Some ag technology observers look back on a single event that started a giant push of new money toward startups focused on agricultural technology. “There’s no question that since 2013 when the Climate deal was announced, it has changed the industry,” says Arama Kukutai of Finistere Ventures, an ag venture capital firm.

He’s referring to the deal by Monsanto to spend more than $900 million to acquire The Climate Corp. And Kukutai explained that 2017 set another record for venture dollars invested in new startups. While the total number is above $3.4 billion, he was looking at the $1.5 billion in new money for the industry.

Arama Kukutai, Finistere Ventures

Long involved in the venture capital business, he can rattle off a long list of deals in the past few years that go beyond startups, with purchases by big companies acquiring smaller firms with new ideas. From Bayer’s acquisition of AgraQuest to John Deere’s recent Blue River buy.

“The Climate deal opened up Silicon Valley and digital ag spending,” he says. “Precision ag already existed, but it is the idea of the internet of things, artificial intelligence and more that spawned many imitators and new tech companies really taking advantage of the revolution in ag.”

And 2018 won’t be much different. As 2017 was winding down, there came a host of announcements concerning Series D financing for companies including Farmer Business Network. If you look at the life cycle of a startup, those “Series” announcements make more sense.

From the beginning
Kukutai explains that a person may have an idea and start in a garage, where the person develops a self-funded tool or software (this is where entrepreneurs often acquire multiple mortgages); but as the idea gets more traction, you may see what are called “angel investors.”

Those angels bring new money to keep the doors open and see a product move toward “proof of concept.” That’s a phrase common in the startup business: Does the product actually do what the inventor says? From there, the entrepreneur could get funding from a venture capital incubator.

Y Combinator is a famous incubator that not only provides funding, but also brings together young startups for mentoring, idea sharing and refinement.

Then more investment starts — often with Series A funding to get the ball rolling. Each funding round is “coded” — from A on. So when a company gets to Series D, that’s a solid sign that the company has a firm business model.

As farmers see these startups move forward, understanding where the startups are on the funding curve can show a little more about their businesses. There are some solid startups out there offering a range of services, and Kukutai says it’s far from over.

“We had an event in 2017 where we brought in 370 investors to chat about what’s working and what’s not working [in the ag startup business],” he says. “We had 10 companies we selected to put through a review process with this group and expose investors to those companies.”

What interests Kukutai is that there are new faces in the ag investment business even now, after four years of frenzied spending. “They’re not just saying they're interested in ag tech, they’re writing checks,” he says. “We’re getting 10 to 20 inquiries a month from other funds to invest in [the ag tech space]. They’re saying, ‘Can we chat?’”

Benefits for farmers
So what does all this investor money mean for the farmer? Kukutai is optimistic. “Generally speaking for farmers, with margins squeezed and continued risk in the sector, they need all the help they can get,” he says. “There are new tools for productivity, yield enhancement, environmental impact to produce better results. Overall, that’s good for the farmer.”

Finistere is an investment firm that puts money up for startups, usually early in their development. What’s different about the ag tech sector from other technology spaces is that agriculture is a horizontal business, not a vertical. In a vertical business, it’s about the laptop or the chip. In ag, there are companies involved in synthetic biology, blockchain technologies, satellite imaging “and everything in between,” Kukutai says.

What he sees, and something farmers should be aware of, is that these new startups are going to challenge the status quo. The input players in the market will find competition coming from new areas. And those challenges could change the face of farming.

For those that think the ag tech “bubble” is about to burst, Kukutai has a different message: The industry is just getting started.