Category: Animal AgTech

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Animal AgTech Emerging Tech

Prime Future 84: Everything is the enemy of something

I found the below analysis of the Apple Watch compared with the WHOOP fitness wearable to be a gold mine, with 4 big ideas that tee up 2 paradoxes AgTech companies face.

(1) Specificity can create big markets:

(2) Market clarity impacts everything about the product:

(3) Product-market clarity impacts business model:

(4) Product-market clarity increases value creation:

That’s what a rando outsider sees; here’s what Whoop has to say about themselves:

“Your 24/7 personalized fitness and health coach.”

“WHOOP 4.0 – the latest, most advanced fitness and health wearable available. Monitor your recovery, sleep, training, and health, with personalized recommendations and coaching feedback.”

Let’s go ahead and call WHOOP a really great example of product-market clarity.

(In the tech world we talk all the time about finding product-market fit, but I wonder if product-market clarity makes it easier to find product-market fit. Whether product-market clarity is a leading or lagging indicator to product-market fit is a debate for another day though.)

Now let’s contrast WHOOP with Agtech companies who talk about solving macro, world-saving, how-would-humanity-continue-without-us types of problems. I’ve never once heard a producer lament those problems though; producers don’t typically have a…

  • pressing need to feed the world
  • generic, burning need for analytics
  • acute lack of artificial intelligence or machine learning or blockchains
  • dire need for transparency

And yet that kind of grandiose-but-vague language is all over websites and marketing materials in the ag industry, particularly from agtech startups.

On the other hand, I have heard many a producer talk about the ongoing struggle with questions like:

  • how do I access premium markets?
  • how do I increase predictability of cash flow?
  • how do I reduce medication costs?
  • how do I manage rising labor costs?
  • how do I grow top line revenue? increase margins?
  • how do I manage weather and disease and market risk?
  • how do I accurately manage animal inventory?

Going back to the very first idea from the Apple Watch vs WHOOP analysis, specificity can create big markets. And yet, that leads to the 1st paradox for agtech companies.

The “Everything is the enemy of something” paradox:

the harder you try to have broad appeal by not limiting your product, the harder you make it for target customers to know that your product could be for them. The more you try to appeal to everyone, the less you appeal to anyone.

This paradox shows up as a temptation for tech startups to avoid clearly articulating what their product does for whom, because a prospective customer might have a different use cases.

Then valiantly-struggling-to-get-off-the-ground tech co says HEY NO PROB WE CAN DO ALL THE THINGS. 🤦🏻‍♀️

Counterintuitively, the idea “our product can do anything” is the biggest enemy of traction because it puts the burden on prospective customers to discover how the product can create value for them.

Specificity can unlock big markets. Getting really clear about the use case and value proposition is how you get really clear in talking to your target customers….but only if you use clear words, the 2nd paradox.

The “Clear Words Paradox” is this:

the more you use jargon (tech or otherwise) to build credibility with target customers, the less credibility you have with your target customers because the words mean nothing.

My high school English teacher used to say ‘words mean things’ – laughably simplistic, but true. Words mean things. Getting the message right means getting specific and using market relevant words with clear meanings.

In my experience, producers tend to be an unpretentious population. Not only does pretentious/superfluous/jargon-y language not help a sales process, it usually hurts the sales process by slowing the conversation down…or killing it.

There’s no benefit in using words that don’t have significance or relevance to our target customers, usually serving the only purpose of making us think we sound smart or innovative. 🤭

With those 2 paradoxes in mind, here are 2 questions to ask yourself about product positioning:

  1. Am I providing substantive & specific use cases that allows a producer to see how this product solves a specific problem they might have?
  2. Am I describing the use case in language that is clear?

At first glance, today’s topic is only relevant to those in agtech. But actually my hope is that this gives some helpful language to the innovative producers who engage with agtech startups in the earliest days of beta testing or even early customer discovery. It’s ok, often even really helpful, to tell startups ‘those words mean nothing’ because that’s how they find clarity. I imagine WHOOP struggled through that same process in its early days too!

Everything is the enemy of something.

Categories
Animal AgTech Animal Health Funding

Venture Investing in Animal Health

“If we can’t get to a strong ROI for the producer very quickly, it’s an easy pass for us.”

