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Focus on Life Sciences & Technology: 2016 AgTech Investment

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Global venture capital (VC) investment cooled off in 2016, following 2015’s record high levels. Overall VC deal flow slowed nearly 25%, while dollars invested dropped 10%. Poor IPO performance and political uncertainty drove a hesitant fourth quarter, rounding out the down year. The agtech industry was impacted by the global VC decline, yet we see reasons to be optimistic.
March 2, 2017

Global venture capital (VC) investment cooled off in 2016, following 2015’s record high levels. Overall VC deal flow slowed nearly 25%, while dollars invested dropped 10%. Poor IPO performance and political uncertainty drove a hesitant fourth quarter, rounding out the down year. The agtech industry was impacted by the global VC decline, yet we see reasons to be optimistic.

The agtech industry received $3.2 billion of new investment in 2016, averaging $5.7 million per deal across 580 deals. While dollars invested fell 30% from 2015’s record-breaking levels, agtech deal count increased 10% year-over-year, and investment still outpaced 2014 by nearly 35%.  

Below is a five year snapshot of agtech investment, per AgFunder’s 2014, 2015 and 2016 agtech Investing reports. Deal count data is only available for FY2014, 2015 and 2016.

 

Decreased funding in drone technology played a large part in the sector’s decline – the popular, emerging technology drew record high “outside” investment during 2015, but deal flow cooled as companies put their new funding to work on developing the market and scaling. While investment in a handful of agtech categories dipped, it grew for many others. Agricultural Biotechnology grew 150% to $719 million, while investment in Novel Farming Systems grew by 63% to $257 million. Other promising categories that experienced growth include Farm Management Software, Sensing & IoT, and Supply Chain Technologies.

 

While Series A funding in the sector dipped roughly 40% during 2016, Series B funding increased 14% year-over-year, reaching $791 million thanks to large dollar flow to biotechnology and novel farming system technologies. Seed stage agtech companies attracted $230 million, up 77% from 2015. The increase in funding is largely in part to a 2016 influx of new accelerators and incubators. A collaborative report released Q4 2016 by AgInnovation, AgFunder and AgThentic provides an interactive guide to available startup resources, including a current list of agtech accelerators and incubators.

As the introduction of new accelerators and incubators drove growth in seed stage investment, one of the earlier ag-dedicated accelerator’s continued to contribute to the sector with six new $100 thousand investments in agtech startups.

The Yield Lab was established in 2014 as one of the first accelerators to focus solely on agtech companies, and has invested over $1.5 million worldwide since its inception. In addition to its St. Louis, Missouri operation, The Yield Lab introduced a new accelerator in Galway, Ireland in 2016, in order to support and engage with European agtech companies.

Even with the slowdown in 2016, agtech investment has increased significantly over the past 3 years.  However, there still appears to be room for significant growth and opportunity. Rob Leclerc, founder of online investment platform AgFunder, recently labeled the agtech industry as “an industry hungry for capital.”

The future looks quite promising for the industry and the companies solving the food and agricultural production challenges facing us today: increasing global demand for food and food security, supply chain dynamics highly affected by climate variability and a long-term need for sustainable production. We are bullish on the future of agri-business and ag-related technology (see our Fall 2016 Horizons article What Lies Ahead in Agri-Business and Ag-Bio). We believe that the investment we are seeing now will help drive innovation, globalization and adoption in the future – which over the long-term will improve agricultural productivity, food security and sustainability.  

We will continue to monitor these developments and their effect on the agtech sector, the broader life sciences and technology industries, and the overall economy. RubinBrown has a dedicated Life Sciences and Technology Services Group that works with local, national and international companies to provide advisory, assurance and tax services for entities participating in or supporting life sciences and technology industries.

 

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

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