Ariel, great explanation, which definitely will open the eyes to those not familiar with the sector. In my opinion the driving factors for change are going to be technology (especially digital), climate change, generational change and having access to innovative financing solutions. Your point "2" is a consequence and a need of the fore-mentioned factors. Developing technology is not that of a big challenge, it is more the implementation and proving that this new technology (including new processes/ag concepts) really generates the benefits to the farmers at first. And it is actually this point which creates this tremendous hurdle for all of us who are active in agro. To overcome it it requires a lot of people skills and patience. Many investors and startups think that they can jump over this hurdle with just putting more money into the business, but it won't. So with regards to Fernando's comment and your answer I think that there is little chance that the investments made into ag-tech companies will generate the payouts necessary for the investors. I do think, however, the likelihood of success is much higher for the ones like FBN, indigo, Bushel, Apollo Agriculture. Honestly, I was positive on ag-tech/digital agtech companies until I saw the IPO filing of Farmers Edge - not anymore.
Thanks so much Manuel for your insightful comment! Definitely agree that generational change will have an impact and that’s a topic I’m excited to explore in future editions. Innovative financing is really interesting — are any innovative financing solutions that you are bullish on today? The launch of Bushel Wallet this summer was a really exciting step to see, but I haven’t heard of as many others, so am curious to learn more.
And I hear you on the Farmers Edge IPO! While they haven’t performed well since the IPO, I do think it has helped advance the rest of the AgTech industry to recognize that digital solutions targeted directly to farmers without an outstanding ROI is not a winning formula. There’s a lot of factors to tweak for (hopefully) a better outcome for future AgTech players: the route to market is critical to get right (e.g., AgVend and Bushel have both taken a different route than direct-to-farmer), digital can be combined with other physical products and services instead of standalone, and it’s no longer a question that companies must demonstrate ROI if they want to succeed — all good lessons!
I really like how you showcase examples of consolidation in each step of the value chain. I'm curious what you think the effects of this consolidation will be for start-ups - does that consolidation limits their exit/growth opportunities and forces them to be acquired, or is there still a viable path for startups to remain independent in this landscape?
Thank you Fernando! This is a fantastic question — the level of consolidation in the Ag Value Chain definitely impacts both the growth and the exit options for a start-up. For start-ups jumping in the fray to sell to any of these segments where a few household names own the majority of the market, it’s a double-edged sword. On one hand, each new customer acquired can really move the needle on growth quickly. On the other hand, if you make most of your bucks from just a handful of customers, investors call that “concentrated revenue” and it’s something they typically don't like due to the increased risk if one of your key customers bails. It certainly seems like the large majority of the start-ups that have exited recently have chosen the acquisition route instead of an IPO (but whether that is because of economic conditions, their specific segment, or because of this consolidated Ag Value Chain, it’s hard to say).
For those start-ups that choose to sell to the less consolidated segment of farmers, there are a whole host of other challenges like selling to a customer base that is very spread out geographically (and many more that you and I lived through in our days marketing software to farmers 😅). Janette Barnard ([Prime Future](https://primefuture.substack.com/p/can-farmer-facing-agtech-startups)) did a really insightful piece on IPO considerations for farmer-facing AgTech start-ups last year that still holds true today. With several AgTech companies reaching Series F and G rounds of funding (e.g., Indigo, FBN to name a couple), perhaps 2023 will be the year we see what types of exits are possible for AgTech startups beyond lackluster IPOs or acquisitions!
Fernando, part of the answer to your question depends on the way in which the start-up is financed. If it's VC, the operators of the business have close to zero say about their future. If it progresses on to PE, not much changes except the time frame. Both groups have a mandate to exit. Sovereign wealth funds and family offices (sometimes one and the same) set their own rules, essentially acting as both the general partner and the limited partner.
wonderful - thank you Ariel. I'm currently looking to make the jump from CPG in Europe, into ag-tech, so your substack is proving an extremely valuable primer! keep up the good work. Rory
Thank you so much for this article Ariel. This is exactly what I needed! From your understanding are there any big differences between the Ag value chain between the US and Canada?
Ariel, you might want to consider a few more circles on the left side depicting soil, water and nutrients? Or maybe as the basis for the whole endeavor?
That’s a great question! I use them interchangeably, and also think of Supply Chain as specific to an output (e.g., a supply chain for fresh turkey) whereas I have been using Value Chain more broadly to reflect the processes used for several agricultural goods
This is great. Loving your recent articles!
Ariel, thanks so much for writing this. As someone who transitioned into this with no food/ag background, I wish I had this on day 1.