?? a nugget that the partners from Fulcrum Global Capital, a global food & ag venture capital firm, shared in a conversation on venture investing in animal health including:

  • The key areas of opportunity in animal health, across both biotech and digital, and from an outcome based perspective – not just raw efficiency. (Go to the 5 minute mark in the YouTube link below.)
  • How Fulcrum works with their investor base of actual producers, a non-traditional approach compared with most venture funds backed by institutional capital. (12 minute mark)
  • The benefit to producers of investing in a venture fund. I’m intrigued by the idea of giving producers an opportunity to invest in their area of expertise and generate venture returns while giving them access to solutions that address operational problems, potentially creating even larger returns from an operational standpoint. (19 minute mark)
  • When is venture capital the right tool to scale a startup. “Venture is good when you have a founder that has aligned beliefs with venture capital – disruptive tech, scale quickly, exit within a specific time frame. We’re looking for solutions to billion dollar problems across global agriculture.” (27 minute mark)
  • “The exit market is being defined as we speak. One of the challenges with animal health, especially drugs and vaccines, is sometimes those are long runways that don’t match up with venture timelines. Understanding how those pieces fit together (runways, exit paths, multiples, etc) will start to define what levels of risk capital will be available to founders and help investors understand what parts of animal health will be venture backable.”

This conversation has relevant gems for producers, entrepreneurs, and strategics. Check it out here (link) and subscribe to the Prime Future YouTube channel while you’re there.

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Categories
Animal AgTech

Telus Agriculture marks Animal AgTech 2.0

The 2018 Merck acquisition of Antelliq, a “digital livestock and animal health tech company”, marked Animal AgTech 1.0. That mega acquisition was to livestock tech what Monsanto’s 2013 acquisition of Climate Corp was to crop focused agtech.

Fast forward to 2020 when Telus, the Canada-based communications giant, recently unveiled their newly formed Telus Agriculture business which includes 7 acquisitions and counting, with beef as a priority vertical. Telus Agriculture’s first major acquisition in beef was Feedlot Health Management Services whose “individual animal data collection and execution tools help optimize production efficiency and overall animal health by supporting data-based decision making for feedlot and calf grower clients.” That acquisition is especially interesting because it gives them a unique starting point right smack dab in the center of the beef value chain from which to link upstream to cow-calf producers and downstream to packers, retailers, foodservice.

The announcement of Telus Agriculture marks Animal AgTech 2.0 for two reasons:

  1. This is a non-traditional entrant moving into the ag industry in a big way via the tech door. Microsoft, Amazon, IBM are making miscellaneous moves but they do not yet appear to fit into a clear framework like Telus Agriculture. So if the dark horse comms company can make a mega splash, who else could?
  2. This approach is an example of rolling single point solutions into a platform to drive broader outcomes for customers than the individual value of any single offering.

In the journey to market maturity, it’s time for the Livestock Tech market to converge into more platform based approaches. Why??

For starters, as the market gets more crowded with digital (software or hardware) products, the cost of customer acquisition increases as does the cost of making a good buying decision. Producers have more sales reps vying for their time for a sales call and more brands vying for their attention, adding time and cost for tech co’s and frustration for producers. If you need proof of this, go ask a large row crop grower how it feels to have 47 precision ag startups trying to sell to you…it’s a nightmare.

More importantly tho, the promise of digital is about driving improved business outcomes like profitability, return on assets, etc. The promise of digital is about enabling new business models, new organizations/outcomes of entire supply chains, new management systems. An individual solution like a calving monitor might drive an individual metric like decreased mortality, but it’s one tiny piece of farm operations which is one stage in the supply chain. Think of a one-off solution, like a smart syringe, as optimizing a cog in the machine while the platform approach Telus Agriculture seems to be pursuing is oriented to optimizing the machine itself.

To realize that promise, the livestock tech market needs to see a transition from multiple one-off, single point solutions to portfolio or platform approaches. We need to see convergence in this market.

Going back to Telus, this quote to AgFunder speaks to the big picture they are building to and why it could matter to the beef industry:

“As a result of these deals, Telus Agriculture now believes it has the capacity to connect every participant in the ag value chain, from seed manufacturers and farmers to grocery stores and restaurants. More acquisitions are on the menu, Armbruster says. In particular, the business has its eye on people power, as well as specialty crops and livestock.”

Aside from Telus, who else is in a position to aggregate tech solutions for producers and processors?

An obvious answer would be the equipment companies. But look around, what are the equipment companies really doing besides defending legacy systems, googling “cloud-based” and working hard to keep data silo’d so neither upstarts nor their customers can extract higher value from the data? Let’s assume for now that equipment companies are not going to change the game. Side note: I’d love to see an equipment co get aggressive here.

The likely answer is animal health companies who are already making moves in this direction, particularly Merck and Zoetis. Their acquisitions in 2020 alone indicate the animal health category’s candidacy to be the digital aggregators. Until Telus, effectively Merck and Zoetis *were* the exit market for animal agtech startups.

Perhaps a real but un-obvious answer is the integrators & processors themselves. I believe there are 2 that are in a position to potentially pull this off: Cargill and Tyson. Cargill has tech segments scattered across the behemoth with more and more hires working on how to leverage tech for internal operations, supply chain, and with customers. Although Tyson has not demonstrated this capability *yet*, their $200M+ investment in their automation center last year followed this year by the selection of a tech leader as CEO indicate that moving in this direction isn’t out of the realm of possibility. Cargill’s diversification makes them the more likely candidate to do so, Tyson’s new leadership makes them a more dramatic candidate. Outcomes TBD.

