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!