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Cultivian Ventures: Interview

If you’re an agtech startup or a fund interested in agtech, chances are you will have heard of Cultivian, an Indiana based VC fund focused specifically on the food and agricultural sectors. The founders, Ron Meeusen and Andrew Ziolkowski were kind enough to speak with us, discussing a variety of topics including the story behind their fund, its success, and some of the key emerging trends in the space. Together they have over 60 years of experience. I would urge you to take a look at their bios as they are extensive and explain why these guys make such a solid ag VC team.

The idea to join forces and start Cultivian came about in 2006. “We discovered that of the 850 private VC funds in the US at the time virtually none focused on food and ag.  And when we spoke with many funds they told us they saw good deal flow in the sector, and would be tempted to invest if there were a lead fund which knew the sector” Ron explained.  ”During that time food and ag didn’t enjoy the visibility to investors it enjoys today, but we saw the direction it was going,” added Andy. They raised $34m for their first fund which was made up of pension funds, strategic investors, and high net worth individuals wanting exposure to the food and ag space. The timing however was challenging. “We actually completed our fundraising in December 2008, which was 2 months after the Lehman collapse.”

Despite those challenges, Cultivian has established itself as one of the premier ag and food focused VC funds. They are disciplined and focused in 6 main areas: Animal Health, Biobased products and processes, Environmental technologies, Food Safety, Human Wellness, and Production Technologies. They currently have 8 companies in their portfolio (we will cover a few of these in the coming entries) ranging from terpene products (Allylix) to moisture sensors (Aquaspy) to ag robotics (Harvest Automation) to name a few. One of their portfolio companies, Divergence, was acquired by Monsanto in 2011, 2 years after their investment in an all cash deal which returned a very healthy IRR. They are now raising their second fund with a target of at least $150m.

This brought the discussion to an interesting point as we were curious how VC ag investing and returns compares to other VC funds focused in social media or pharmaceuticals. “We are a VC fund and we expect VC returns, but with ag we are investing in technologies which can often be tested earlier (e.g., not waiting for a phase II clinical trial result) so we expect fewer write offs.” They continued, “So while individual winners, home runs, may not be as big we believe the overall fund of singles and doubles will rival the best returns from funds in other sectors.” 

When we asked about growth of the ag VC scene, with non-traditional ag VC beginning to invest, Ron and Andy were supportive, “We view the sector as badly under-exploited, with many more quality deals than investors.  So we welcome other funds.  We all gain as more investors become active, allowing us to form stronger investment syndicates.”  They did stress however that one of the biggest challenges they face is convincing non ag VCs about the market adoption curve. “Funds worry that for example customers can only test a new corn hybrid once a year,” Ron noted. But we all agreed that when you look at GM soy adoption rates in the US, it’s clear that if the technology is a clear value add it will be adopted quite rapidly.

We were also curious if being Midwest based was advantageous as an ag VC fund. They were quick to counter, “Our portfolio companies cover all corners of the US from San Diego to Boston. While there is some critical mass for ag research in St Louis, MI and the Research Triangle in NC and Animal Health in Kansas City, MI, ag is much more dispersed geographically than other sectors.” It’s safe to say these guys are constantly on the road.

In closing our conversation came full circle when I asked what one key piece of advice they would have for an agtech startup. Both stressed the importance of building high quality teams. “It’s important to not focus solely on the technology and the market opportunity. You need a top notch CEO to put it all together.” And this brought us to a challenge they see in the ag startup world. “The ag industry does have a strong culture of serial entrepreneurship.  “Unlike healthcare or social media, the archetype entrepreneur in agriculture built a great company, but then ran it for 35 years and want’s his or her kids to take it over.   Ag doesn’t recycle its entrepreneurial talent as much, so we must work harder to find the leadership talent.”   We couldn’t agree more and see this as a huge opportunity for the next generation of agtech enthusiasts!

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Solum Inc

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Company Details

  • Website: http://solum.ag/ (under construction)
  • Founders: Nick Koshnick, Mike Preiner, Justin Whit
  • Date founded: 2009
  • Market launch: 2013
  • Investment & stage: $2.05m Series A Feb 2010, $17m Series B June 2012
  • Wow factor: 3/5
  • Sector: Precision Ag 

What they say about themselves

"Solum, Andreessen Horowitz’s latest investment, is poised to play a fundamental part in this exciting shift to data-driven precision agriculture.  Founded by three brilliant young men with PhDs in Applied Physics from Stanford and ties to the American Midwest, Solum has invented a radically more accurate technology for testing farm soil, enabling farmers to measure actual nutrient content and apply fertilizer on a targeted and highly granular basis.  Solum’s platform enables farmers to correlate nutrient measurements and fertilizer application to actual yields, in a constantly improving feedback loop.  Over time, the result for farmers should be a “virtuous circle” of increasing crop yields driven by ever-smarter and environmentally sustainable use of fertilizer, water and other precious resources.  In essence, Solum’s technology will provide the data to drive farmers’ new intelligent machines, and the software to manage their application on a large scale.”*

*Due to the fact that the Solum website is under construction, the above quote was taken from a post on John O’Farrell’s blog, a partner at Andreessen Horowitz, the lead investor of the $17m series B round.

