When our team formed the first Serra Capital Fund in 2010, we did not explicitly address opportunities in Ag Technologies with our investors. Looking back, it was clearly an oversight on our part. We are headquartered in Champaign Illinois near the University of Illinois campus. Through our experiences with many of the folks working in agriculture technologies on campus and our involvement in local programs such as the Entrepreneurs-in-Residence program at the Enterprise Works incubator, we were getting exposure to some interesting startups. With many big-name Ag companies located in the Park such as Deere and ADM, we felt the momentum growing. Fortunately, our stated mission did not exclude Ag Tech from our funding consideration. Once we opened that door a little wider, the flow of opportunities became large and very interesting. Two of us grew up in farming families in Central Illinois. It was not a difficult step to emphasize ag as a target industry group. We have since grown ag tech investment to about 25% of our portfolios and are considering expanding to even more Ag Tech in future funds. Our other investment themes include software and data, devices, and instrumentation. Obviously, some of these themes clearly overlap with some of the traits and technologies of many ag tech startups. My partners and I have operational experience in these areas of focus and have served as CEO’s and founders of startup companies.
Readers with experience working with early stage venture, angel, or other types of private equity startup financing will recognize our venture investing basics.
We seek opportunities to invest with great teams that are bringing technologies to big markets while developing meaningful strategic advantages. We prefer companies that have demonstrated some market traction. Our funds are small compared to big players on the coasts but we are organized in much the same way. That is, our funds are limited partnerships with a targeted life of 10 years. Our investors are seeking typical early-stage venture returns during that 10-year period. So, we need to organize a fund, find opportunities, make the actual investments (including subsequent follow-on rounds), help the teams grow, and ultimately, find a liquidity event or “exit”, most likely a sale of that company to a larger company, all within 10 years. These concepts apply to almost any type of technology investment fund. But with a little imagination, you can see why certain ag technologies can be more challenging for our model. Specifically, the time it takes to grow a biotech startup from laboratory concept to exit can take many years, often more than 10 years. Thus, certain regulated plant science and animal science concepts are hard for us to justify for our early-stage funds. Another ag tech challenge relates to the growing season limitations. If we find an opportunity that focuses on, say, a North American crop that only gets a single growing season per year, the timeframe to prove a product and gain customers can be painfully long. This applies not only to crop sciences but even software that may be used by growers.
These challenges, in my opinion, have limited the number of firms willing to invest with ag tech startups. But the list of high-quality investment firms that focus on Ag Tech is growing and many venture firms are building great strengths to help serve their portfolios. Like most venture capital firms, our firm prefers to invest alongside other professional investors. We have had wonderful success in finding strong partners willing to invest beside us.
For example, for our investment in Agrible, a Champaign-based Ag-data startup company that was acquired by Nutrien in 2018, we invested along with Flyover Capital, ADM, and Maumee Ventures, among others. When a startup firm can attract multiple investment firms with experienced professionals, a lot of good things can happen.
Further, the supporting ecosystems helping Ag Tech startups is evolving. For example, in addition to the world-class Enterprise Works incubator at the University of Illinois Research Park, we are working with others in launching the new Illinois AgTech Accelerator in the Park. The first cohort will begin later this year. The startup teams that participate will enjoy access to world-class expertise and facilities while receiving funding and learning from many experienced agribusiness and investment experts. We believe startups that take advantage of such resources can significantly improve their chances of success.
The forces driving the need to keep improving agricultural technologies and processes are powerful. The markets are large. Opportunities abound. There are many avenues of investment for AgTech investors – Biotech (plant, animal, energy), pesticides, biologics, aquaculture, online marketplaces, farm management software, sensors / IoT’s, robotics, equipment, food safety and traceabililty, logistics, processing, innovative food (cultured meat, plant-based proteins), precision farming data, the list goes on. As a team, we are constantly speaking with researchers, growers, investors, and others in industry to understand where the needs and opportunities lie. We are bullish on Ag Tech as an investment category.