Investing With A Consumer Lens In Agrifood Tech

There’s a lot to be optimistic about in the world of agrifood tech investments. According to AgFunder’s Agrifood Tech Investing Report, investment in the sector was $19.8Bn in 2019 (after a record $20.8Bn in 2018), and new funds being raised would indicate that interest in the sector continues to grow. Agrifood tech is no longer a niche sector that gets attention only from industry experts – generalist investors are coming to play. Softbank and Temasek wrote the largest checks in the space in 2019, and generalist accelerators/investors like SOSV, YCombinator, 500 Startups and TechStars are now dominating agrifood-specific players in sheer numbers of investments.

Anecdotally, there is increasing interest from generalist VCs who are incorporating climate chain solutions into their theses. Food and ag account for 24% of GHG emissions, globally, and as such, these sectors are increasingly common elements of climate-change focused funds.

In more ways than not, the increased engagement of generalist investors in agrifood tech is great – more dollars invested should enable more shots on goal to fix the worlds’ most pressing problems. At the same time, it raises questions about the consequences of having people who are very far removed from our agrifood systems influencing the future of the sector.

Consumer-Lens Investment Is Increasing

To demonstrate the imbalance in the way that investors view agrifood innovations, I’ve broken “agrifood tech” into two groups of “categories” (as defined in AgFunder’s Agrifood Tech Investing Report – 2019 – see Figure 1): those that are apparent through the “Consumer Lens” of agrifood tech, and those that are visible through the “Agricultural Lens” agrifood tech.

(Author’s Note: AgFunder breaks these categories according to supply chain stage (Upstream, Midstream, and Downstream) throughout their report, and that breakdown is displayed here in Figure 2 for reference.)

As displayed in AgFunder’s Agri-food Tech Funding Report – 2019, a vast majority of dollars invested are going to “Downstream” investments, defined by AgFunder according to the diagram below. “Upstream” investment barely changed in 2019 (about $100m increase from 2018.) 

AgFunder’s categories are re-categorized Consumer Lens and Agricultural Lens according to the following specifications:

Consumer Lens: Technologies with the potential to solve for problems that are apparent to those who buy or market food (consumers.)

  • eGrocer
  • Cloud Retail Infrastructure
  • Restaurant Marketplaces
  • In-Store Retail & Restaurant Tech
  • Innovative Food
  • Novel Farming Systems
  • Online Restaurants & Mealkits
  • Home & Cooking

Agricultural Lens: Technologies with the potential to solve for problems that are apparent to those with a working knowledge of the agricultural production system.

  • Midstream Technologies
  • Ag Biotechnology
  • Farm Mgmt Software, Sensing & IoT
  • Agribusiness Marketplaces
  • Bioenergy & Biomaterials
  • Farm Robotics, Mechanization & Other Farm Equipment
  • Miscellaneous (to be generous, I included this here)

In 2019, more than 2x as much investment was directed towards Consumer Lens ($13.8B) investments as was directed towards Agriculture Lens ($6.0B) investments (see Figure 3.)

What are the consequences of “Consumer Lens” dominated investment?

Consumers are an extremely diverse group. Cleantech venture capital investors (who are also consumers,) aren’t nearly as diverse. As Richard Kerby beautifully highlights in his oft-cited Medium post, investors tend to be wealthy, white men educated at elite, coastal, urban or suburban institutions. Most of the schools that breed Venture Capitalists don’t even have agricultural courses, let alone extension opportunities.

Assuming that consumers are all going to behave like or even relate to Stanford or Harvard grads is like factoring in sweet corn prices for all maize related technology. In reality, yellow dent #2 and the 99% rule, and the rich people who think about their food choices and the heirloom kernels are outliers. (Did that corn reference go over your head? Here’s Wikipedia’s Corn Production in the US to start your crash course.)

Consumers are complicated. The elite urban investor consumer is far from the norm. Investing in things that cater to the Whole Foods shopper influences food systems in a way that doesn’t necessarily serve the masses.

It’s also worth asking ourselves about the consequences of “success” for some of these investment types. What if alternative proteins and indoor food production and ghost kitchens become the backbone of our food system? What does that mean for grasslands preservation and energy/material requirements and the unquantifiable knowledge creation that occurs over shared meals?

Can consumer-lens investment actually change our food systems? Is demand on one end enough to force change to a deeply entrenched supply chain, or is it necessary to have a deeper understanding about the “push” opportunities upstream?

If climate change is a concern, we desperately need to be investing in the sector that is both a huge contributor and, more optimistically, that offers one of the most realistic opportunities for sequestration. We have to be looking at ways to improve the resiliency of our food supply chains in wake of climate change exacerbated disruptions. Farming is hard. Supply chains are complicated. People might want a carbon credit system today, and consumers seem to be willing to pay for “sustainable” products. Farmers want diversified income streams. But guess what – we still can’t agree upon a way to uniformly and reliably measure soil carbon in a way that makes sense.

There is a need for continued and increased investment in improving our agrifood systems. Non-niche investors have a very important role to play in driving our food systems in a better direction. Only about 2.6% of the US population is directly employed in agricultural production, while 100% of the global population consumes food/fiber/fuel. In order to change the way that our agrifood systems work, it’s necessary to understand the way that these systems currently work, and that means that consumer-investors need to make decisions through an agricultural filter at least some of the time.

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