Look back in (even more) Anger – a ‘Ruckblick’ four years on

It has been almost 4 years since I wrote my article about the shaky foundations of VC investment in AgTech based on the lessons of what can arguably be called the first ‘decade’ of innovation in AgTech. At the time, the saturnine tone of the article was out of place in a landscape of commentary in the sector that was more Pangloss than Cassandra. Since then, the world has changed dramatically but if the recent proliferation of pessimistic views about the state of VC investing in AgTech is indicative of a seismic shift among the commentariat, perhaps my article can claim some modest (dis?)credit as one of the Horsemen of the Apocalypse.

Recognising that even a stopped clock can be right twice a day, rather than take a (pyrrhic) victory lap, let me start off by putting down a list of things that I got wrong:

1. Timing: this was a big one of course. The article was published in Aug 2020, in the relatively early stages of the Corona pandemic and my expectations were for an imminent reckoning. As it so happened, 2020, 2021 and 2022 were years that set records for AgTech VC funding. Everyone has a prognostication till they get punched in the face and the fist in my face was the seemingly unending tsunami of liquidity that central banks throughout the world unleashed, turning cheap capital even cheaper and driving speculative investments and asset price valuations everywhere.
2. Exit landscape: this was another big one, in my original article, I had pretty much ruled out IPOs as a mechanism for AgTech exits because their financial profile didn’t match the ‘steady earnings growth’ expectations that public markets investors have. Once again, I never reckoned with SPACs, which in my view facilitated one of the decade's most glorious money grab SCAMs with credulous retail investors buying into the Parousia-esque fantasies sold by brokers and SPAC promoters (or ‘bankers and w***ers’ in the memorable words of someone in the AgTech VC ecosystem) till the spoilsports at the SEC put the brakes on the mania.

With the desultory Mea Culpa out of the way, let me focus on some of the things that did come to pass, in which I will include not just the things I got right in the article, but also other things I said in different panels, interviews around the time. Subsequently, let me end with a tentative conclusion about the overall point that I was trying to make 4 years ago. At the risk of being challenged, here are some areas where I believe I was vindicated:

1. Capital reckoning: Even if delayed by 2-3 years, my projections for a reckoning and capital drought in AgTech did come to pass and the downturn being more severe than that in the broader Tech landscape does seem to bear that there were some structural issues in AgTech that made it so vulnerable. Ultimately, I sometimes wonder that if the extent of inflation of the investment bubble of 2021/22 simply made the deflation that much more painful. As an analogy, if the reckoning had happened in 2020, AgTech would have received some bruises from falling off the top of a tree. The upwards draft of the subsequent couple of years meant that AgTech has now fallen from the top of a multi-storey building and what should have been just painful is now potentially terminal. The path to rehabilitation is that much more difficult and slow.
2. VC as an asset class in AgTech: once again, I do believe that the simple empirical frequency of this topic in conferences and panel discussions today brings out the fundamental veracity of my contention that multiple segments of AgTech innovation may simply not be suitable for the 10 year invest and exit model of Venture Capital. This contention is now being taken as axiomatic for CAPEX heavy sectors like vertical farming and alternative meat but I believe it also holds true for many others.
3. Lack of truly disruptive innovation: in my original article I had gone down to the original work of Clayton Christensen to determine that most of the innovation that is being showcased in AgTech is not truly disruptive as it seeks to serve the ‘high’ end rather than creating new markets. This is probably the contention that brought the most amount of pushback 4 years ago but I think this view is so widespread today that it is once again axiomatic. At the time, I was worried that without a 10X vs 10% value proposition to customers / growers, most startups would struggle to scale. The only segments that seem to be delivering on that vision seem to be Precision / Smart spraying technologies, Fintech and Robotics. The pivot of many data analytics / vision based scouting startups into Precision Spraying or Carbon credit MRV can thus be taken to be validation of this view
4. Public markets misalignment: while many AgTech companies ultimately did go public, the post-IPO / SPAC performance of all has been pathetic. Based on a representative sample, I estimate that the median share price decline of all public AgTech companies has been 90%, which represents a staggering destruction of value. It seems like public markets investors are long on credulity but short on patience. They were willing to give SPAC companies the valuation they sought on the basis of their pie in the sky fantasies but if those expectations did not materialize in approximately 3 quarters, the share price typically fell off a cliff. If the era was heralded by Farmer's Edge going public for over $500m in 2021, perhaps its end too came not with a bang but with the proverbial whimper, as Farmer's Edge went private earlier this year at a valuation closer to $10m. Like with many other companies that went private after this two year tour of the public markets, perhaps the most impressive feat achieved by the SPAC vehicle was to allow private investors to buy back for 50 cents the shares they sold the American (and Canadian) public for $10. In a sense, private companies were able to take out negative interest loans from the public for a two year duration. Ultimately, AgTech is well on the way to becoming the CleanTech of the 2000s, with VC / public investors likely to see complete wipe-outs in some segments, possibly vertical farming and alternative proteins the most high profile casualties.

Conclusion

As a ledger of intellectual debits and credits, the above list doesn’t really give a summary verdict on the core thesis of the original article, so let me attempt to do so now.

The essence of the article, as envisioned 4 years ago and one which I believe still holds good today, was captured in its first paragraph, through the concept of ‘Transformismo’ for which I have still not found a superior explanatory framework. The point of the article was that looking at the developments in the sector, it was far more likely that the insurgent camp, the start-ups, would become epigones of the incumbent industry, rather than moulding the existing industry in their image. If the utopian vision of AgTech led one to believe that injecting new ideas and ways of working into the industry would lead to a Parabiosis like rejuvenation of innovation in the sector, the dystopian vision would hold that Parabiosis can also operate in the opposite direction, creating a cluttered landscape of failed wannabe-large cos.

The best and most convincing argument in favour of the validity of my thesis is one industry-wide trend that has gone completely unnoticed even among informed commentators in the cacophony around declining investment numbers and bankruptcies. Take a look at the number of AgTech start-ups that have changed leadership in the past 3 years. In nearly every case, you would see a founder CEO, typically not from the Ag industry, replaced by an ‘industry-experienced' former corporate executive. The best example of this is perhaps Farmer’s Business Network. They started 2023 with a founder CEO who had entrepreneurial experience outside the sector, then a VC stint – the quintessential outsider looking to shake up the industry. After a roller coaster 12 months, the company is looking to navigate its future under a new CEO, who is the dictionary definition of a career corporate executive in the industry. I take some intellectual satisfaction in having predicted, almost 4 years ago, that ultimately Saturn would devour his son .

In keeping with the optimistic view that lies at the heart of all Venture Capital, and with my penchant for quoting Italian political theorists, I would like to stay true to Gramsci’s exhortation of ‘Pessimism of the Intellect, Optimism of the Will’. I believe in the fundamentally transformative potential of AgTech and I believe that once the dust settles, the companies that will be left will be better positioned to drive innovation and change in our industry. All it needs is an acknowledgement on the part of all involved that it is not possible to sleepwalk into Utopia.