This article was first published on Israel Desks
How lucrative are the food-tech and ag-tech markets?
- Which sectors within food and ag-tech are attracting the big money?
According to a recent McKinsey study, recent growth in VC investment was particularly transformative for the Food and AgTech sectors. Approximately 20 times more capital was invested in new Food and AgTech ventures in 2021 than 2012, whereas VC investment in the overall market grew approximately 11 times over. Alongside other tech vehicles, the sector has experienced a slow down since its peak in Q1 2022.
The key drivers behind the growth are a variety of factors, including shifting consumer habits and needs, COVID and climate change factors, as well as a greater variety of exit options for Food and AgTech companies.
Vertical farming is one of the more popular areas of AgTech investment now. The burgeoning industry is supported by leading venture capitalists, most famously seen in Softbank’s $200 million Series B investment in vertical farming start-up Plenty.
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. Indeed, food security was listed as a priority area for cooperation between Israel and Abraham Accords countries as part of the normalization deals that took place in 2020.
Israel and hot jurisdictions
- What is Israel’s particular value in this sector?
- Which other jurisdictions are hot right now – where are clients looking and why?
Israel is a Food and AgTech powerhouse for several reasons, including government support and lessons learned by the ecosystem due to shortage of natural resources which drove innovation in this sector long before it came onto the global agenda. Over recent years, as these sectors have gained global prominence, we have witnessed a move toward data-enabled technology and IoT, where Israel is an established player. The range of Israel’s Food and AgTech innovation capabilities is broad and varied, including soil and plant sensors, cutting-edge swarming drones, autonomous robots, plant genetics platforms, cultured meat, alternative proteins, smart irrigation, and big data analytics software.
Interest by investors has sparked development of new technologies in major economies with large territorial areas such as China and Brazil.
Opportunities and challenges in financings and transactions in these sectors
- What are the opportunities? What are the obstacles?
- Are there unique aspects to consider when structuring such transactions?
Venture capital investments into Food and AgTech start-ups plunged in 2022 amid rising interest rates and questions over their business models, raising the prospect for industry consolidation and increased M&A in the year ahead.
Despite this year’s fall in funding, investments were still 20 per cent higher than in 2020 after a particularly buoyant 2021.
Companies in the two sectors raised just under $30bn in 2022, down 44 per cent from a year before. The drop was driven by declining investment volumes into food and grocery delivery start-ups and in Europe, excluding food and grocery delivery, growth in investments in Food and AgTech start-ups even remained flat.
A key feature of many Food and AgTech transactions is the significant role played by regulatory regimes imposed by food law in different jurisdictions.
Government support
- How supportive is the Government in these sectors?
- What programs are in place to support domestic and international clients in this industry?
Many governments in developing countries attempt to foster agricultural development and innovation by setting up funding facilities, extension programs, and research centres and by subsidizing private-sector and farm activities through fiscal measures.
The United Arab Emirates, for example, is investing heavily in AgTech, seeking to make Abu Dhabi the global centre for innovation in agriculture. Their focus is on vertical farming, aquaculture, and hydroponics. And they’re working to be strategic in attracting investment and solving for food security, while also developing a knowledge economy.
In Israel, The Ministry of Agriculture and the Israel Innovation Authority awarded grants totalling approximately NIS 9 million in 2022 to six selected start-ups that will ensure continued regular supply of agricultural products.
Similarly, various state and government entities support Food and AgTech companies throughout their life cycle. This needs to be considered and analysed on a country-by-country basis. In the UK, for example, the Government has announced a further £16.5 million to drive innovation in agriculture. Funding will be divided among the successful applicants of two competitions: the £5.5M Feasibility Projects competition, and the £11M Small R&D Partnership Project competition.
Active players
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Which VC funds, investors and buyers are present in these sectors?
- Which companies and funds are active, from your perspective or personal experience?
- What publishable deals have your firm seen?
In terms of VC funds, in the US, particularly active funds in AgTech are SVG Ventures, the Yield Lab, S2G Ventures, Cavallo Ventures and Ag Startup Engine – all invested in over 15 AgTech transactions in 2022.
Meanwhile, in Europe, 2022 saw Paris-based Capagro, the first European independent VC fund dedicated to Food and AgTech, launching a €200 million fund. Other European prominent investing in this space includes Five Season Ventures, Astanor Ventures, Future Positive Capital and FoodLabs. There is also a rise in numbers of specialised VC funds.
Taylor Wessing has advised the Kleffmann Group, one of the world’s most important market research companies for agricultural products, on the sale of Kleffmann GmbH to the British company Kynetec, a world leader in market research for agricultural and animal health.
Opinion
- Where do you believe this market is headed?
Food and AgTech funding may be down year-over-year, but it remains historically high, and we believe it will stabilize. Recent years have seen an increase in investments in start-ups in earlier stages of the value chain and we believe that this is likely to continue.
Food and sustainability remain high-priority areas for a number of investors, particularly those with environmental, social, and governance (ESG) agendas, as evidenced by a less severe decrease in global sustainable assets when compared with the broader market and the repurposing of funds toward ESG.
Considering a rising focus on ESG topics and a political focus on food security a lot of countries are looking to attract innovation and investments in the Food and AgTech sub sectors. Therefore, we expect that the market will continue to grow.
