Is AgTech Ready For Consolidation?

Since publishing the first AgTech Market Map in mid-2015, I have seen a steady stream of new technology companies vying for a piece of the last technology frontier — agriculture. Reviewing AgFunder’s data through the lens of my more narrow definition of AgTech, there were approximately $663 million dollars invested in 139 companies in the first half of 2016. In recent months, I’ve also observed long-time ag industry incumbents and tech sector leaders alike, making moves that signal validation for the potential of connected devices, sensors, systems and analytics in the Food and Ag value chain. If the flood of new technologies is overwhelming for growers, ranchers and food producers, one can only imagine how dizzying this for those outside the food and agriculture industry.

With that as a backdrop I set out to create an infographic to organize the marketplace in order to aid producers, entrepreneurs, investors and sector watchers. This infographic captures tech-enabled solutions from the field through the supply chain. NOTE: This is not an exhaustive list of EVERY AgTech company or product. In fact, the companies represented on the Market Map are just half of the companies we are tracking. This is my attempt to provide a framework to highlight the most interesting technologies we are seeing in precision agriculture and post-harvest. For me, precision ag technology is hardware or  software that aids grower/rancher decision making and post-harvest technologies that enhance supply chain activities such as logistics, packaging, quality assurance, sustainability and collaboration.

For clarity and simplicity, I am only looking at AgTech, not Food Tech. While there is a strong linkage between agriculture and food technologies (particularly in the supply chain with an increasing demand for transparency), I am not including technology that aids the production or post-production delivery, marketing/communication, sales, presentation or service of food. FoodTech can also include consumer technology that supports the engagement people have with their food. To delve into that arena, I would encourage you to follow my colleague Brita Rosenheim’s excellent market map of Food Tech & Food Media trends report.   

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The anatomy of a market map

You will see that I have created a high-level subdivision of the market map into “In-field technologies” and “Cloud-based & Software-based Technologies”.

With IoT making a stronger appearance in the AgTech lexicon, I expanded the In-field technologies to include:

  • Adaptive irrigation and IoT monitoring platforms, a space with over 40 different platforms and ever more entrants; and
  • A distinction amongst aerial imaging solutions to highlight the differences between sensors, systems, analytics and services. Some solutions are capturing aerial images of agricultural land via satellite, drone or airplane, while others are analyzing those images to provide decision-support to growers and agriculture value-chain participants. Yet others are providing the important “picks and shovels” to make this imaging possible.

It’s also worth highlighting the continued growth in grower decision support tools, particularly visible in the livestock category and the expanding list of crop/farm management software players.

Notable additions amongst the existing cloud-based and software technologies included supply chain solutions, sustainability measurement, marketing technologies and a big increase in the number of traceability and collaborative platforms (e.g. marketplaces).

Bridging the middle of map, Internet of Things (IoT) and cloud-based technologies are coming together capturing interesting technology collaborations such as WinField (Land O’Lakes) and Google forming Data Silo, as well as newcomers to the map such as Verizon and the recent launch of an end-to-end IoT product for agriculture. These efforts represent a key evolution in AgTech market: heavy hitters are stepping in to address the data and connectivity challenges of agriculture and potentially allowing nimble start-ups to leverage more scalable and (hopefully) simplified platforms.

The evolution (and potential consolidation) of the market map

While significantly less than the multi-billion dollar figures often quoted, investors are still making meaningful bets that the opportunities in this market are tangible and will yield compelling returns.

Given that most of the returns in this segment will be driven by M&A exits (as opposed to IPOs), it’s useful to evaluate the relationship between the Technology Adoption Life Cycle (below) and the M&A cycle for a given technology segment.

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Technology Adoption Life Cycle

The key take-away is that it pays to be an early acquisition target at the top of the steep curve where a buyer is looking for a transformative technology  (and willing to pay a premium), or on the mid/later stage of the mass adoption curve where consolidation takes place and it pays to be a top company in a particular segment.

One thing is for sure, deal valuations tend to be lower in the trough where venture capital dries up and firms merge to survive. There is a clear scenario where investors cool on the AgTech market and this space starts to look reminiscent of cleantech venture funding. Certainly, the drop in corn and soy prices has crimped the wallets of those commodity growers and their ability to buy new farm equipment.  New AgTech solutions will need to meet the new cost/benefit equation for those growers.  In contrast, changing weather and labor conditions have altered the cost/benefit of technology adoption for fresh and specialty crop growers in California, so we may see more rapid adoption of AgTech there.  

When we consider the proliferation of point solutions available to growers to manage their input efficiency or sensor data or financial controls, and overlay that with the complexity (read, difficulty) for most start-ups to establish a scalable go-to-market strategy, how long will it take to start consolidating the increasingly crowded categories?  

As we look into the second half of the year and beyond, we’ll continue to scour the landscape to discover companies doing more to address the immediate needs as well as the challenges growers may not even know they have yet. For me, I look forward to seeing emerging companies in the less populated sweet spots where meaningful opportunities exist in logistics, marketing or supply chain visibility, efficiency and collaboration. If you know of a company or technology that you think we should include on the map, please me at Seana@MixingBowlHub.com

– Seana Day, October 5, 2016

 

Click here to download a copy of the AgTech Market Map

This article first appeared on Forbes.com where the Mixing Bowl is contributor.

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