Our verdict

Much has been written about the success Solum has had in attracting a large investment (at least for agtech) from a non ag focused VC fund. Andreessen Horowitz has established itself as one of the premier tech VC funds with its mark on deals including Facebook, Twitter, Pinterest, Foursquare, and Airbnb to name a few. Their backing of Solum is a step in a rather different direction and a great milestone for the agtech scene, hopefully paving the way for more agtech investment from VC funds.

We do see potential in both of their initial products: the No Wait Nitrate System and the Readout Ready Field Lab.  Both products address the challenge of providing accurate, timely, and cost effective ways for farmers to test their soils and apply optimal fertilizer levels.

We do see this as a huge opportunity for Solum for the following reasons.  It is no secret that global fertilizer use has exploded (slide 19) in the last 20 years. While the US has been relatively flat, there are two factors that could decrease usage primarily in developed markets.

  1. Cost: By some accounts fertilizer makes up about 50% of a farmers crop costs per acre and 25% of total non-land costs per acre. Increasing fertilizer usage efficiency is one of the biggest opportunities for saving cost in a farmer P&L. 
  2. Environmental impact: There is a likelihood that the environmental/regulatory agencies  could move in the next few years to start forcing farmers to reduce NPK to reduce pollution. 

While this is quite positive for Solum products, precision application of NPK is not a new concept, and there are a few reasons to consider why it hasn’t taken off to date: 

  1. Complexity: It is not easy for a farmer to create all the yield maps, plan the field, and then custom apply his fertilizer. Some retailers take care of this but at a cost.
  2. Cost: Someone has to burden the upfront cost of buying the equipment to deliver such a high level of precision, whether it be the grower or the retailer. This will only be done if there is a clear RoI, which leads us to point 3. 
  3. RoI: Farmers aren’t afraid to adopt and invest in technology that clearly demonstrates an RoI, and saves time and effort. Look no further to the adoption rates of GM corn and soy in the US. However, it seems precision ag adoption has been a mixed bag. We posit this is because it’s fiddly and for most farmers it’s hard to see a consistent benefit to the bottom line.

If Solum can really help solve these farmer issues – and that comes down to how they deliver the scalable business model that solves complexity and not pure technical wizardry – then the macro drivers will be behind them. Of course, it all starts in creating a very accurate technology which massively simplifies the process and produces the best results 99% of the time, then it’s about selling it. It seems like they will arm a network of retailers with this technology as a way to first gain market share with existing precision ag users. It will be interesting to see how they will convert the non-precision ag base. Perhaps they could develop a partnership with one of the big seed or chemical companies. After all, many of the big ag players like Syngenta, Bayer, and Monsanto are focusing their strategy on developing integrated growing systems and services incorporating a battery of technologies outside of their traditional businesses (e.g. Monsanto’s acquisition of Precision Planting to launch their Field Scripts product). Either way it should be an interesting 2013 for Solum and we look forward to their continued success.

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NewLeaf Symbiotics

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Company Details

  • Founders: Thomas Laurita and Stephen Kahn
  • Date founded: 2012
  • Market launch: 2014/2015
  • Investment & stage: $7.0m Series A January 2013
  • Wow factor: 3/5
  • Sector: Biotech

What they say about themselves

NewLeaf Symbiotics is a science-based company doing cutting-edge research and product development, using a naturally occurring family of beneficial plant bacteria. Pink pigmented facultative methylotrophs (PPFMs) are ubiquitous throughout the natural world and supply several essential nutrients that all plants need to grow. Studies have shown that when PPFMs are added to seeds in a prescribed manner and concentration, the plants grow faster and with more vigor, are healthier, and generate higher yields.”

Our verdict

NewLeaf Symbiotics (NLS), the company formally known as TrophoMax, has been gaining traction in the past couple of months. We first heard of them back in 2012 when they were runners up in the Harvard Business School New Venture Contest (co-founder Steven Kahn is an alum, not too shabby). Since then they have had a name change, a revamped website, and most importantly $7.0m of funding from 3 top VCs: Open Prairie Ventures, Pangaea Ventures, and RockPort Capital Partners.

You’ll remember a couple of blogs back we wrote about the difficulty of analyzing a biotech startup. The same holds true with NLS but from what we have read the technology is exciting and it looks like things are on the right track. We see this $7.0m injection as a clear signal that the trial results are positive and these PPFMs are generating the higher yields, among other things. Furthermore we are encouraged by the fact that this technology was discovered back in 1995, so there should be ample evidence that the technology works. The opportunity is clear; the organic and non-organic market with all key agricultural crops in sight.

