More interest in agrifoodtech as VCs warm up to impact investing

Singapore

SECTOR-AGNOSTIC venture capital (VC) firms are getting more interested in impact investing, said panelists at the Future Food Asia conference, which explored challenges and opportunities in Asia's agriculture and food space.

But in general, agritech and foodtech startups in Asia still struggle to get funding, and the building of the ecosystem will need swift action from three stakeholders: the public sector, the VC firms and the startups.

As VC firms try to address some of the challenges in the food and agriculture space, part of their investment focus inevitably gets shifted to impact investments, said Victoria de la Huerga, vice president of ADM Ventures. ADM Ventures is the venture capital arm of Archer Daniels Midland, a US-based global commodities and processing company.

Pam Marrone, chief executive and founder of Marrone Bio Innovations, which is in the business of pest management and plant health, noted the trend of companies and institutions becoming more particular about measuring their environmental impact, such as carbon footprint. She pointed out that having an ESG (environmental, social and governance) edge to investments is more a established phenomena in Europe compared to other parts of the world. "But that is the future," she added.

Though VC firms are warming up to impact investing, agritech and foodtech startups seem to be developing faster than the rate of capital flowing in. Hemendra Mathur, venture partner at India-based Bharat Innovation Fund and founder of non-profit platform ThinkAg, said agrifoodtech startups have not raised much venture money in the past five years, compared to startups in other sectors.

He did note, however, that that significant capital was raised in the last six months alone. "So we're seeing some sort of inflection going on with the Accel Partners and the Sequoias of the world looking at this sector."

To accelerate the growth of agrifoodtech, governments should provide "catalytic capital" at seed stage to help startups get to the proof-of-concept (POC) phase and become "VC-ready".

"That can change the pipeline for VC firms. Not all the startups will succeed, but it can do a lot of good for the sector," he said. This type of capital must come with lower expectations of returns. "But the good thing about the sector is that most of the models are frugal by nature because the entrepreneurs know that capital is hard to come by."

VC firms also need to relook the way they evaluate startups, when it comes to agrifoodtech. Nicole Tee, senior consumer adviser at Singapore-based Openspace Ventures, said: "When we looked at agritech and foodtech, we realised that we had to change the way we screen startups a little bit because when you look at traditional e-commerce platforms and SaaS (software-as-a-service), at Series A and B, you do tend to have a good runway of a couple of years of revenue traction. But with agritech and foodtech companies, even at Series A, it tends to be more of POC and R&D and so on."

Openspace hence looks at metrics such as whether the companies have demonstrated improvement in yield, efficiencies and productivity over time.

To this end, startups also need to be creative in how they collect data, because "if it's hard for you to collect data, it's also hard for us to fund you," said Ms Tee. For instance, business-to-consumer firms that are using traditional retail channels can incentivise shoppers to scan products with an app. This provides a way for the company and the VC firm to track who is using the product, and for what purpose, she noted.