In agtech, investors & entrepreneurs must consider unintended consequences to unlock impact

We must think through unintended consequences in designing business models and making investments for impact.?

This is especially true, and uniquely hard, in food and agriculture. We are talking about complex natural systems and value chains. We must solve for the nuances of human psychology. And the industry is full of interdependencies between social and environmental outcomes.?

We cannot shy away from this challenge. To unlock agriculture’s massive potential for impact, combat climate change, and ensure we have a resilient food system, we must embrace it. Considering unintended consequences in business model design and investment decision-making is key.?

What the one-for-one model teaches us about unintended consequences

The challenge of unintended consequences in impact-oriented businesses was first highlighted to me through the buy-one-give-one business model pioneered by Tom’s Shoes. For every pair of shoes sold, Tom’s would give a pair away to those in need.?

Seems great, right? Well, not for the local cobblers and shoe manufacturers in these communities. With free shoes coming in, the incentive to buy shoes was lost. And worse, when free shoes didn’t arrive, the community was worse off than before.?

Many have studied what went wrong here (for example ). The criticism centers not on the founder’s intention, but on the design of the business model. Namely, in giving things away for free, they were treating the symptom, not the underlying cause.?

Acknowledging this, one-for-one businesses have upped their game. They have shifted to treat symptoms, or even go beyond this by building resilience.?

Considering unintended consequences in ag & food

As the Tom’s example shows, prospectively analyzing the potential second and third-order consequences of a novel technology or business model is hard.?

Here are some examples of potential unintended consequences that we’ve worked through recently in the food and agriculture industry, and the questions we’ve grappled with.?

Livestock emissions. We can have a massive impact on emissions by eliminating or reducing environmental issues associated with animal agriculture, for example by converting waste to energy or organic fertilizer, or by reducing biogenic emissions through improved genetics and feed. Yet, what if this increases the social license of parts of the industry, and ultimately leads to more animal welfare issues?

Plant-base proteins. Plant-based proteins have been shown to have a lower total lifecycle environmental impact than animal-based products. However, the industry currently relies on a few key commodities such as soy, so will scaling up plant-based protein lead to more intensive monocropping and negatively impact biodiversity??

Financializing climate risk. Farmers globally are facing more frequent and severe weather events and will need new tools to adapt. Simultaneously, we have identified practices and farming systems that unlock agriculture’s ability to provide ecosystem services (e.g., biodiversity, carbon sequestration). Digitally native, embedded insurance could help farmers manage risk and incentivize the transition to more resilient and sustainable practices. But how do we ensure we’re not distorting farmer psychology and interrupting existing incentives to invest in other risk mitigation activities?

Shifting global value chains. Climate change is shifting what and where we can grow key commodities such as coffee and cacao. One adaptation solution is to synthetically grow these commodities in factories close to consumers, thereby reducing the environmental impact of production and the value chain risk. But what happens to the millions of smallholder farmers whose livelihoods depend on the production of commodities like coffee??

New categories of cultivated meat. As cultivated meat technologies scale, we can produce foods grown from exotic animal cell lines without needing to farm or harm actual animals. But what if this increases demand for real-life exotic animals??

Do the work, but don’t let perfection be the enemy of progress

I am not saying these consequences will happen, or that the above areas are not suitable for impact investing. In fact, in some of the above cases, after working through these thought experiments, digging into the latest research, and working with founders to understand how impact manifests in their DNA, we have decided to invest. Others are still a work in progress where we are searching for companies that align with our thesis for impact and returns.??

Driving impact in a system as complex as food and agriculture is never simple. But given the industry’s massive environmental and social footprint, and the pressing challenges we’re facing due to climate change, we must act .?

And as we deploy capital and design business models, impact investors and founders alike need to put in the hard work to think through unintended consequences.

At?Tenacious Ventures , we back innovators at the intersection of digitally native agriculture and climate solutions. To get regular podcasts, research & insights on all things agtech,?subscribe to our newsletter .