The Future of AgTech Funding—A Conversation with Astanor Ventures

Key Takeaways

1. The AgTech sector faces unique challenges in securing funding, largely due to agriculture's seasonal and low-margin nature.

2. Astanor Ventures prioritizes startups that address global challenges like climate change, food security, sustainability, and health.

3. Given its unique characteristics, traditional venture capital models may not fully apply to the AgTech industry.

4. Astanor Ventures emphasizes a startup's funding strategy, cash management, and burn rate as crucial metrics for long-term viability.

5. The venture capital firm is pioneering a shift towards responsible capitalism by tracking the impact of its investments.

The agriculture technology (AgTech) sector is burgeoning with innovations that promise to revolutionize traditional farming practices. However, the journey from ideation to implementation is fraught with challenges, not least securing funding.

To gain insights into the complexities of AgTech funding, we sat down with Christina Ulardic, a partner at Astanor Ventures, a venture capital firm specializing in this transformative sector.

Realizing the Issues in the Food Supply Chain

Recent shocks, such as the COVID-19 pandemic and the Russia-Ukraine conflict, have exposed global food supply chain vulnerabilities. These events have increased awareness of the need for agricultural innovation. Christina Ulardic notes, "These events have highlighted the importance of smaller companies in creating impactful solutions as throughout history, rarely has an incumbent found a tangible solution to the problems faced."

Ulardic adds, "Ideally, startups in this sector need to balance potential impact and profit without compromising." This is a delicate equilibrium, especially when the world increasingly depends on sustainable food production methods.

The Seasonal Nature of Agriculture

Agriculture is inherently seasonal, which poses unique challenges for technology integration. "Any decision you make in agriculture is binary and very seasonal. When discussing tech and agriculture, we often forget that it remains agriculture, not just a software solution," Ulardic points out. This seasonal aspect makes it difficult for startups to demonstrate quick results, which can deter potential investors accustomed to the faster-paced tech industry.

What Problem Is the Technology Solving?

Astanor Ventures has a clear criterion for investment: "The first question we ask is, what problem is the technology solving?" says Ulardic. In an industry grappling with climate change, food security, and sustainability, the answer to this question often becomes the deciding factor for investment. Ulardic emphasizes that Astanor Ventures is particularly interested in solutions that can make a meaningful impact on these global challenges, thereby aligning the firm's investment strategy with broader societal needs.

The Reality of Low Margins

Ulardic acknowledges that agriculture is generally a low-margin business, making the funding strategy of an AgTech startup not just important, but vital for its survival and growth. "Investors often enter this industry with traditional venture models, expecting a 10X return, which is unrealistic given the unique challenges each business faces," she explains. This mismatch between investor expectations and industry realities can often lead to a shortfall in funding, stunting the growth of promising startups.

Funding Strategy, Cash Management, and Burn Rate

Astanor Ventures places significant emphasis on a startup's funding strategy, cash management, and burn rate. "These financial metrics are crucial for assessing a company's long-term viability," Ulardic states. She adds that startups need to consider whether their funding strategy fits a sequence of investment rounds and whether their cash burn rate is sustainable in the long term. Ulardic suggests that startups should be prepared to adapt their financial models to suit the unique characteristics of the AgTech sector.

A Collaborative Approach

Astanor Ventures sets itself apart by working closely with entrepreneurs. "We believe that innovation is a collective endeavor," Ulardic explains. This collaborative approach is rooted in Astanor's optimism about the future of AgTech, a sector they see as ripe for disruption and positive impact. Ulardic believes that this partnership model can accelerate the pace of innovation, thereby increasing the likelihood of startups overcoming the sector's inherent challenges.

Tracking Impact for Responsible Capitalism

Astanor Ventures is at the forefront of a shift towards responsible or "impact" investing in venture capital. "By measuring the social and environmental outcomes of our investments, we're contributing to a new definition of investment success," Ulardic states. The firm has developed a set of Key Performance Indicators (KPIs) that include planetary, people, and enabler metrics to evaluate the impact of their portfolio comprehensively. This innovative approach could serve as a blueprint for other venture capital firms looking to invest responsibly.

Conclusion

The AgTech sector is teeming with potential but is also fraught with unique challenges, especially when it comes to funding. Venture capital firms like Astanor Ventures are adapting their investment strategies to better align with the sector's unique characteristics, all while pushing the envelope on what it means to invest responsibly. As the industry continues to evolve, the insights from thought leaders like Christina Ulardic will be invaluable in shaping its future. With the right funding strategies and a focus on impactful solutions, AgTech startups have the potential to make a lasting difference in the world.