Another option would be mid-market companies, aka what Facebook was when they acquired Instagram in 2012. (Not apples to apples but you get the idea.) While you might point to IndigoAg on the crop side as being a potential acquirer of new co’s, what similar co would you point to in livestock and poultry tech? In dairy, Dairy.com is a great example with 2 acquisitions of software providers in 2020 alone. Will we see dairy.com equivalents in beef, pork & poultry? I hope so, for the sake of the ecosystem and fostering a robust exit market for startups and investors. But let’s mark this a TBD for now.

A less likely option might be private equity plays that grab several co’s for a roll up, but I’m not sure there are enough animal agtech startups that are mature enough for that play to work. Maybe that’s 3.0?

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Categories
Animal AgTech

As the sun sets on 2020…

As the sun sets on 2020, two juxtaposed themes to note:

  1. This once-in-a-generation massively disruptive & wildly uncertain thing began crashing down on us in March and one of the first things consumers did was fill their freezers with meat, as evidenced by empty retail meat cases in the spring or by the fact that custom processing plants across the country are booked solid through the end of 2021. I’m convinced nothing reveals our values more than peak anxiety purchasing habits.
  2. In the first seven months of 2020, nearly $1.5 billion was invested into plant and cell based meat alternative startups.

What does these 2 seemingly unrelated things tell us? That livestock & poultry producers have an end product that is in demand, that is important, even necessary. And yet, investors and innovators are betting that won’t be the case forever. This juxtaposition should give industry leaders an innovate-and-improve urgency that far surpasses that of the burn-it-down crowd.

This also leads me to believe more than ever in The Impossible Foods play the meat industry should run.

With that, here are the 5 most popular Prime Future topics in 2020:

(1) Tyson’s Moonshot: what the new CEO’s resume really tells us about the future of Tyson Foods

What a company says about their future is mildly interesting, the tell is in who they hire. And the largest meat company in the world just hired an automation tech project manager as their next CEO. Which can only mean 1 thing: Tyson is betting the farm on its future as a tech company. (read the link above for more analysis on how this could shape up)

(2) When does Amazon jump in (to meat & livestock)?

Retailers are moving upstream. Who and what comes next? Amazon (Whole Foods) acquiring Bell & Evans? Kroger building their own pork plant? Whole Foods and <cattle genetics co of choice> teaming up to expand the Country Natural beef supply chain? Albertson’s buying a feedyard? This upstream expansion plays out amid the simultaneous trend of retailers expanding their footprint closer to the customer through grocery delivery and digital offerings.

The primary attribute of coordinated supply chains is incentive alignment from first player to final player; coordinated supply chains are strategic, long term, and oriented to increase value for all players by focusing on the deliverable to the end customer. Coordinated supply chains are asset light, data capture heavy. So, when does a coordinated supply chain make sense?

(3) Can gut bacteria save livestock & poultry? Yes and here’s why.

In an industry accustomed to FDA regulated products brought to market with impeccable rigor by pharma co’s, most microbiome products have been viewed by producers as foo-food dust….rightfully so. Truly, its been the wild west out there with microbiome products. This has damaged the category’s brand with livestock & poultry producers while raising the skepticism hurdle for future products.

And yet, I’m optimistic the category’s wild west era will soon end. Why?

(4) Meat eaters don’t care about genetics, could they?

This “no one downstream from the farmer cares about the genetics source” is s a story that plays out similarly across all segments of ag. Genetics sources have historically been a behind the scenes layer in food production, completely removed from downstream value chain players and the consumer’s sphere of interest or concern.

But, that may be changing in meat & poultry…

(5) Telus Agriculture marks Animal AgTech 2.0

The announcement of Telus Agriculture marks Animal AgTech 2.0 for two reasons:

  1. This is a non-traditional entrant moving into the ag industry in a big way via the tech door.
  2. This approach is an example of rolling single point solutions into a platform to drive broader outcomes for customers than the individual value of any single offering.

In the journey to market maturity, it’s time for the Livestock Tech market to converge into more platform based approaches. Why?

I’m so glad you’ve joined the Prime Future journey. Your comments, questions & counterpoints are the best part.

Happy New Year,

Janette

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Categories
Animal AgTech D2C Funding

Can grass fed beef scale in the USA? ButcherBox CEO & founder, Mike Salguero, paints a vision for it.

 

I am thrilled to share a conversation with Mike Salguero, founder & CEO of ButcherBox. If you’ve read Prime Future for more than a minute, you know I’m bullish on business models that leverage tech and reorganize supply chains in ways that create more value for producers (on one end) and consumers (the other end).

