AGRITECH: Specialist investors reset valuations

When it comes to successful agritech investing, you can’t wake up one morning and decide to get into the sector. While any sector-specific investment approach benefits from specialist knowledge and a strong network, the best agritech players could moonlight as farmers, while being portfolio builders by day.

Building up an understanding of the deep-tech innovation that drives the concepts behind agritech provides a good basis for analysing potential investments. But where we believe an insider’s edge can be established is in how that tech plays out on the land. Conceptual application can be very different from hands-in-the-earth farming realities, where you might be battling unpredictable elements like climate-change derailed weather patterns, pesticide-resistant diseases and rapidly eroding soil quality.

We think real-world farming knowledge can create a two-fold investment edge.

First, it facilitates productive interactions with corporates, which are the primary buyers of innovative agritech. Due to their size, scale and financing capabilities, corporates can move the dial when it comes to making the world’s food systems more productive, resource-efficient and sustainable.

Second, it creates a more focused lens when it comes to valuations. Agritech is an industry that offers some amazing innovations and lots of theoretical potential, but successful investments must be grounded in reality. And that reality comes from the on-the-ground farming knowledge.

To pay the right price for an investment requires a deep understanding of the ins and outs of the sector. Yet, the period of low interest rates attracted many non-specialist investors to agritech, who ended up paying a high price for deals. The effects of this led to valuations ballooning in 2021-2022 and the subsequent correction of 45-50% that we’ve seen over the past 12 to 18 months.

In our view, company fundamentals have little to do with the correction, it’s largely been driven by the fact that seed-stage, early-stage and agnostic investors enter into transactions with the wrong mindset and flawed valuation metrics.

Our approach is to understand one sector deeply, and only invest in what we really understand at the right price.