Reposting this excellent reflection by Adam Javan on why traditional venture models have struggled in #agtech and industrial biotech, with some thoughts of my own. First, I agree with much of this, including that the perceived incompatibility between #VC expectations and agtech realities isn’t necessarily a mismatch; it’s more about misunderstanding the nature of these businesses. It’s not that these sectors can’t produce returns. It’s that traditional VC math often doesn’t apply. For years, I’ve argued that cross-asset class investing is essential to deliver durable innovation in the agrifood value chain. Most founders raise venture capital by default, without constructing a capital stack that matches the scale, timeline, and margin profile of their business. That’s not their fault - it’s just how the system trains us - but it’s not sustainable. If there is product-market fit and unit economics achieved (even if incremental at first), bringing in lower-cost, longer-term capital to scale the business can actually enhance returns for early high-risk investors. However, few are building companies with that strategy in mind. The #agrifood system is built for scale and efficiency, not speed and disruption. Call me weathered, but thinking you can disrupt this category is a fool’s errand. Adam is right that you do have to find ways to partner with and/or push incumbents, ideally by offering something they can’t ignore. If you can’t engage their scale and reach, you’re left building infrastructure and markets from scratch, which almost never pencils out, no matter how much capital you’ve raised. There are real returns to be made in agtech, but as wisely identified, perhaps the Babe Ruth model of hit a home run or strike out should be revisited. Getting on base, stringing together hits, and letting the runs stack up may not be as sexy, but it’s how most games are won. #venturecapital #innovation
I've read a few LI posts on why the VC model doesn't work for agtech. Triggered by Benson Hill's Chapter 11 announcement on Friday, and since I've worked in industrial biotech and agtech, I would like to share my thoughts: - First, why did Benson Hill fail? * The company's strategy and investments in protein crops relied massively on the success of plant-based food companies. Impossible Foods CEO McGuinness said recently that part of the blame lies with the industry itself, which has done a “lousy” job of marketing (https://lnkd.in/e49QCarb). Too little and too late! * Another small note here: since Benson Hill co-founder and CEO Matt Crisp "agreed to resign" in June 2023, Benson Hill's market cap dropped by 100x! If this was an effort to turnaround the company's performance, the new leadership clearly took a wrong turn in their turnaround efforts! Ultimately, you can't turn around something you barely understand! - Now, why the incompatibility between the VC model and agtech (or industrial biotech)? * The Ag and Chemical sectors are very large markets with lower margins. This, combined with longer timelines to commercialization, makes it nearly impossible to be successful in these sectors. Any shift to macroeconomic forces during these long commercialization periods adds additional challenges to the survival of startups in these sectors. (Note that startups like AirBnb and Uber disrupted larger, low-margin markets where physical assets already exited; they just used them differently.) * So, any question on the incompatibility of the VC model and investments in these sectors is misguided. The issue is not incompatibility; the issue is simply the inherent risks in such investments. - Lastly, can anything be done to create successful ventures in agtech and industrial biotech? * I would like to say, YES! BUT it must be done differently than traditional startup models: # Startups must partner early in their evolution with incumbent large players. Meaning, disruption is the wrong strategy. Note that any marginal improvements in these massive markets could mean huge gains. This way, larger incumbents undertake the risks of longer commercialization periods, while start-ups have shorter-term exit options. # The above means startup return expectations must be adjusted accordingly, as a (large) portion of the potential upside would be captured by the larger incumbents. # Why should larger incumbents partner with small startups? Simply put, their organizational structures and cultures are not well suited for developing game-changing technologies internally. # Is this a home-run formula that all VCs want? No, it is not! But if every VC is going after homers, soon there will be opportunities for a new breed of VCs that focus more on runs than home runs.
I really like this comment Matt Crisp "The #agrifood system is built for scale and efficiency, not speed and disruption". I've been dancing/formlating around the concept of whether the current VC model is unfit for ag/food sector... and does it need a new capital stack, or a stack deployed at various lifecycle stages. Is the stack patient enough when you are dealing with atoms, not bits. Thanks for your insights.
Great comments Matt & Adam. Really, if the VC model works for pharma and PBiotech then it should work for ag. The timelines are similar, sometimes measured in decades, meaning the investors have to have a long term view and opinion that there is opportunity for value creation. On the other side, the incumbents and/or downstream partners, whether food, energy, ag chem, seed or logisitcs, must be courted and sold on the longer term value capture opportunity. They need to share the view of opportunity to ensure there is an exit opportunity to a well capitalized organization that can leverage and grow new markets The larger challenge in our world is the short term view driven by quarterly expectations that a start up has a difficult, if not impossible, chance of achieving, because growth without the capital and market presence is challenging to achieve.
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1moSpot on, Matt! Agtech needs this kind of long-term thinking. How do you see investors shifting their approach?