Enter ButcherBox.

ButcherBox was started in 2015 to “ship meat in the mail” with a focus on meat with claims that vary by protein. In the beef category, the company intended to sell grass fed beef which meant sourcing from Australia/New Zealand. But as their business matures, ButcherBox is looking to source grass fed beef in the US…a segment that does not currently exist at scale. There are several oft quoted “reasons this won’t work” that have to be eliminated in order for the US to develop a robust grass fed segment from genetics to pasture management to processing. It will take creativity, technology, incentive alignment, and a lot of time in front of the white board to figure out grass fed beef in the US but where there’s a market, there’s a way.

Mike is a tech entrepreneur turned meat industry believer who is building a brand for the long haul, as in 100-year-time-horizon. This is all the more interesting given Mike’s surprise when he started exploring the meat category that there (really) are no brands in meat, especially as retailers have dialed up private label offerings. But one segment’s miss is another segment’s opportunity, and here we are seeing how business model innovation can create value. Delicious.

I hope you enjoy Mike’s insights as much as I did. A few time points in time to highlight:

  • 7:30 minutes – Why the only early outside capital into ButcherBox was via a Kickstarter campaign, instead of the traditional venture capital model.
  • 14 minutes – Mike talks about some of the messy early challenges of getting ButcherBox off the ground.
  • 24 minutes – The 2 reasons ButcherBox customers are customers? Mike says its split between convenience (easy order, get a box the next day) and access (to meat with specific claims).
  • 31 minutes – Mike talks about the future of ButcherBox which has implications for retail (how consumers purchase meat) and livestock/meat value chain as they look at how to source grass fed beef, at scale, in the US.

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Animal AgTech

Fintech + livestock: where’s the opportunity?

 

Perhaps the most notable innovation in the history of US ag industry financing was the creation of the Farm Credit system, with roots reaching back to legislation signed by President Woodrow Wilson in 1916 to create the Federal Land Bank System to provide low interest credit to farmers.

Fast forward to the current macro trend of financial tech products, aka Fintech. Much like using tech to enable or reorganize supply chains in faster/better/cheaper ways, the idea behind Fintech solutions is faster/better/cheaper financial services. Most of us have multiple consumer facing Fintech products in our personal finance stack. Consumer facing examples range from peer to peer payment services like Venmo to online only banks like Chime to trading apps like Robinhood for beginning investors (Tesla ain’t mad about it).

Last year a16z, the venture firm, hypothesized that every company will eventually be a fintech company:

“In the not-too-distant future, I believe nearly every company will derive a significant portion of its revenue from financial services. Startups will be able to launch companies faster and more cheaply. Existing financial services institutions will be able to introduce new products quickly—and spend less on IT maintenance. And most importantly, this means more choices, better products, and lower prices for consumers.”

Sounds good for a consumer context but perhaps a little far fetched for a B2B context in an industry who’s primary access to credit stems from a 105 year old system, right?

Maybe…but maybe not.

Before we look at some ideas for fintech in livestock & meat, let’s apply generous boundaries to the category and look at some fintech innovations across agriculture:

  • Grower’s Edge offers risk management products for early adopters of unproven inputs.
  • Tillable is a platform for landowners to manage farm land leasing.
  • Farmland Finder is streamlining the process for farmland buyers and sellers.
  • AcreTrader & FarmTogether offer vehicles for investing in farmland.
  • Harvest Returns is a crowdfunding platform dedicated to ag investments, both debt & equity financing for farmers and agbusinesses.
  • Genesis Feed Technologies is bringing a precision element to managing feed costs/outcomes by allowing buyers to value soybeans based on nutrient value instead of protein content alone.
  • Stable is a risk management platform for untraded commodity market risk, targeting food manufacturers.
  • Produce Pay “finds, finances, and fulfills grower supply for importers of fresh produce – a partner to growers from first planting to final liquidation.”

(Side note: one space that’s only seen a few startups is crop insurance, and even those startups haven’t lasted long before closing or pivoting. One of my favorite consumer examples of insurtech is Lemonade, the recently IPO’d company offering renter & home owner’s insurance targeting millenials and built around improving the customer experience with AI/ML and digital first. It’s hard to replicate that type of model in crop insurance given that the program is backed by the federal government, but it still seems like there are innovation opportunities.)

Where are the fintech opportunities in livestock & meat?

So as we think about where we might see financial services innovation, here are a few questions that can point us in the right direction:

  • Who needs access to capital? More? Cheaper? Nontraditional terms?
  • Who’s taking unnecessary risk?
  • Who’s playing in an inefficient or opaque market?
  • What existing financial services offer perfectly fine products but abysmal customer experience?
  • What existing financial services are cost prohibitive to large segments of would be customers?

