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Getting in Early on the Agtech Investment Opportunity

Dunning Capital’s David Swintosky and AgriTech Capital’s Aidan Connolly discuss a rapidly-growing market

Getting in Early on the Agtech Investment Opportunity

Agriculture is an industry thousands of years old, so it’s fair to say the time is ripe for digital disruption. As agtech carves out its own corner of the market, private equity investors should take note, say Dunning Capital managing director David Swintosky and AgriTech Capital president Aidan Connolly.

Swintosky and Connolly recently joined GrowthTV to talk about agtech for investors interested in getting in on the opportunity at its early stages. Below is a transcript of the conversation.

Carolyn Vallejo: For the traditional investors, the traditional private equity firms and business development folk, this is a very flashy, innovative, exciting industry. I’m hoping that you both can make the case for those traditional investors to understand that this is a mature industry. This is a space that is ready for not only innovation, but for investment.

David Swintosky: Well, I think like all industries, we’ve got a tremendous population of Baby Boomers in private equity—no secret. It’s done very well at aggregating assets across all different industries. Those opportunities exist in agriculture, whether that’s a strategic distribution companies that are out there, folks that are in the middle, the processors, millers of grains and so forth, as well as the growers. If there’s a farmer or grower or family that doesn’t have a succession plan internally or externally from the family, they’re looking for a buyer for the organization. So there’s lots and lots of capital, again, we talked about North Carolina. Agriculture is number one, it’s not changing anytime soon. There’s still a lot of opportunity for assets to change hands and to make returns for private equity investors.

Aidan Connolly: I think, just to build on that, I would say there are still massive opportunities to make money by investing in traditional agricultural investments: land, buildings, industries. But these things that we invest in are being changed by tech. So I don’t think the investment necessarily has to be an agtech directly, as a standalone. Of course, you can, from a venture perspective, go and work with startups and work with new companies. But it’s also interesting to look at how those technologies can fit together with traditional investments.

There are still massive opportunities to make money by investing in traditional agricultural investments: land, buildings, industries. But these things that we invest in are being changed by tech.

Aidan Connolly

AgriTech Capital

So you know, Blockchain perhaps would land, certainly we talked about crop protection, the sensors in feed mills or in grain elevators, we know exactly where the grains are. We can measure in real time how much inventory there is in the system, and perhaps even use that as part of more innovative systems for borrowing money against that real time inventory.

So the tech for me, as I see it, I am very excited by the ways in which you can displace or change or disrupt what we’re doing today, but I see many of my colleagues who are much more traditional investors, who like to see where the penny is going and where the penny comes back. And they’re using it by bolting it on to something that might look like more of a traditional investment.

DS: Yeah, and I think the opportunity to become vertically integrated as well. When you talk about a farm-to -fork strategy, there are companies out there globally, at scale, that are making corporate venture investments, that private equity portfolio companies hopefully get sold into. So there are buyers and exit strategies in the space, perhaps not the IPO strategy that might be employed with some private equity strategies in different industries. But there are tremendous well-heeled private and public companies that are buyers in the space. Those exit opportunities can be manufactured, engineered with, like Aidan said smart planning, buying right, getting right management teams in place, creating efficiencies with new technology, and mapping their way to the successful exits.

CV: This is an industry that is thousands of years old. And obviously with the advent of new technologies, it’s a really great time to drive innovation in the space. But from a deal making standpoint, from an investor standpoint, why is now particularly an opportune time to pay attention to this market.

DS: Well, I think like in any changing market, if you could have said, ‘Hey, I’m going invest into e-commerce and search engine technologies in 1995,’ you’d have found yourself a very fine position. Same thing for agritech and food tech. I think they both interact, because that’s the output, right? Now is a super exciting time to get involved with ground floor of industries that are changing and that’s where opportunity is made.

Agtech and food tech both are different in that, similar to biotech and life sciences, there’s a longer lead time. If you’re developing a new trait seeds to produce, for example, a higher protein content soybean like Benson Hill has done, for example, it takes time. And time and duration and return all intermingled in investments and the investor needs to know what duration, how much time with people, and what type of returns to A) promise to limited partners or shareholders, and then to deliver on a timetable, versus just getting into the mix. So, tremendously important to understand the duration and the timeline of these types of investments.

If you could have said, ‘Hey, I’m going invest into e-commerce and search engine technologies in 1995,’ you’d have found yourself a very fine position. Same thing for agritech and food tech.

David Swintosky

Dunning Capital

AC: North Carolina is a tremendous producer of agricultural goods. We’re all familiar with tobacco, sweet potatoes, but even chickens, turkeys, hogs, eggs, and more and more more things that maybe we’re perhaps not aware of. But the competition—I know my own, I grew up, as you can tell from the accent, a little further, should I say, east of North Carolina, and in Ireland, my home country, they have a billion-dollar fund to go into agtech. That is the seriousness with which people are saying, ‘If we want to address climate change, if we—to the example I used earlier of Harpe—replace are use more judiciously chemicals to control weeds, if we’re looking to have better animal welfare, if we’re looking to have fewer resources being used to produce the food we consume today, all those are going to require big leaps forward. Technology can help, but I think also there’s room for the state and for all organizations, universities, etc. to really help these companies make the leap to be successful.

CV: You just brought up a couple of points I want to dig a little bit deeper into, and one of those is driving enthusiasm for this industry. Obviously, the agriculture industry is not what it used to be thousands of years ago. It’s not even what it used to be a few decades ago. And in the broader context, we’re also in an environment in which labor is very tight. So how is the agriculture industry surviving amid labor shortages and surviving amid a change in the industry culture, in terms of working in this industry? And is agtech helping to drive enthusiasm to spur innovation, to spur actually working in this field?

AC: Yeah, I mean, that you see it on farms today. Increasingly, farms dairy farms are using robots to milk cows. They’re using robots to push up feed during the middle of the night. They’re using robots to clean away manure. I don’t know, Carolyn if you aspired to get to join the agricultural industry at any time in your life. Maybe not, who knows? But most of us don’t imagine our kids are going to want to work at a processing plant, for obvious reasons. It’s dirty work. Robots are going in there. Most of them, my friends or colleagues who have worked in the meat industry, certainly today, if they’re building a new factory anywhere in this country, they’re gonna be using robotics increasingly to do the work. It’s not to say there aren’t people to do it. But there are smarter, better ways to use people as we’ve seen with the use of robotics in hospitals.

DS: I agree 100% with Aiden on that. Efficiency in the supply chain in squeezing out inefficiencies and labor acquisition or labor costs, it’s in every industry, but it’s particularly challenging in the supply chain. You know, our tomatoes travel a long way to get to our grocery stores. Many other specialty foods do as well. And the more efficient that companies can really be—and that supply chain, while meeting the demands of the consumer for continued transparency of, where does this food come from and why should I eat it? Why does it fit into my nutritional program? It’s going to be more and more important to keep competitive cost, competitive pricing for the consumer the other day.

Watch the full GrowthTV episode below:

Is Agtech Ready for PE? from Association for Corporate Growth on Vimeo.