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Silicon Valley comes to agriculture

Silicon Valley comes to agriculture

Farm innovators have new places to turn for development funding. Silicon Valley players are changing the way innovation is financed. And the system offers more than money, providing entrepreneurs with added management help.

Agriculture is known for its innovative ways. Driven by a need to boost productivity and efficiency for more than a century, this is an industry that knows how to rethink what it does. The pace of change may be accelerating again as new-tech companies with an interesting pedigree enter the industry. Essentially, Silicon Valley has headed East.

“I think we’re seeing a confluence of technology that has come together to solve problems,” says Rob Leclerc, cofounder, AgFunder. “It’s an opportunity to bring some new types of companies and new and innovative ideas to address [issues in agriculture].”

The rise of data- and technology-based startups has brought an interesting trend to agriculture — funding and resources like you might find in the San Francisco area. AgFunder is actually a firm that works to bring together potential investors for ag-focused technologies and ideas, but it’s not the only one. And traditional Silicon Valley funding sources — including Y Combinator — are playing in this space, too.

For farmers, it means an opportunity to get access to new technologies and tools that might not have made their way to agriculture for some time. And for innovative farmers, it may mean easier access to needed capital to take an idea from start to finish.

Even a casual conversation over a new niche crop brings comments about venture capitalists expressing interest these days. It’s a changing environment for innovators across the industry.

“[This trend] is good for the industry and farmers; it provides them more choices and puts more pressure on incumbents to raise their game,” Leclerc says. And he adds that AgFunder’s model would allow farmers who have money to invest to be part of the movement, too. “AgFunder-listed companies have raised over $13 million since launching in February of 2014.”

One factor that got a lot of attention in the tech funding arena was Monsanto’s purchase of The Climate Corp. in 2013 for about $1 billion. (Read an interview with Climate Corp.’s CEO.) In the Silicon Valley world, that’s a big payday for venture capitalists and others that invested in the climate data-based company. It moved the needle on the potential value of agriculture as a place to invest.

More recently, the purchase of 640 Labs by Monsanto, which offered investors in that startup a significant payback, according to industry sources, also got some attention. The Silicon Valley model has been parodied in movies and television — innovative person creates idea, gets initial funding and then hopes for massive payback when acquired by a giant.

Leclerc notes that’s not how it usually works. In fact, a lot of time — and work — go into creating a company, and many continue moving forward on their own. He points to Google and Facebook as examples — their paybacks came from going public.

“Someone investing in companies we work with shouldn’t expect an immediate payback,” he adds. “We look at a five- to nine-year time frame for returns.”

Ag-focused players

For the ag innovators tapping this kind of money today, there’s an interesting fact: Many of these young entrepreneurs grew up on farms. “Our story is that ag goes to Silicon Valley and comes back to ag,” says Jesse Vollmar, co-founder of FarmLogs.

Vollmar grew up on a Michigan farm and started writing software code at an early age, helping fix software for farmers, too. He moved to the San Francisco area and started FarmLogs with some seed funding in California — seed funding is the initial startup capital an entrepreneur needs to essentially keep the lights on.

“We plugged into the heart of Silicon Valley working with a startup accelerator called Y Combinator, which has been referred to as the Harvard for startups,” Vollmar explains.

Y Combinator helps entrepreneurs fine-tune their businesses and links those innovators with others in a mentoring role that creates an atmosphere where new ideas can flourish. Vollmar says in the early days, those investors didn’t understand the FarmLogs model and what the company was doing. They struggled to understand how the company would find its customers. He adds that the purchase of Climate Corp. “woke the VC world up,” because Monsanto — a seed company — essentially bought a software company. That proved there was money to be made with technology in agriculture.

The Michigan “farm boy” moved back to his home state and based FarmLogs in Ann Arbor, where he and his team continue to develop the cloud-based system designed to pull all your farm data — no matter from what source — into a single location. Vollmar’s company landed its latest $10 million round of funding from investors near the end of 2014.

Big money?

Michael Dean, another AgFunder co-founder, explains that his firm has seen more than $1.4 billion in deals flow through its platform. That means there are that many potential funding opportunities for investors to explore. “We’re seeing a range of opportunities since we kicked off and about 60% has been in North America, with about 24% of that in ag technology,” Dean says. “We’re not just looking at data products, we’re getting interest in biotechnology as well.”