Ariel, great explanation, which definitely will open the eyes to those not familiar with the sector. In my opinion the driving factors for change are going to be technology (especially digital), climate change, generational change and having access to innovative financing solutions. Your point "2" is a consequence and a need of the fore-mentioned factors. Developing technology is not that of a big challenge, it is more the implementation and proving that this new technology (including new processes/ag concepts) really generates the benefits to the farmers at first. And it is actually this point which creates this tremendous hurdle for all of us who are active in agro. To overcome it it requires a lot of people skills and patience. Many investors and startups think that they can jump over this hurdle with just putting more money into the business, but it won't. So with regards to Fernando's comment and your answer I think that there is little chance that the investments made into ag-tech companies will generate the payouts necessary for the investors. I do think, however, the likelihood of success is much higher for the ones like FBN, indigo, Bushel, Apollo Agriculture. Honestly, I was positive on ag-tech/digital agtech companies until I saw the IPO filing of Farmers Edge - not anymore.
Thanks so much Manuel for your insightful comment! Definitely agree that generational change will have an impact and that’s a topic I’m excited to explore in future editions. Innovative financing is really interesting — are any innovative financing solutions that you are bullish on today? The launch of Bushel Wallet this summer was a really exciting step to see, but I haven’t heard of as many others, so am curious to learn more.
And I hear you on the Farmers Edge IPO! While they haven’t performed well since the IPO, I do think it has helped advance the rest of the AgTech industry to recognize that digital solutions targeted directly to farmers without an outstanding ROI is not a winning formula. There’s a lot of factors to tweak for (hopefully) a better outcome for future AgTech players: the route to market is critical to get right (e.g., AgVend and Bushel have both taken a different route than direct-to-farmer), digital can be combined with other physical products and services instead of standalone, and it’s no longer a question that companies must demonstrate ROI if they want to succeed — all good lessons!
I really like how you showcase examples of consolidation in each step of the value chain. I'm curious what you think the effects of this consolidation will be for start-ups - does that consolidation limits their exit/growth opportunities and forces them to be acquired, or is there still a viable path for startups to remain independent in this landscape?
Thank you Fernando! This is a fantastic question — the level of consolidation in the Ag Value Chain definitely impacts both the growth and the exit options for a start-up. For start-ups jumping in the fray to sell to any of these segments where a few household names own the majority of the market, it’s a double-edged sword. On one hand, each new customer acquired can really move the needle on growth quickly. On the other hand, if you make most of your bucks from just a handful of customers, investors call that “concentrated revenue” and it’s something they typically don't like due to the increased risk if one of your key customers bails. It certainly seems like the large majority of the start-ups that have exited recently have chosen the acquisition route instead of an IPO (but whether that is because of economic conditions, their specific segment, or because of this consolidated Ag Value Chain, it’s hard to say).
For those start-ups that choose to sell to the less consolidated segment of farmers, there are a whole host of other challenges like selling to a customer base that is very spread out geographically (and many more that you and I lived through in our days marketing software to farmers 😅). Janette Barnard ([Prime Future](https://primefuture.substack.com/p/can-farmer-facing-agtech-startups)) did a really insightful piece on IPO considerations for farmer-facing AgTech start-ups last year that still holds true today. With several AgTech companies reaching Series F and G rounds of funding (e.g., Indigo, FBN to name a couple), perhaps 2023 will be the year we see what types of exits are possible for AgTech startups beyond lackluster IPOs or acquisitions!
Fernando, part of the answer to your question depends on the way in which the start-up is financed. If it's VC, the operators of the business have close to zero say about their future. If it progresses on to PE, not much changes except the time frame. Both groups have a mandate to exit. Sovereign wealth funds and family offices (sometimes one and the same) set their own rules, essentially acting as both the general partner and the limited partner.
Thank you Kanupriya! I am so happy to hear that!
wonderful - thank you Ariel. I'm currently looking to make the jump from CPG in Europe, into ag-tech, so your substack is proving an extremely valuable primer! keep up the good work. Rory
Thank you so much for this article Ariel. This is exactly what I needed! From your understanding are there any big differences between the Ag value chain between the US and Canada?
Ariel, you might want to consider a few more circles on the left side depicting soil, water and nutrients? Or maybe as the basis for the whole endeavor?
Thank you Eric! Sounds like an interesting exploration for a future edition!
That’s a great question! I use them interchangeably, and also think of Supply Chain as specific to an output (e.g., a supply chain for fresh turkey) whereas I have been using Value Chain more broadly to reflect the processes used for several agricultural goods