Agtech may be enduring a prolonged investment downturn, but new combinations of public funding, private capital and direct involvement from retailers and others in the supply chain are offering start-ups an alternative to the traditional venture capital model, according to Agri-TechE director Dr Belinda Clarke.
Clarke, whose organisation connects farmers and growers with researchers, technology developers, entrepreneurs and investors, said her biggest takeaway from Agri-TechE’s recent Focus on Finance event was the growing diversity of finance available to companies.
She believes this could help address one of agtech’s longstanding problems: start-ups needing large amounts of capital long before they can demonstrate meaningful commercial revenues.
“There’s no sugarcoating the fact that it is a tough investment environment,” Clarke told AgNavigator.
But she added that engagement from major supply-chain businesses has left her “increasingly positive”. This engagement was illustrated last week with the news that the UK’s largest supermarket, Tesco, has become the anchor investor in Henry Dimbleby’s £100m Bramble food innovation fund.
“Seeing the big supply chain players, not just Tesco, others are doing the same, leaning in, getting engaged with those innovators, I think is providing potentially a different model than the traditional VC model,” she said.
“What it’s enabling those companies to do is potentially demonstrate revenues earlier, which is obviously good for everybody, and it’s weaning them off being a grant junkie.”
Beyond VC: agtech’s funding mix is broadening
Held at NIAB in Cambridge on 17 September, Agri-TechE’s annual Focus on Finance event brought entrepreneurs together with investors and public funding bodies to explore financing options across different stages of company growth.
“This is our annual event to showcase the public, private, non-dilutive debt, all the different types of finance that are around for growing ventures in agri-tech and agri-food,” explained Clarke.
“We try and show the entrepreneurs the raft of funding and financing that’s available throughout their growth journey, right up to VC.”
Participants this year ranged from the Advanced Research and Invention Agency (ARIA) and Innovate UK to angel investors and VCs.
For Clarke, the presence of different types of capital matters because conventional venture funding remains challenging.
At the same time, however, she believes the UK’s public funding environment for agricultural innovation is comparatively strong.
“I think we have probably never had it so good in terms of investment from the public purse into agritech,” she said, highlighting the Farming Innovation Programme and cooperation between Defra and Innovate UK.
“It’s quite unprecedented that we have Defra and Innovate UK both coming together to support that early kind of pre-seed de-risking piece.”
Retailers and supply chains are becoming part of the funding equation
Perhaps more significant for the long-term commercial health of the sector, however, is growing interest from companies further along the food and agricultural supply chain.
“We’re seeing much more of an interest in supply chain actors getting involved,” Clarke said.
“For a while, they didn’t want to put their hands in their pockets, but we’re certainly seeing some under-the-radar ambition of the supply chain partners to engage with technology companies and innovation companies that will help their suppliers.”
Their motivation is increasingly clear, she said. Technologies capable of improving farm efficiency and productivity can simultaneously help food companies address challenges such as greenhouse gas emissions, including Scope 3 emissions embedded in their supply chains.
Retailers and food businesses are therefore likely to be more targeted than conventional public funding programmes.
A company might, for example, specifically seek innovations addressing post-harvest storage, shelf-life extension or emissions.
“I don’t think they’re influencing the type of innovation particularly,” Clarke said. “But what I would say is that they probably have a more bespoke set of criteria.”
That makes corporate and supply-chain involvement complementary to, rather than a replacement for, public finance.
“It’s not going to appeal to everybody. And that’s literally not their job. That’s where the public purse comes in,” she said.
The more corporate actors that participate, Clarke suggested, the greater the range of agricultural problems potentially opened up to innovation. “It’s important that there’s a number of them that are coming in with their different criteria and needs and wants.”
How prescriptive should public funding become?
That leaves government facing a delicate question over how widely its own innovation funding should be distributed.
Clarke characterised the dilemma as a choice between funding a large number of ideas in the expectation that only some will succeed, or identifying a smaller number of strategic priorities, such as soil health or water, and concentrating resources behind them.
She believes neither extreme provides the answer.
“Government has to strike a balance between not being overly prescriptive and exclusive to a number of challenges, but also enabling financing like ARIA does,” she said.
High-risk research investigating ideas that can initially appear “wild” or “wacky” may ultimately produce transformational technologies, she argued.
“The public purse has a difficult line to tread between salami slicing across too many ventures, but also then excluding supporting some of those that are really doing something very innovative, but might not be bang on message in terms of a huge strategic priority.”
The next opportunity is integration, not another standalone technology
Clarke also believes a broader change is taking place in the way the industry thinks about agricultural technology itself.
Rather than identifying one technology such as AI, robotics or biologicals as the “next big thing”, her attention is increasingly on how technologies can be bundled together around specific farm and supply-chain problems.
“The general shift is around the role of farmers as integrators of these different technologies and seeing the bundling,” she said.
“We’re not going to change the industry one start-up or one research project at a time. We need a variety of tech coming together to address particular on-farm and supply chain challenges.”
The idea may sound familiar and often repeated, but Clarke agrees that technology needs not only to work but also to fit practically into farmers’ existing businesses and workflows.
For Clarke, that means “evolution, not revolution”.
“Disruptive technologies are just that, right? They’re disruptive. And therefore nobody really wants that in their business because you don’t want to have to down tools while you learn how to use something or completely change your processes.”
She uses agricultural robots as an example.
Instead of initially asking a robot to master complex operations such as crop monitoring or autonomous harvesting, it might make more commercial sense to deploy machines for relatively straightforward activities, such as moving produce around a polytunnel or packhouse.
That frees skilled pickers to continue harvesting while technology takes responsibility for lower-value, physically demanding work.
One farmer, Clarke said, describes such technology as “shovel ready”.
What success would look like in 12 months
Asked what a best-case scenario would look like when assessing the sector again next year, Clarke described a company that has moved beyond proof of concept, attracted a combination of financial and commercial support, and become embedded in a supply chain that provides real revenues.
Such a company could use a blend of public and private investment alongside programmes supporting manufacturing and scale-up before progressing towards growth and exports.
“They are then embedded in a supply chain that is demonstrating revenue for them,” she said. “They are then starting to be able to scale, grow, export, all of those things we want to see.”
