Un-manured money in animal agtech

Prime Future 93: the newsletter for innovators in livestock, meat, and dairy

Last week was the Animal Agtech Innovation Summit held on the front end of the World Agritech Innovation Summit, which is largely focused on non-livestock agtech.

With a livestock lens, here are 7 takeaways:

(1) Many things in life fall into a normal bell curve distribution…startups do not.

There are a lot of really uninteresting startups and a few really really interesting startups. Since animal agtech companies are largely still super early stage, the dimensions that divide the un and the interesting are pretty basic: problem being solved, product, business model, team, vision, etc.

There are the many startups that are just noise (so.much.noise). And there are the few fantastic startups that could radically improve the livestock, meat & dairy business.

But....

(2) ....the same is also true of investors. There is a lot of money investing in ag, that doesn’t know ag…especially animal ag.

Venture investing is risky. Venture investing in a nuanced space without respecting the nuances is really risky.

According to AgFunder's newly released Agrifoodtech Investment Report, venture capital into ‘agrifood’ increased 85% from $27.8 billion in 2020 to $51.7 billion in 2021. AgFunder further divides into upstream investment (farm to processing), which grew from $15.8 billion in 2020 to $18.9 billion in 2021. AgFunder does not segment the Upstream category into crop vs livestock solutions but I expect livestock funding follows a similar growth trend, albeit smaller than the crop category.

On the one hand, this growth in capital is fantastic news for the category. More capital = more innovation.

Except, a lot of the money is being managed by folks in their standard VC Patagonia vest who've never been on a farm or had their boots covered in cow/pig/chicken 💩💩💩 or heard first hand all the dynamics that livestock producers are navigating. That's a problem.

Some might be tempted to call this dumb money, but let's call this 'un-manured money'.

The cynical view is that too much un-manured money means the wrong companies get backed, and the market gets oversaturated with zombie startups that won’t generate venture returns because they won’t create real producer value.

If investors then start to believe they can’t win in the category, then future capital might not flow into the category and it will go to ClimateTech or FinTech or some other hot category.

And if early adopter producers have negative experiences, then the target market grows skeptical. (Ask any mid-large row crop farmer what it was like 2014-2019 when they were getting daily calls from inside sales reps from the 10th farm management software company.)

And yet, the optimistic view is that regardless of the capital source, more venture capital means more companies get backed and more innovation flows to livestock, milk & meat, and even if only a small fraction of companies that get backed are solving legitimate problems and could have a shot at creating meaningful impact, well there's still a shot at meaningful impact. So the net result is positive for the industry.

(3) There’s a lot of dogma in agtech investing.

Traceability, regenerative, etc. Which of these will prove to be actual market opportunities and which will turn out to be overhyped & untested investor assumptions? TBD.

But I get really nervous that folks have lost the plot when people stand on a conference stage and say with a straight face that consumers want to pay more for food.

Are some consumers willing & able to pay more for food produced with specific attributes & claims of production practices? Absolutely.

Are all consumers willing & able to pay more for food? Absolutely not. And to assume so is to be embarrassingly out of touch with the reality of the majority of humans on the planet.

(4) Start with the customer and their problem and work back.

Start with the customer and their problem and work back.

Start with the customer and their problem and work back.

Early stage animal agtech companies that have this kind of mantra on repeat will be the winners…the rest will struggle.

One of Amazon's disciplines is that at the start of product development for any new product, the team writes a press release as if the product were being released today. The press release has to frame the product in terms of benefits to the customer. That press release is aggressively iterated until the product vision is clear.

There are a lot of early stage agtech companies that could benefit from this exercise.

(Related: no one cares about your technology for the sake of technology that sounds cool…I’m looking at you, blockchain.)

(5) The myth of the hoodie wearing 20 year old wunderkind founder is not the rule in broader venture, and it's really not the rule in ag.

"Mark Zuckerberg launched Facebook at the age of 19, but this is the exception rather than the rule when it comes to successful founders. Most successful founders in the United States have tended to be over 40 years old when launching their company. As of 2018, the average age of the top 0.1 percent of startups in term of growth was 45 years."

Given the complexities of livestock, the most effective animal agtech founders are those that either know the problem they're solving because they've worked directly in it, or because they've invested the time to know the problem as well as their customers do. That's when magic happens.

(6) The number of livestock & dairy focused startups feels significantly higher than it was even 2-3 years ago.

But the number of startups working on solutions for meat processors seems flat. I think MeatTech might be the 3rd wave of innovation after agtech and animal agtech.

(7) Animal agtech is still so, so, so early.

The Animal Agtech event is actually only a few years old and although it’s growing, it has less than half the attendees compared with the longer running World Agritech event. The evolution of the two events mirrors the two distinct waves of innovation in that agtech innovation for crops is about 7-10 years ahead of animal agtech in terms of funding, maturity, scale, impact.

Almost by definition, the majority of tech companies working in livestock are early stage companies.

There aren’t venture-backed animal agtech companies that have IPO’d, who’s quarterly earnings can be analyzed. There’s no rumor mill about which animal agtech companies are about to IPO. Unlike their counterparts in broader agtech that are raising Series F & Series G funding rounds, the most mature of animal agtech companies are still at the beginning of the alphabet. The category is just early.

That earliness shows up in the still relatively small number of companies, and especially  in the smaller still number of companies that have reached product-market fit. A producer who looked at the category today might be skeptical since many animal agtech companies are still in their Wilderness years. And yet, I think that’s how the broader agtech category felt circa 2012.

If the pattern holds, then by 2032 the animal agtech landscape will look completely different from today, in the best of ways.

No news flash here: I'm bullish on the category and excited to see high impact animal agtech companies grow in the next decade.

What a time to be alive 😉

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