Based on those questions, here are some ideas in animal ag:

  1. As more feedyards transition to custom feeding rather than owned cattle, could Fintech products allow retail investors to buy cattle for custom feeding?
  2. Robinhood for traded or untraded commodity markets? <ducks as market players throw shoes at the idea of adding even more volatility in markets>
  3. Rethinking how hog or poultry houses are financed. Is there a way to give increased financial flexibility to a producer taking out a $300k loan on an asset that has only 1 high value use? The real risk is asset specificity, which perhaps can’t be eliminated but can it be offset. Ask the contract poultry grower who’s contract has been terminated because the only processing plant in a 200 mile radius has closed down. You can’t solve the asset specificity problem with Fintech, but what if there were ways to increase financing flexibility? What if hog and poultry houses were an asset class open to outside investors?
  4. Mike Salguero, ButcherBox CEO, recently highlighted the financing challenges as a limiting factor to establishing a robust grass fed cattle feeding sector in the US. Since most operating loans are on a 10-12 month terms, until it takes grass fed cattle the same amount of time to finish as grain fed cattle, existing financing vehicles are insufficient. More broadly than that use case, what new financing options could give producers greater than a 12 month horizon to take different risks than traditional banks enable?
  5. What about how animal health/nutrition products are purchased and distributed to producers? What’s the Amazon-adapted-to-this-industry-and-B2B model look like, and the related financial services that naturally grow out of that model?
  6. Aligning poultry contract grower pay, both the incentives & structure as well as paymenting, with overall poultry complex objectives. For example, if a plant is selling cuts from small birds to a KFC type customer that needs extremely high uniformity, how can improved data flows be used to drive and align incentives among growers, live production, and the processing plant?
  7. And alas, the oh so vexing challenge of price discovery across the negotiated portion of markets from live cattle to pork and poultry. (Go to the google if you need current context here.)
  8. Do food companies building aligned supply chains become the financing arm for producers in their systems?

I readily admit that perhaps the above list is simply a hammer in search of a nail, at least for the North American livestock industry. But in 2121, will the Farm Credit system still be the best innovation in US ag financing history? I’m betting the answer is no.

A bigger opportunity….India?

Regardless of what emerges in the US, the opportunity for fintech is exponentially more interesting in regions of the world where supply chains are extremely fragmented, hurdles to accessing capital are higher, etc. Take India for example. Mark Kahn of Omnivore, an agtech venture fund in India, described it this way:

In India there are 80 million dairy farmers and 300 million head of cattle and negligible penetration of institutional credit and insurance across the ecosystem. FinTech in livestock represents a huge opportunity which is why our portfolio includes 3 companies in the space:

  • Animall – a mobile direct to farmer platform for dairy & cattle trading
  • Stellapps – B2B software for large co-ops and dairies, starting at the point of purchase where the institutional buyer buys milk, embedding FinTech into milk procurement processes
  • Gramcover – startup offering insurance across rural India, including crop insurance and now for livestock

It’s not hard to imagine the impact of fintech on India’s agriculture industry, if these companies can effectively scale.

Your turn. Across any geography or segment of livestock/poultry/meat, where do you see a need for improved financial services? Where is there unnecessary friction in financial transactions? What financial services innovations from other industries could be applied in this market?

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Categories
Animal AgTech Animal Health

Can gut bacteria save livestock & poultry? Yes. Here’s why:

Here’s the thing: I’m bullish all things microbiome. Soil. Plant. Animal gut. Human gut.

Pressure to reduce antibiotic use has led to the launch of more companies bringing non-antibiotic pre/pro/post-biotics to the market to “support gut health”.

The obvious reason is that producers simply have to figure out how to offset lost performance from reduced antibiotic use. Look at the US poultry industry that has gone from <10% No Antibiotic Ever production to ~60% NAE….in less than 5 years. Presumably swine and cattle will follow at some point and to some degree, though that is tbd.

But in an industry accustomed to FDA regulated products brought to market with impeccable rigor by pharma co’s, most microbiome products have been viewed by producers as foo-food dust….rightfully so. Here’s why:

  1. The approval process to launch a non-antibiotic product means the manufacturer can make no claims about impacts on animal health. What’s the benefit to the animal? Sorry, we can’t say…but it helps, trust us.
  2. Microbiome products typically brought to market with limited data, either in # of studies or # of head per study. So you did 1 study with 22 birds in Italy and you want to sell to US producers? Adorable but no…
  3. Because of #2, there is limited guidance about recommended use on these products. “Here ya go producer, we recommend you use this product but good luck finding the dose that leads to the best response, most cost effectively”

Truly, its been the wild west out there with microbiome products. And it has damaged the category’s brand with livestock & poultry producers while raising the skepticism hurdle for future products.