Another plus is this team of seasoned industry veterans. With former Monsanto executives, private equity directors, and ag consultants, we are confident these guys have their patents in place, an understanding of the value capture and go to market, and the ears of the big ag companies. With their first product most likely being seed treatment, they are focusing on a high margin product that can be marketed directly to the big seed companies in a key account strategy which is much more rapidly scalable than going to farmer level. We’ll be curious to see how the regulatory officials treat this technology (as a biological compound it should be a relatively rapid and painless process but you never know what unexpected roadblocks the EPA could erect), but in the meantime we are encouraged by NLS’ progress and look forward to seeing this stuff in the field!

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Blue River Technology

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Company Details

  • Founders: Jorge Heraud & Lee Redden
  • Date founded: 2011
  • Market launch: Our estimate: 2015
  • Investment & stage: $3.1m Series A September 2012
  • Wow factor: 3/5
  • Sector: Robotics

What they say about themselves

Weed elimination, a necessity for agriculture, currently uses chemical herbicides, resulting in health and environmental problems. Over $25 Billion are spent per year in herbicides.  We want to replace hazardous chemicals with robotic technology.

We are creating systems that can distinguish crops from weeds in order to kill the weeds without harming the crops or the environment. Our systems use cameras, computer vision, and machine learning algorithms. We are working with leading experts in this area including professors from UC Davis and Stanford as well as leading crop producers, all of whom are excited about our vision.”

Our verdict

What do you get when you cross two Stanford engineers, one with decades of experience in precision ag and the other a team lead in the NASA Robotics Academy? Give up? An ag startup with an ambition to completely revolutionize how farming is done. While the applications of these robots are endless in the field of ag, it looks like Blue River’s first project is to build robots that can kill weeds. It’s current proof looks a bit like a high-tech bicycle cart. It can move through a lettuce field – albeit pretty slowly – and using a small camera it differentiates between lettuces and weeds, zapping the latter with a precise squirt of herbicide. Neat.

Exactly how this is done is beyond us, but the value is clear and massive; less cost on the product and labor side, as well as less herbicide spraying. They also are working on a lettuce thinning robot which could again be of great use to lower labor and excess seed costs (farmers currently use a very high seeding rate for lettuces because germination rates are relatively low for this non-hybrid crop).

Our guess is that we are still years away from this technology hitting the market. There are few pictures of prototype machines on their website and only illustrations of their vision. And once the robots are ready to go, we would be very curious to see what the cost of one of these robots would be and how much land one could cover in a day. This would help understand the upfront cost, payback period, and return on investment. Our guess is that a “rent-a-weed-killing-robot” model might work better than trying to convince farmers to splash out all their capex on it and then figure out how to use it.

Blue River technology already has some very strong and diversified backing from Khosla Ventures (a VC with a strong ag element), Steve Blank, Ulu Ventures, and Stanford Angels and Entrepreneurs, which is a testament to the viability of their idea and strength of their team to pull it off. It’s safe to bet that this $3.1m is just a drop in the bucket of the funding they will need to get this technology to market but as they hit their milestones we don’t see funding as a major issue. We see the two keys to their success as: (i) proving this technology works and (ii) making it reliable on a massive scale so that the economics are in the farmers favor. We will continue to follow these guys closely!

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Assessing a biotech startup

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It is quite challenging giving a fair assessment of biotech startups because one of main drivers of their success, their technology, is usually unproven or lacking sufficient field trial data. That being said, biotech is a critical element of the ag startup scene and therefore we won’t shy away it. First, however, before we get lost in all the whizz-bang excitement of change-the-world molecules, we will provide a quick idiot’s guide to the key phases of an ag biotech startup’s life from idea to launch:

1.)  Startup visionary finds underfunded scientist with a game changing technology. This technology is either still in idea phase or may have a couple years of trials behind it. The scientist usually isn’t exactly sure how to market this technology but is convinced this technology will revolutionize the industry.

2.)  Startup visionary convinces himself of technology and finds some combination of the 3 Fs (friends, family, or fools) to invest pre-seed money in funding a few trials and marketing activities (website, logo, video explaining the technology). He will build a small team with strong advisors to add credibility, which should help in trial planning, data gathering, and the next round of fundraising.

3.)  After a couple years of game changing data, the startup visionary pitches this technology to one of the big ag companies (Monsanto, Pioneer, Syngenta, etc). The objective here is to get them to take on the massive regulatory and development costs and risks of registering a product. Out of this partnership will most likely be a royalty sharing agreement.

