Are we on the cusp of a software revolution in farming?
Farming and software might sound like unlikely bedfellows, but a change is on the horizon. Slow moving and deep-rooted value chains in the sector have proven resistant to the adoption of new software, but significant investment in emerging markets and changing market tailwinds suggest an upheaval to the status-quo.
This matters, because Agtech will play a crucial role in helping to achieve food security and combatting the impacts of climate change on a global scale. Thatâs why it is a critically important sector, but so far investment has been concentrated more in some sub-sectors than others.
Agricultural biotech and indoor farming have seen strong levels of VC funding throughout 2021, but farming software is lagging. As farmers face ever-greater challenges, such as declining government subsidies and unpredictable weather conditions, itâs becoming more complicated to run ecologically and economically sustainable businesses.
There are, however, numerous software solutions that have been developed and are being developed to address these issues. In my view, Europe is currently behind the US where there has been some exciting investment activity. Gro Intelligence, for example, raised a remarkable $85m Series B for their AI-powered software, while Taranis raised $30m in their latest round.
The opportunities for farming software in the developing world are potentially even greater, demonstrated by the recent $115m funding round raise by DeHaat, which has built an online platform offering full stack agricultural services to farmers in India.
Times are clearly changing, and thereâs plenty of evidence to suggest that now is a great time to be investing in farming software solutions, but itâs not all plain sailing, either.
Hurdles to overcome
This is not a straightforward B2B software play, and there will be hurdles to overcome as the market opens up. From a distribution perspective, farming is a hugely fragmented market in every geography and business decision makers are notoriously difficult to reach. From my conversations with them, the end-users (typically farmers themselves) donât want to spend their time using software in an office, and their businesses are already run on already tight margins, without excess capital to spend.
Thereâs also the long B2B-esque sales cycles, generally for relatively low average customer values.
Why weâre still excited by the opportunity software presents
Principally, and to state the obvious, farming is essential. We all rely on it but running a profitable business in the sector is incredibly difficult. Climate Change is making the weather and micro-climates more and more unpredictable every season, increasing the need for software to predict these changes and advise on potential changes in approach.
At the same time, greater scrutiny and regulation of food supply chains is forcing farmers to account for the journey it has taken from seed to plate â another problem that software and tech-enabled marketplaces can help solve.
The enormous issue of food waste should not go unmentioned here. One third of food produced globally is either lost or wasted, even as 10% of the worldâs population went hungry in 2020. Tech-enabled marketplaces can help farmers direct their produce in the most efficient way, ensuring resources are being correctly allocated to match measured demand.
Another appeal is the size of the prize. The market for solutions that increase efficiency, growth, and collaboration is now expanding in line with the demands of a growing world population.
Finally, a new generation of more tech-savvy farmers is emerging. Some are already reaping the rewards of hardware innovations, like the one provided by one of our portfolio companies, Dogtooth. Others are still on the hunt for technological advantage, as younger farmers take the reins of their family businesses. Thanks to the smartphones, farmers donât always need to spend time in an office to use software tools; they can access them directly in the field and see massive efficiency savings, increased yields and increased profits.
Sorting the wheat from the chaff
So, what are we looking for as investors?
- Smart methods of distribution. This is a highly fragmented industry, so targeting farmers through their agronomists or associations, for example, can be a great way to keep customer acquisition costs low. Equally, targeting large corporates, government schemes, or agribusinesses that work with thousands of farmers can be a great way to reach large audiences in an efficient way.
- Measurable return on investment for the customer. Just saving farmers time isnât always enough to convert leads into customers. We are particularly interested in software that encourages farmers to take on more sustainable and higher yielding farming practices, or provides them with access to new markets, such as selling or producing or carbon credits.
- Mobile-first solutions that allow farmers to keep doing what they love.
- This should go without saying, but any solution in development should be one that farmers really want or, even better, realise they canât live without. Customer engagement is key to product development, as farmers donât have unlimited financial resources to spend on new pieces of software.
What excites me most is the potential impact on two of the UN Sustainable Development Goals: No Hunger and Life on Land. Farmers are the backbone of the agricultural economy and supporting them is key to ensuring that the worldâs resources are being allocated in the most efficient and sustainable way.
We have already backed exciting movers in the space, such as Collectiv Food, the worldâs first automated, sustainable and customer-centric food supply service, and Wefarm, the worldâs largest platform for small scale farmers. But given the size of the market, and the willingness of a new generation of farmers to engage with tech-lead solutions, weâre eager to meet more pioneering businesses.
If youâre building something that empowers farmers, meets sustainability and development goals, or helps build a more scalable agricultural system, please do get in touch.