And yet, I’m optimistic the category’s wild west era will soon end. Why?

Technology.

Look at our friends over in the crop side of the world where soil microbiome has been a fringe topic for a while, slowly making its way to the mainstream. An entire generation of technology companies are bringing precision to the soil microbiome through analytics, covering the whole range of measuring, analyzing, and ultimately enabling precision decisions to improve the soil microbiome to unlock productivity and (hopefully) profitability. Soil tech startups like Trace Genomics, Pattern Ag, and Biome Makers are proving this can be done in the world of soil microbiome.

So if we can have precision in measuring, managing, and improving the soil microbiome…..why can’t we ultimately do the same in livestock and poultry for the gut microbiome?

This would shift the entire category from product driven to outcome driven.

Instead of convincing a producer that one product is better than the next based on generic results or good branding, what if the producer could start their decision making process with baseline analysis of gut microbiome activity based on this location or these genetics, or, or, or. Then, what if the producer could monitor the microbiome through grow out to adjust their product decisions between turns, to  remove this pre-biotic and add that post-biotic or try that combo in order to hit XYZ microbiome objective because it correlates with improved feed conversion or reduced methane. And so on.

Ultimately, what’s exciting about the microbiome is not what we know….it’s how much we do not yet know. And there is a lot we don’t know. Like, for example, the interplay between the microbiome and genetics. Or environment, or diet, or any number of other factors.

Increasing the fundamental understanding of the microbiome’s baseline creates a foundation from which to build product (feed additive) decisions and then to understand the impact of those product decisions. Just like is beginning to happen in soil management.

Leveling up on the analytical understanding of the gut microbiome and how livestock producers can manage the microbiome with precision to drive performance and profitability is not only a huge opportunity, it is the only way to meaningfully reduce antibiotic use in a systematic way.

3 more questions while we’re here:

  1. We know that microbiomes are variable whether we’re talking from pasture to pasture, person to person, or pig to pig. Which obviously creates some challenges when the unit of management is 10-50,000 animals. What will precision livestock management or precision poultry nutrition look like in 10 years as we solve for this dynamic?
  2. This category is driving the convergence of animal health and animal nutrition as more companies have a microbiome element to their portfolio. What will that mean in the next 5-10 years for M&A activity and who buys or aligns with whom?
  3. With more producers looking at the benefits of grazing cattle on cover crops, what if it turns out that there’s a connection between the gut microbiome and soil microbiome? What if that gave producers 2 new levers to improve animal health & soil health? The mind reels…

I’m bullish on this space because of the potential of the unknown and the belief that through technology we can harness nature’s systems more effectively. If you are, or know, a company working to bring precision microbiome management to life, shoot me a message.

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Precision microbiome management is happening in soil; it’s only a matter of time until the same tech comes to the gut microbiome, shifting the livestock & poultry microbiome space from product driven to outcome driven.
Categories
Animal AgTech Funding

If Impossible Foods outsmarts the meat industry, its for this reason.

“We are going to replace animals in the food system by 2035,” said Pat Brown, founder and CEO of Impossible Foods, in late August 2019.

According to a Harvard Business School case study on plant-based meat alternatives:

“In 2016, after $80 million in research and development, Impossible Foods launched its first product: a plant-based imitation of ground beef that, compared to the real thing, generated about 89% less greenhouse gas emissions, and required 74% less water and 95% less land.

After leaving his full-time role at Stanford in 2011, Brown raised $3 million from venture capital firm Khosla Ventures to fund the hiring of a small team of researchers. Their goal was to develop a plant-based product that could be prepared, cooked, and consumed just like ground beef – and, most importantly, be so similar to the real thing that beef lovers would not know the difference; switching would not require compromise.

Unlike many plant-based products already on the market, the product would be specifically geared towards meat eaters, not vegans and vegetarians. It would compete with beef by appealing primarily to mouths and stomachs, not exclusively hearts and minds. ‘Educating and shaming and persuading is not how you get people to change diets,’ said Brown. ‘People who love meat are going to keep wanting it, so the way to eliminate the industry is to develop meat from plants that tastes better than meat from animals.’”

Brown’s strategy to replace animal protein by focusing on taste is brilliant. That strategy sparked a movement that has forced the meat industry to respond.

Multiple brands have launched hybrid products, like Perdue Farms’ popular chicken and cauliflower nuggets, and its ‘chicken-plus’ product range made in collaboration with Sacramento startup, The Better Meat Co. And Tyson, Cargill, and other processors have invested in plant and cell-based meat startups, which shows that they are hedging their business, just in case Pat Brown succeeds and alternative meats grow market share in a big way.

These are smart moves; they’re also reactive moves.

And it’s time for the meat and poultry industry to get proactive.

