Riddle me this: What do you call a category of companies that raised a ton of venture capital and, a decade later, had not one sustainable business to show for it?
There are a few categories that are in the process of playing out as we speak, including plant-based meat, cell-based meat, and indoor farming. But each of those is still too early to call for sure, they are still playing out. Maybe they’ll fit the above description when the chapter closes, or maybe they’ll be raging successes. TBD.
But there’s another category that is 10+ years old, and a post-mortem is timely because, well, it’s basically commercially corpse-like.
The category is farm management software, the row crop genre.
Most would call farm management software companies Agtech 1.0. It was the wave that initially put agtech on the map, kicked off by Monsanto’s billion-dollar acquisition of Climate Corp in 2013.
Most companies in this category were started between 2005 and 2010. There were a bunch of these early companies that didn’t make it beyond Series A, sometimes attributed to the fact that they didn’t understand farmers or they didn’t get that not all farms operate the same or that a farmer growing corn & soy in Illinois is not the same as a diversified farm in Missouri is not the same as a vegetable farmer in Yuma, Arizona. But let’s ignore the majority of companies here.
Using back-of-the-envelope math on only the handful of companies that broke through and made it to an IPO or major acquisition,
the final players alone raised over $400 million in venture capital.
And their acquirers (and in one case, public market investors)
paid close to $2 billion in total, plus or minus $200 million.
So where are they now?
they are running on fumes, are afterthoughts within their organizations, or have been divested entirely.
$400+ million in venture capital, ~$2 billion in acquisitions, and the row crop farm management category has not one sustainable business to show for it.
The major crop input companies acquired these farm management companies to jumpstart their own digital capabilities. By all accounts, these software products were intended to be functional, sustainable profit centers – able to stand on their own two feet like a real grown-up business.
For the most part, the idea behind the acquisition was to turn the data from farm management software into higher-value products like analytics or insurance (Climate Corp’s original thesis). But if the data isn’t good (clean), then the analytics are worthless. So then the common path was to downgrade the push for revenue to instead use free access to software as an incentive to switch to that company’s seed and chem products from their core portfolio.
I wonder if part of the issue was that farmers had been trained to expect access to farm management software at low to no cost by venture-subsidized businesses that were in all-out pursuit of growth.
The corollary is how Uber & Lyft used to be cheaper than a taxi, by far. Being cheaper and more convenient made it a no-brainer. Then Uber & Lyft went public and now what used to be a $15 ride is a $30 ride because it’s not venture subsidized and these companies have to stand on their own two feet. But that new (real) price for a rideshare is close to what a taxi costs and, especially at an airport, it can be easier to grab a taxi than hunt for your Uber driver, the needle in a carstack. All of which changes the long term market for rideshare…just like farm mgmt software?
My hypothesis is that founders of Agtech 1.0 companies, and investors, had the hypothesis that farm management was a winner-take-all market. If you believe that only 1 or 2 players will dominate a market, then it is logical to invest aggressively in growth in order to be one of those winners.
But few markets are really winner-take-all.
In an industry such as farming where the potential user base is so diverse, their needs are so diverse, their business structure and profit margins are so diverse…the pie is so varied that it would be difficult for any one company to take the entire market, simply from a capability standpoint.
Perhaps the question that the agtech world should be asking itself, a decade+ in, is how to measure the success of a venture category. There are a few ways you could think about it:
- How much venture capital was raised? Everyone knows this isn’t a long term measure of value, but it does indicate something. Or sometimes it indicates something. But let’s agree it’s an insufficient metric at best and a vanity metric at worst.
- How many exits did the category have / how healthy were those exits? This is a much better indicator than #1, and it is certainly an indicator of success for founders and investors. But it’s like calling the game-winner at halftime.
- How commercially viable is the business over the long run? This is the only measure I know that reflects commercial reality; how much value is created for farmer customers and captured by the acquirers. Unless the test of time and commercial value is passed, then it was all just financial engineering and/or short term wins.
If we agree that #3 is the real measure, and after a decade of post-acquisition signals from the category, I think we have enough data points to say that in the end, this category was…a wash.
The caveat is that there are some niche examples of variations on farm management software where the above does not apply, often where the company has dialed in on a value proposition that is not simply storing & visualizing basic farm data but building higher value propositions. And some of those companies were not juiced in a big way by venture capital, they tended to grow more slowly over time. But overall, TBD on these.
So, what do we learn from agtech 1.0?
About pricing new products, and how people don’t tend to value what they don’t pay for.
About user experience and automating data entry.
About value creation….and that there has to be enough of it!
About how digital products matter strategically for incumbents, and that checking a box is not a strategy.
I also think there are lessons about aligning financing and business expectations with long-term customer interests. Agtech 1.0 created the opportunity, or revealed the opportunity, for sector-focused investors to have an edge over generalist VC’s simply by understanding the business of agriculture and its nuances.
While it’s time to call Agtech 1.0 a wash, I don’t think we can call it a bust.
It attracted capital and talent to a previously overlooked space. And even though you can’t point to individual significant long-term successes in this category,
we can safely assume the learnings that founders, investors, strategics, and farmers had through this process has informed how Agtech 2.0, 3.0, 4.0…25.0 will play out.
How would you rate Agtech 1.0?
Oh and the whole thing of not knowing exactly how things will play out, isn’t that really a feature of creating and building the new, not a bug?
What a time to be alive 😉
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