CVCA News – Harvesting Results
December 7, 2016
Agribusiness VC Investment Surges in 2016
Canadian investment in the agribusiness sector has been on the upswing since 2013. According to Agriculture and Agri-Food Canada, the sector generated $108.1B in revenue in 2014 and contributed 6.6% of Canada’s GDP. VC activity has grown from $14M to $27M in 2014, to $42M in 2015, and now to $153M in the first three quarters of 2016.
CVCA wanted to dig below the surface to get a deeper understanding of the conditions fueling this complex, integrated marketplace, and examine the recent surge in agribusiness investment.
To do that, we spoke with Aki Georgacacos, co-founder and managing partner of Avrio Capital, a global leader in ag-tech and long-time CVCA member. Aki and his partners have invested exclusively in agribusiness since 2002, with a fund that’s currently valued at $110M. They’re familiar with the landscape, activities, opportunities and risks. In fact, earlier this year, Avrio was awarded VC Deal of the Year for its sale of Manitoba’s Fresh Hemp Foods, the third time the firm has earned this honour.
“There’s a global imperative to find a way to feed 10 billion people before 2050,” Aki says. “Many scientists say we need to increase the rate of food production in the next 35 years at the same rate we’ve seen it increased in the last 10,000 years.”
He believes that’s one of the key drivers behind the growth and that we’ll continue to see technology pushing the major innovations.
According to Aki: “Ag-tech companies will disrupt the landscape by helping rationalize and optimize farming operations and finding new ways to create more value”. For example, Avrio recently invested in Montreal-based Intelia Technologies, a company that develops control systems and data analytics for the poultry and swine markets. “The digitization of animal health represents a new frontier for precision agriculture,” Aki says of the deal.
A Patch of Shade
However, while there is strong interest and investment in the sector, Aki notes that the last year or two have been difficult due to the global drop in commodity prices. “Farm incomes are down,” he says, “and most American farmers are likely to lose money.”
Cash may be flowing into technology that addresses farm level optimization, but some of the customers don’t have the funds available to invest in these new breakthroughs. Agriculture Canada found that 59% of farm operators said financing was critical to innovation. That number grew to 72% for million dollar farms.
Aki contends the venture funds realize this lag is temporary, and that is why firms are continuing to place big bets in the sector.
What’s on the Horizon for 2017?
Aki is on the lookout for more rationalization because some companies haven’t been able to establish a critical mass, in part due to the downturn in commodities. On the food side, he thinks we’ll see more innovation in ingredients and a continued focus on healthy options and wellness.
However, there is one question on everyone’s minds: What impact will the U.S. election have on the agriculture market and Canada’s $51.5B in exports?
Avrio may not have a crystal ball, but regardless of the short-term outcome, the firm will continue to actively invest in agribusiness and ag-tech. Aki attributes his business’s success to the fact that they haven’t deviated or moved from sector to sector.
“We stayed true to the domain that we know and understand.”
© Canadian Venture Capital & Private Equity Association.