Brown tapped into the pipeline of venture capital to fund his company’s research and development work, but the market cap of the top 10 meat companies is over $100 billion combined. That market cap becomes even bigger when you add in the big players of adjacent spaces with a vested interest in the future of animal production, such as animal health and animal nutrition. Don’t tell me these companies can’t throw down the gauntlet to generate big innovation.

The capital exists to incentivize game-changing innovation in animal protein. Does the will?

My favorite ‘innovate the core product’ example is ultrafiltered dairy-based drink Fairlife Milk, a breakthrough product in the epitome of a commodity space, and now a growth brand for one of the largest beverage companies in the world. Owned by Coca-Cola, Fairlife didn’t just break through the milk category; they broke through in the broader beverage category.?

Another case study is the ‘discovery’ of the flat iron steak. According to The Hustle:

“In 1998, the [US] National Cattlemen’s Beef Association — the industry’ largest trade group — gave a pair of meat scientists $1.5 million in grant money and a seemingly impossible mandate: Find a new cut of meat that centuries of professional butchers had missed. Three years later, the world was introduced to the flat iron steak.”

The takeaway? Aligning resources and incentives around clear objectives delivers results.

The flat iron example brings up another potential capital source to drive protein innovation: Checkoff dollars. These dollars must be invested in programs to increase consumer demand, and to create opportunities to enhance producer profitability. Maintaining relevance and the future of the industry seems directly linked to increasing consumer demand and creating opportunities to enhance producer profitability…wouldn’t ya say?

There simply must be a way to triple down and innovate our way into a secure future for animal protein. Some questions to consider:

  • Why does animal ag keep tweaking around the edges of innovation and consumer education, instead of waging an all-out war to prove definitively the relevance and importance of animal protein to consumers, rural economies, and ecosystems?
  • Where’s the $1 billion research and development investment to innovate meat and poultry from within? To address consumer concerns about sustainability, transparency, animal well-being, and so on?
  • What would happen if meat companies created venture studios to find solutions that reduce greenhouse gas emissions in beef production by 80%?
  • What would happen if Tyson, Cargill, Perdue Farms, Pilgrim’s Pride, et al allocated venture dollars to innovation that aligns the way meat is produced, processed, and sold with changing consumer preferences?
  • What would happen if every checkoff program identified key objectives — such as improving or demonstrating animal wellbeing, or finding feed additives that maintain animal health and performance with 75% less antibiotic use — and created grants or low-interest loans to fund the work?

And perhaps most poignantly, what would happen if the meat & poultry industry took a page right out of Pat Brown’s playbook and decided to innovate their way to consumer’s wallets?

My bet is that it would pay off in a big way for processors, producers, and consumers.

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Animal AgTech Funding

The Investor’s Guide to Animal Protein…I need your help!

“We don’t see many options.” 

“It’s not relevant, it doesn’t move the right needle.”

These are 2 common themes about technology solutions that I hear when talking with big players in animal ag production that would be customers, the strategics that would be acquirers, and the angel & venture investors that would provide early capital to startups building solutions for livestock & poultry producers & processors. 

Let’s not beat a dead horse talking about these problems, my goal is to find solutions. And the best way I know to do that is by talking with smart people, testing some hypotheses, and sharing those learnings. 

In short, I’m writing an ebook and I need your help ?

I want this book to be chock full of relevant context and helpful perspective on animal ag for innovators & investors working in – or considering working in – this segment.

One way I plan to do this is by talking with 25 investors & 25 producers/processors. So here’s how you can help:

  1. If you are an investor in animal ag…
  2. If you are a producer/processor…
  3. If you know someone in one of the above categories that I should talk with ….

….and are game to have a quick chat about this space, or want to send someone my way, shoot me a message.

Oh, and you can pre-order the book here.

Ultimately the 2 big questions that the livestock & poultry sector will have to navigate to radically accelerate the pipelines of solutions are:

  1. How do we attract funding & innovators to tackle the real problems in animal ag?
  2. What’s the funding model that generates return for investors, for entrepreneurs, and most importantly creates real, measurable value for customers? 

My hypothesis is that it will take a non-traditional funding model to drive more innovation in animal ag…and I don’t know what that looks like, yet. That’s one of the questions I’m wrestling with through this process because I don’t think we’ll see any unicorns (privately held companies valued at $1B+) operating solely in animal ag. The industry structure doesn’t support that probability given industry concentration as well as margin structures.

If that’s right, the traditional venture capital model doesn’t fit animal agriculture. 

So we need an innovation model that leads to more great products that deliver high value for customers while generating returns for investors and entrepreneurs. A few dimensions that could drive a tweaked model:

  1. Reduce the amount of time to product-market fit by having startups closely aligned with prospective customers to get early and ongoing customer feedback. This should result in shortened sales cycles and faster adoption.
  2. Reducing the amount of early stage capital required to get to product-market fit. This is a function of #1.
  3. Reducing the amount of time a startup is independent, aka a path to acquisition in year 2-5 instead of year 10-12.

