Ag Tech Sunday - Australian AgTech: Opportunities and challenges as seen from a US venture capital perspective

By: "Farm Tender" News
Ag Company News
Oct 13, 2018
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Executive summary

Innovation in agricultural technologies, or AgTech, is rapidly changing the world’s least digitised industry.1 Unprecedented global investment in AgTech reflects this growth, having quintupled from US$309M in 2013 to US$1.5b in 2017.2

The implications of these changes for Australia are immense. While Australia’s venture capital market has expanded substantially in recent years — having doubled in total size from 2016 to 2017 alone — it invests dramatically less in AgTech on a per capita basis than most developed nations like the United States, where per capita investment in AgTech is nearly 50 times the size of Australia’s.

Australian agriculture is expected to make further inroads into export markets around the world and become a A$100 billion industry by 2030 — matching the country’s mining and construction sectors — but these ambitions cannot be met without further AgTech investment.

“Australian agriculture is expected to make further inroads into export markets around the world and become a A$100 billion industry by 2030 — matching the country’s mining and construction sectors — but these ambitions cannot be met without further AgTech investment.”

This report, the first of its kind, analyses the volume, value, and makeup of AgTech investment in Australia. It puts it in the context of the United States and provides insight into both how AgTech is developing as a new sub-industry and the broader venture capital market in Australia.

Key findings

Australia’s AgTech investment market is small, at an early stage and not keeping pace with global peers

Open-source research into AgTech investments in Australia determined that whilst there has been an explosion of investment activity, the majority of investments are early and small value. In 2017, for example, 80 per cent of all investments were less than A$1m, with most being government grants and accelerator programs.

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Higher value and later-stage investments — the critical sorts of funding that allow companies to scale — are largely absent from Australia’s AgTech market. This is leading to a growing disparity between Australia’s AgTech market and global trends, where there is a clear shift towards larger investments.

A breadth of AgTech segments of interest and increasing investment opportunity

A survey conducted in collaboration with the Australian Private Equity and Venture Capital Association (AVCAL) attracted a dozen responses and enabled some comparison with US AgTech venture capital firms (VCs).

Australian investor interest was highest in digital agriculture segments of precision ag software, ag marketplace, and sensors. Segments with the lowest level of interest were novel crops, feed, and animal genetics. However, Australian investors indicated interest across a broad set of AgTech sectors.

Australian investors are seeing an increase in investment opportunities compared with perceptions of the US AgTech investors, where almost half view investment opportunities as constant or decreased over the last 24 to 36 months.

Australia has strengths to draw upon and challenges to overcome

A series of interviews with VCs making investments in AgTech — five of which are included as case studies interspersed throughout this report — brought out important insights in comparing the AgTech investment markets of Australia and the United States.

The venture capital ecosystem in the United States is mature enough to allow for the emergence of highly specialised AgTech VC firms, leading to generalist firms carving out mandates for AgTech. The lack of AgTech VC firms in Australia means this combination of extensive experience in agriculture, in tech start-ups and in venture capital is missing.

Australia’s agricultural public R&D infrastructure is seen, both locally and internationally, as indispensable for the development of a strong Australian AgTech sector. Furthermore, AgTech venture capital firms in the United States see immense value in the Australian agricultural environment as an AgTech testbed.

Policy recommendations

* Research and development: Create incentives for multinational agricultural corporations to establish major R&D operations in Australia. This would stimulate diversification of AgTech segments of focus and leverage Australia’s public R&D sector in agricultural sciences through collaboration with industry, to build commercialisation capability.

* Investors: Create incentives for sophisticated investors from overseas to open offices in Australia, particularly venture capital firms with domain experience in AgTech. This would stimulate an increase in Series A and later-stage investment flow in the sector as well as transfer domain-specific expertise to the Australian investment community.

* Technology investment hubs: Stimulate the establishment of technology-specific incubators and accelerators to create tight-knit, globally-connected investment communities around technology-specific expertise. This would allow AgTech companies in niche technology areas to access the right investors more easily and to develop confidence within the general investor community around these technology areas.

Download the full report here