By AURI
Capital investment in the food and agriculture market is growing at an unprecedented rate. According to capital investor Finistere Ventures, 2020 was a record year for investment in agrifood tech. Significant new capital is flowing to companies making plant-based protein alternatives, as well as those providing digital solutions and financial technology alternatives to growers and processors.
In the U.S., companies like Impossible Foods, Memphis Meats and Perfect Day Foods made headlines by quickly raising hundreds of millions of dollars last year. According to Ag Funder, a food and ag tech venture capital fund, startups raised $26.1 billion in 2020, a 15.5 percent increase from 2019.
This is visible in Minnesota, too. New food and ag investment funds are opening and investors from other sectors of economy are increasingly targeting the space. Minnesota’s large food and ag businesses are investing in ag startups and launching new venture funds. One manager of a Minnesota food and ag investment fund says he is exploring more deals now than at any time in his career.
This activity benefits Minnesota’s economy and entrepreneur community. For example, So Good So You, a Minneapolis-based maker of organic and non-GMO plant-based probiotic shots, closed a $14.5 million Series C funding round in November 2020. Minneapolis-based Sentera, a provider of integrated remote sensing and analytics to agronomists, announced a $25 million Series C financing in June of 2021.
For analysts and investors, the new money and attention is welcome, but it is still only scratching the surface. There is untapped potential in food and agriculture investing, especially in Minnesota, with its rich history of successful businesses and entrepreneurs and savvy investors.
“There is a ground shift. You can really feel it. We have so many world class resources that can be applied to these businesses in Minnesota, and a vibrant food businesses community. There is so much opportunity here and if we can grow this sector it has the potential to benefit many other industries as well,” said Greg Hoyt, the managing partner of Gather Venture Group.
Gather Venture Group invests mainly in food startups to support growth and ultimately scale their businesses. They work with restaurants, consumer packaged goods companies and others to build a more powerful Minnesota food ecosystem. Michael Stern, the operating partner at Gather Venture Group, said one encouraging sign is where the money is coming from. Both established and new investors are participating.
“What we are seeing is Millennials and other younger investors who have that connectivity to food are taking an active role,” he said. “That is important because unlike Baby Boomers or Gen Xers, this age group has more of an appetite to invest in alternative areas. When we see younger investors move to this space it is a good sign for the future.”
That is important because with food and ag investment, the returns are there, Stern said, but it takes a patient investor to realize them.
“We can often deal with a lack of understanding as to how investment in food truly works. These deals are not like a typical investment in technology or a more traditional industry where you see 10 times the return in three years,” Stern said. “So, one of the things we are going to need to do as we continue to grow the activity in this space, is some education on what it means to be a successful food and ag investor.”
Brett Brohl is the Managing Partner of Bread and Butter, a Minneapolis-based early-stage venture capital firm. Ag/food tech companies are one of the firm’s three core areas. The modern era of food venture capital is only about a decade old, Bohl said, but many trends and developments have contributed to a recent jump in interest and activity.
For example, the COVID-19 pandemic created an opportunity for businesses to rethink grocery shopping and meal delivery. Entrepreneurs are also capitalizing on growing consumer interest in sustainability, cyber security, food traceability and Fintech within food and ag.
Brohl says the most active area for investment is protein alternatives and fintech for food businesses. According to Finistere Ventures, alternative protein start-ups raised $3.1 billion in funding in 2020 compared with $858.7 million the year before.
Brohl is also the managing director of Techstar’s business accelerator Farm to Fork and is launching the podcast “Full Stack Food” that will explore investment in food and agriculture, among other topics, later this year.
He said he expects more capital from new and established investors to continue to flow into the sector creating strong companies and more jobs.
“When I started there just weren’t very many food tech focused funds. Now we are seeing the general funds starting to move into this space. You are also starting to see ex-Google, ex-Amazon people behind the scenes, without that traditional food background,” he said. “To continue and build on what we are seeing, we need to have companies that were able to raise a lot of capital have a successful exit. High profile examples like that will drive even more attention to the space.”
Minnesota-based CHS Inc. announced a promising development in November. The company is partnering with Illinois-based Growmark to form Cooperative Ventures, a $50 million fund to support the development and distribution of new technologies in agriculture. The fund has three core investment areas: enhancing crop production, improvement the supply chain and promoting sustainability in farming.
