrun’s $54 million raise in early 2022.
Who’s investing in Australian agrifood tech?
Looking at the top five deals in Australia in 2022, Sarah noted that at least four of them attracted capital from outside of Australia. Investors in the fifth – AgriDigital’s $17.8 million raise – were not made public.
“That [international capital] previously wasn’t the case,” Sarah said.
“At the first evokeAG. only a couple of years ago, we really only had local investors, investing in Australian agrifood tech. Now, that’s absolutely not the case.”
The 2022 deals included generalist, climate-focused and agrifood tech-focused VCs; family offices; large corporations; and even Australian superannuation funds.
“That diversity of funding is also pretty representative of what we need in the sector,” Sarah said.
And it’s this diversity that Tenacious Ventures has attracted in its investors, which range from farmers to family agribusinesses, and also includes two Australian corporate agrifood companies.
She and Michael agree, however, that there’s room for improvement where Australian corporates are concerned.
“There are some really powerful research and development tax credits available in Australia, and I would love to see a percentage of that granted to corporates to invest in early-stage venture funds or even startups,” Michael said.
Across its funds, AgFunder has a dozen or so large food and agricultural corporates as limited partners but none of them are Australian, he explained.
“I would love to see more activity from corporates in Australia … that would really stimulate the ecosystem.”
What’s next for agrifood tech funding?
In the immediate future Michael doesn’t see agrifood tech investment picking back up to 2021 levels. In fact, he predicts that the rest of 2023 will be “pretty lean”.
But it’s not all doom and gloom. During the 2021-21 period, a lot of VCs raise a lot of capital that they have yet to deploy. That means there is a bright future ahead.
“We just need the market to come back from a confidence perspective,” Michael said.
“I think we will start to see things picking up, if not later this year, then certainly early in 2024.”
Despite tough market conditions, Sarah also predicted agrifood tech startups will continue to attract VC funding, but more sources of funding will come into play.
“Not just equity funding,” she said.
“There will be project finance, there will be debt, there will be other types of capital … that can help to fund that growth path.
“At evokeAG. 2024 and beyond we will be talking about a much more mature ecosystem of finance, that provides more optionality and less dilution for founders,” said Sarah.
Michael Dean and Sarah Nolet participated in a fireside chat at evokeAG. 2023, taking a look at the year that was, including an exclusive preview of the AgFunder Global AgriFoodTech Investment Report 2023, and their predictions for the year ahead. Download the full report here.
evokeAG 2024 will take place in Perth, Western Australia, on 20 and 21 February, 2024. Until then, catch up on other conversations from evokeAG. 2023, on sustainability, climate resilience and the role of agrifood tech innovation here.