Companies seeking funding have to present themselves to investors. AgFunder is just one of several players in the market that are linking investors with opportunities. Farmer-inventors with a well-thought-out product that can be ramped up to commercialization in a few years are likely candidates for this type of funding, too.

“It depends on the ability of these companies to roll out their technology to everyone, and that can take time,” Dean says. “Bigger companies can scale up quicker, but smaller firms can leverage this funding to move to market faster.”

Lance Donny with OnFarm raised about $800,000 through AgFunder as part of his process of moving toward the market. “Traditionally, technology in ag has come from big companies,” he says. “What these new investment opportunities like venture capital and crowdfunding provide is funding, so earlier-stage ag technology can develop innovative products and potentially disrupt the market. The big firm may not have the product road map to follow that a smaller firm can.”

Farmer-inventors know the importance of cash to keep the idea rolling. In the past, funding sources might end up being maxed-out credit cards or second mortgages on homes to fund innovation development. Donny says those funding sources limit growth, and potential for success. “It’s a catch-22. If you mortgage your house, borrow from your family and put it all on the line, you might succeed in a region. With investment capital, you can grow the business beyond those limits. And early-stage investment helps with research and development.”

Donny’s company works on the fundamental problem of data connectivity and can pull information into a central location from a range of sensors made by different companies. The result is data presented in an easy-to-use dashboard to users.

Tech at work

John Corbett is one of those entrepreneurs who has turned to this new funding source to expand his company, aWhere. With a Ph.D. in agricultural climatogy, “it wasn’t my dream to be an entrepreneur,” Corbett says. “We ran a company in ag climate consulting for eight years, and we had a vision for a platform. We would sell services and sell data — and now we are an SaaS company delivering localized, agronomic weather, globally.”

SaaS means “software as a service,” and it is a growing trend in tech. You don’t buy a program, you subscribe to it over the Web — offering you access to tools and technologies pretty simply.

The aWhere platform is a weather modeling program that allows users to bring in their own data and include weather information to manage crops. The program is seeing growth in developing countries, where farmers are hungry for information they can use to manage crops.

These funding sources are more than just money, Corbett says. As FarmLogs’ Vollmar found, there are communities of entrepreneurs that are linked by these funding sources. “With my academic background, I was not familiar with entrepreneurship itself,” Corbett notes. “Many people don’t know how to be an entrepreneur, and learning to become one took assistance from the investors.”

He adds that the Silicon Valley money coming into agriculture carries along valuable expertise he can put to use in developing his business. “It’s the people who know how to do this,” he adds. “There’s an enormous amount of wisdom and knowledge available.”

Corbett’s weather data platform can help a farmer in a developing country determine ways to manage a crop for better yield. And his data even show how a changing climate is impacting valuable food crops in those countries. “Warmer nights in one country that increase the incidence of disease in edible beans can cut yield 50%,” he says. “That’s significant if you’re counting on that food to feed your family.”

Sensors for the future

The tech firms moving toward agriculture bring a range of products and services to the market. Edyn is developing a soil sensor that can measure fertility, soil moisture and soil temperature. It has application in both gardening and commercial ag use.

Jason Aramburu, who talked to Farm Industry News from the Consumer Electronics Show, is the founder of Edyn. He says while he lives in the Bay Area (of San Francisco), he has a background in agriculture, having grown up in South Texas. “I’ve worked in the agriculture space for some time,” he says. His experience with ecology and evolutionary biology includes work on projects in East Africa for the Gates Foundation.

“I worked with small farmers for five years, and I’m very passionate about agriculture,” he says.

He’s found that farmers are interested in his $99 sensors that can measure a range of indicators in the soil. A sensor provides information relevant to 1 acre, and Aramburu says even in commercial agriculture, it would require one sensor per acre.

The company is close to full commercialization, and once production ramps up to higher levels the price of the sensor could fall. “We would work to ramp up production and get the cost of the device down,” he notes. “The device communicates over a Wi-Fi network sending data to the cloud. Farmers can then access that information to analyze it.”

Bringing new innovations to market will require capital from firms that understand the risks involved. Not every idea will succeed, but ag-focused entrepreneurs are working hard to bring you new tools to help you enhance productivity and farm better. In the coming months, we’ll offer more in-depth profiles of companies bringing a range of new technologies to market.

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