As always, it’s about finding a path where the rewards are commensurate with the risk. If the rewards are somewhere sub-unicorn, which traditional venture capital requires, then the risk profile has to also be lower.

Keep in mind that $741 million was invested into alternative proteins in the first quarter of 2020. The first quarter.

If animal ag intends to stay relevant to consumers, we need to tap into the existential urgency of solving the big problems and channel our collective inner RBG to bring allll the smart people along for the ride that we can find.

“Fight for the things that you care about, but do it in a way that will lead others to join you.” – RBG

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Animal AgTech Processing

Tyson’s Moonshot Part 2: Three ways the largest meat company could morph into a tech company.

Tyson recently announced their next CEO and there’s only one way that decision makes sense: Tyson intends to be a tech company.

The natural next questions are, why & how would Tyson do this?  

To answer the Why, follow the margin.

Here’s a snapshot of Tyson’s FY Q3 margins across business lines for 2020 vs 2019 from the latest earnings report. Clearly 2020 represents the COVID anomaly, but 2019 is representative of “normal” times.

Takeaway: a good margin target for fresh meat is 5% while further processed should merit 10% margin. With 20% of its business in higher margin further processing, the Hillshire, AdvancedPierre, and several other acquistions over the last 6 years are meaningful to Tyson profitability. Meanwhile Tyson’s competitors are slowly increasing their value added business but largely fighting for that 3-8% margin on fresh meat. 

Contrast even the ‘high’ margins of value added with software margin targets ~80+% and hardware margin targets ~50+%. While hardware margins may not be attractive to software investors, when compared against those 5% fresh meat targets, well, they look pretty good.

There’s a compelling case for a commodity company to chase the higher margins of technology.

Now let’s shift to the 3 possible definitions for “become a tech company”:

  1. Tech as a revenue generating business line. Its own business unit, P&L, staff, etc.
  2. Tech as a core business enabler. Labor represents 50-60% of processing costs. Let’s say Tyson can reduce labor costs by 50% by deploying more robotics in the plant. Apply that reduction across the 45M chickens, 155k cattle, 461k hogs that Tyson processes weekly….

Here’s some (really) crude math around these two paths so before you say that my numbers are wrong, I know. These are wild assumptions for illustrative purposes only to show the (very) rough potential impact on Tyson’s bottom line.

Tyson generated $3.9B EBITDA in 2019 so even if we cut the numbers above in half, these 2 paths represent potential EBITDA growth ranging from 20% – 200%. ??

Now here’s the catch: hardware is difficult. Really difficult. That’s why most VC’s turn and run the second they hear the word ‘hardware’. But if you can navigate the financial & execution challenges of hardware, the light at the end of that tunnel is incorporating software with its oh-so-attractive 80-90% margins. Could Tyson pull that off? Perhaps. 

The beauty of hardware is that not only can it improve efficiency of a task, it naturally lends itself to data collection. But what does one do with copious amounts of newly collected data? This is where software gets deployed: to capture, distribute, and analyze the data to derive high value insights. It’s a virtuous cycle, and the hardest part is the hardware. If Tyson can crack the hardware code, the software can (relatively) easily be layered on and the flywheel prints the money.  Beautiful.

Which leads to the 3rd path, The Hybrid. The hybrid of the two paths laid out above is Tyson beginning by deploying its own robotics to improve its cost structure in the processing plant, and then also selling the technology to competitors.

But there are a lot of questions as to the viability of the hybrid path given the competitive nature of the industry.  Would the Cargills of the world be willing to purchase plant robotics from Tyson that can capture data, and software to analyze that data? Would the Justice Department allow them to do so? I’m skeptical on both accounts.

The rough math indicates this aggressive tech-centric strategy has potential to grow both top line sales and bottom line profit while also mitigating risk for future labor threats like pandemics. 

In the first 6 months of COVID-19, Tyson spent $340 million on various measures to protect employees. So a risk mitigation strategy probably sounds good to the Tyson board right about now.

Now that we’ve uncovered the compelling Why and 3 possible How’s to Tyson’s tech strategy, let’s acknowledge the extremely real challenges of redirecting a behemoth like Tyson Foods: the cultural challenges, the technical challenges, the industry challenge, the subject matter expertise challenge, and many more. It will require an absolute Herculean effort if Tyson is to get anywhere close to successful with this transformation.

When I wrote the initial analysis of the Dean Banks selection for CEO, I was honestly feeling pretty bearish on Tyson Foods. But after doing the above analysis, I may hold on to my stock….just in case Tyson’s quasi-ridiculous bet-the-farm strategy pays off.

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