Melissa Carmichael, Vice President of Strategy & Innovation at Bremer Bank, said it is encouraging to see more established companies like CHS Inc. look outside their walls for business solutions and new opportunities.
“Open innovation is a very efficient way to solve some of these common industry problems. The more of this we see, the more other companies will start to take note that you don’t have to handle all of this in house,” she said. “It is very encouraging to see collaboration within the industry, especially among organizations that are sometimes viewed as competitors.”
Bremer Bank is the ninth largest ag lender in the country. The bank was a driving force behind the creation of Plug and Play, an agtech-focused accelerator in Fargo. The Plug and Play accelerator has 529 global partners, 26 global locations and 16 different verticals.
She said investment in food and ag tech is primed for rapid growth in the short term. Minnesota and the Upper Midwest have distinct advantages over other regions as the activity takes off, Carmichael said. She predicts increased interest in the Midwest from large investment funds on the east and west coasts “looking for a piece of what we have.”
The investment is not solely in food and agriculture businesses. New money is also flowing into rural America and to agriculture. Aaron Knewtson is the vice president of food and agribusiness at Compeer Financial, a Farm Credit cooperative managing funds that invest money in agricultural companies and important rural institutions like health care centers and senior living communities.
He sees increased investments in farm inputs, and new markets and techniques like controlled farming, vertical farming and indoor farming. An up-and-coming investment sector is digitization in agriculture and products that will make farming less labor intensive and more efficient, Knewtson said. Farmers are looking for new solutions to manage risk, predict crop yield and monitor crop health. They also are looking to streamline business functions like inventory, sales, deliveries, payables and real estate prices, Knewtson said.
“There is definitely more technology needed in agriculture, and with the labor shortage we have right now, that has come to the forefront,” he said. “Investment in automation and digitization is something that farmers are asking for because they are seeing advancements in other industries. Investment in digitization is going to be so important to help solve some of those issues and pain points.”
In addition to new businesses, the investment dollars also benefit rural America. Knewtson’s colleague Bob Madsen is the Vice President of Mission Financing at Compeer Financial. He works to put together deals to finance construction of new essential infrastructure facilities like hospitals, clinics and senior living communities in smaller cities and towns.
One of the reasons people partner with us is because of our mission. There are more traditional sectors with a faster return and less risk, but the people that contact us know that in order to keep rural America a great place to live, work and raise a family, we need modern hospitals and health care facilities. Where and how they spend their money is just as important as the return,” Madsen said.
Despite the promising signs, there is room for improvement in Minnesota. Ag Funder also tracks the value of investment by state. Minnesota ranked 20th in 2020 at $44 million, significantly behind leaders California at $5.6 billion and Massachusetts at $1.9 billion. In the Midwest, Minnesota also lagged neighbor states Wisconsin at $92 million and Iowa at $70 million.
“This is something that we still need to nurture. We are trying to build a rich ecosystem of investment and innovation here in Minnesota by tapping into the network of large, successful businesses and smart entrepreneurs. We have world class resources here to work with, but [food and ag investment] is still a relatively new area in Minnesota. We don’t have that capital flow culture yet like what exists in other parts of the country,” said Hoyt at Gather Venture Group.
Minnesota can look to other states for examples of how to drive capital investment in the space, said Stern at Gather Venture Group. California, Massachusetts and others have “dozens” of different incentive programs to fuel growth and incent capital. Similar programs here could help Minnesota maintain and grow its status as a leader in food and ag companies and develop the next generation of successful businesses, Stern said.
As Minnesota’s ag and food investment market continues to grow, the challenge will be to connect companies with good ideas that are ready to scale with investors that understand the intricacies and realities of investing in the sector. Organizations like the Agricultural Utilization Research Institute will play a vital role in forming partnerships with capital investors and business owners, and educating both groups on how to build value and achieve goals.
“We know that there is more activity overall from the investment community in this area, but how does Minnesota capitalize on that trend?” said Shannon Schlecht, AURI’s Executive Director. “Minnesota’s food and ag ecosystem has really grown over the past five years, and so one of the challenges is how do we keep that momentum going.”
The trends in food and ag investment are positive for advancing innovative ideas. Minnesota has the ingredients in place to be a leader in supporting entrepreneurial ideas to attract more investment capital, and the collaborative spirit is strong to further position our ecosystem and capitalize on investment trends.