4.)  At this point, if the 5-10 years (usually closer to 10) of trial and registration work deliver positive results, the startup visionary will be ready to cash out and hope he can turn that royalty sharing agreement into a massive payday. There usually will be one step before in which the startup will have to market and sell this product on a limited scale to show it’s not only technically viable but commercially viable. This is quite difficult without a large marketing and selling organization but again large scale selling is usually not necessary nor possible with existing resources. During this time one of the big ag companies the startup is negotiating with will be going through internal bureaucratic approval processes which could take years. But hopefully all the hard work pays off and scientist is happy he changed the world, startup visionary made some money, and large ag company has an innovative technology to add to its portfolio. Sounds easy, right?

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Farmeron

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Company Details

  • Founders: Matija Kopic & Marko Dukmenic
  • Date founded: 2010
  • Market launch: Nov 2011
  • Investment & stage: $1.4m Seed Round May 2012
  • Wow factor: 2/5
  • Sector: Farm Management (Cloudware)
     

What they say about themselves

"Farmeron collects all your data in a single place, allowing you to make sound production decisions right on time. Whether is feeding or milking, we will give you tools to stay updated and organized. It’s like having a farm consultant telling you what to do next. More than a thousand farms across the world already enjoy the benefits."

Our verdict

The darlings of the Silicon Valley, these Croatian founders grew up on farms but are also master programmers. This is a dream come true for tech VCs, an ag startup that can speak their language. We have followed these guys for a while, and have been very impressed with the speed at which they built their prototype and tested it with a core group of local European farmers. There definitely is value in creating a better FMS in the Cloud and it seems Farmeron is on to something.

In early 2012 they announced this tool would be expanded beyond dairy management to crop management which would greatly expand the opportunity. However, this seems to have been put on hold and it looks like they are back to focusing on getting traction in the dairy community before expanding to the holy grail of crops.

They clearly have a solid team and now a lot of Silicon Valley muscle behind them. We would expect them to make some big announcements in the near future regarding partnerships as they need scale and a way to convert users from their existing FMS. And of course in order to pull off a partnership they will have to demonstrate that their technology is not only better for the grower, but better for the partner as well. We think Farmeron can pull this off but hope they don’t lose too much independence in the process. After all, the value of their product lies in their ability to make unbiased recommendations.

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The Climate Corporation

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Company Details 

  • Website: http://climate.com/
  • Founders: David Friedberg & Siraj Khaliq
  • Date founded: 2006
  • Market launch: 2010
  • Investment & stage: $109m total ($50m Series C in 6/2012) 
  • Wow factor: 4/5
  • Sector: software / big data

What they say about themselves

"The Climate Corporation aims to protect the $3 trillion global agriculture industry from the financial impact of adverse weather—the cause of over 90% of crop loss—with automated, full-season weather insurance. Total Weather Insurance (TWI) is The Climate Corporation’s flagship full-season weather insurance program. Created with insights from agronomists and growers nationwide, TWI addresses growers’ exposure to financial loss even when they fully utilize federal crop insurance programs. Unlike traditional insurance, TWI pays out solely based on measured weather conditions, requiring no unnecessary paperwork, no claims process and no waiting for payment. At the heart of TWI is the company’s technology platform, which ingests weather measurements from 2.5 million locations and forecasts from major climate models on a daily basis, and processes that data along with 150 billion soil observations to generate 10 trillion weather simulation data points used in the company’s weather insurance pricing and risk analysis systems."

Our verdict

Set up by some ex-Googlers, The Climate Corporation is one of the first big data plays in agriculture. And with literally trillions of data points, we’re talking seriously big data. In fact, there are rumours that in the early days the budding startup almost crashed Amazon’s cloud service because it was sucking up so much computing power to test its models. 

Whatever you think about the wizardry of their technology, their first product - crop insurance - is distinctly low tech. They have to convince farmers that it is better than the other insurance schemes out there whether they be federal or private. And this requires a traditional sales force of agents going out and selling a product that most farmers find baffling even in it’s simplest form. 

But despite these challenges to scaling, The Climate Corporation has got some early traction in the corn-belt and has convinced investors to shovel money at it in a big way to fund international expansion. And as extreme weather events become more frequent and less predictable, it seems probable that The Climate Corporations data-driven approach will prove its worth - hopefully for both farmers and its investors. 

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Hello

So why are we here? We like agriculture and we like start ups, especially start ups launching in the agricultural space. However, we are not very impressed when the start up community and tech blogs try to analyze ag start ups. It usually starts with some dig about how surprised they are that there are tech savvy start ups in ag, and then ending with the generic “there’s going to be 9 billion people on the planet in 2050 so this could be a big opportunity.” Nor are we impressed with the marketing and outreach the agriculture sector has done to the non agriculture community. We must admit, other than a few interesting blogs on the organic and sustainability side, there’s not much out there to introduce all the innovation in agriculture to the world. We are here to bridge the gap and make ag start ups mainstream!