Investors' reluctance to invest in agri-agricultural startups
How do you innovate when less and less money is being invested in startups? This question was posed at the 7e edition of the LFDay by La Ferme Digitalethe leading event in the innovative agricultural and food ecosystem, on Tuesday June 13 in Paris. Indeed, a number of entrepreneurs in the agri-food sector have made the following observation: the agri/agro sector is no exception to this trend.
Yet investment boomed during the Covid-19 pandemic, with venture capital soaring in the digital sector. After a period of exceptional abundance in 2021, investors seem to have come out of a bubble since mid-2022, favoring startups already in their portfolio and thus guaranteeing a faster return on investment. In the US and Europe, the venture capital market is now back to its 2020 level.
Particularities and resilience of the agrifood sector in the face of investment challenges
The agricultural and agri-food sector is unique in that it works with living matter, which often requires a high initial CAPEX (capital expenditure) and a potentially long incubation period (e.g. feasibility tests, laboratory and field trials, etc.). This is particularly the case for companies specializing in biotechnology or healthcare. The payback period is necessarily longer than in other industries. The agri/agro sector is therefore probably perceived as "too risky" by investors.
However, this greater risk-taking is largely offset by the sector's high social and environmental stakes. This sector, essential to human existence, faces a number of complex issues, including climate change, pollution, waste management, changing consumer trends and volatile raw materials markets. This is why a strong resilience is observed in the industry, despite the reduction in investment. Indeed, the sector recorded rising investments for climate technologies such as theconnected farming, the bioenergy and biomaterialsand theprecision agriculture.
Tips for agri-agro entrepreneurs on convincing investors
At the #LFDay event on June 13, 2023, the panel of experts led by Paolin PASCOTco-founder of La Ferme Digitale, highlighted several trends:
- To make the agri-agricultural sector more attractive to new generations, it is important to democratize and create more fluid access to assets (access to land, or CAPEX for example);
- Investors are increasingly interested in real income (" free cash flow "the return on investment time and the project value proposition to customers. Interest in future predictions of target market growth seems secondary.
- Advice for entrepreneurs looking for investment: prepare a clear and concise brief in relation to the target customer/market, work on your value proposition, team composition and intellectual property are also highly scrutinized. The " soft skills"the most valued by investors are the transparency and the ability to listen.
What other financing opportunities are there for companies in the agri-agro sector?
Others complementary financing strategies can be considered depending on the stage of development of your innovation project:
- The installation of partnerships with research instituteswith the aim of removing scientific and technological barriers. Expertise and financial aid are available to support entrepreneurs in these endeavors. CICo tax system was created with this in mind. You can also easily identify academic experts on your R&D topics thanks to the ideXlab open innovation platform ;
- The tax and social assistancesuch as the status of Young Innovative Company (JEI), research tax credits (CIR) and innovation tax credits (CII)which can finance part of the costs incurred in R&D or innovation activities (personnel costs, depreciation, services provided by approved organizations);
- The public grants and subsidiesThese include calls for projects (AAP), calls for expressions of interest (Ami), territorial investment programs and industrial development funds such as "SPI - Sociétés de Projets Industriels". Find out more about current calls for projects in the agrifood sector in our dedicated infographic ;
- The fundraising with specialized organizations, particularly for projects with a high social/environmental impact (alternative proteins, regenerative agriculture, bioenergy, biomaterials).
This article was written by Lethicia MAGNO, innovation consultant specializing in the agricultural and agri-food sector.
- CB INSIGHTS. 2023. The State of Venture in 5 charts: Funding and deals continue their slide in Q1'23 to pre-pandemic levels.
- CCI Paris. Summary: How to finance an innovation project?
DigitalFoodLab. Investments, innovation and trends report on the state of the European FoodTech in 2023.
- The Pragmatic Engineer. 2023. The State of Startup Funding in 2023.