As investment trends shift amid market volatility, agtech deal growth turned positive in Q3 as deal count decreased, according to our analysts. The 19% increase in deal values quarter-over-quarter has inspired some optimism among industry participants.
Agtech has gone through many peaks and valleys in the last few years, but it initially bloomed in 2013, when agribusiness conglomerate Monsanto acquired Climate FieldView, a weather insurance underwriter. The $1.1 billion transaction was one of the seminal deals for the industry.
In a strategic move to extend data capabilities to farmers buying Monsanto chemicals and seeds, the company leveraged Climate FieldView’s predictive weather technologies to identify crop variability based on climate change with trillions of weather and soil data points.
In the following decade, agtech’s disruptive potential resulted in a surge of startup activity focused on data and analytics. The agtech industry, one of dozens of verticals tracked by PitchBook, continues to attract investor interest— despite market volatility and industry challenges, it raised $2 billion in VC funding in Q3
This article takes a closer look at the evolving agtech industry—from what it is and why it’s important to the most promising emerging agtech solutions such as biopesticides and agbiologicals.
What is an agtech startup?
Agtech startups consist of technology companies that help agronomists scale yield, improve decision-making around farm management, and provide financial resources for operations. These tools aim to disrupt conventional agricultural practices that can be costly and inefficient. Startups in this industry leverage advancements in data analytics in biotechnology, sensors, machinery, AI, indoor farming equipment, and automation. Agtech companies hope to solve some of the industry’s and world’s biggest challenges, such as labor shortages and food insecurity, as well as circumvent issues brought on by climate change.
The agrifinance and ecommerce segment, for example, helps agronomists improve their strategy and manage risk in times of market uncertainty. Precision agriculture, or precision ag, holistically improves smart planting and crop management decisions based on advanced data points, tracking and analysis, and automation. This area has recently gained steam within the regenerative agriculture space, where companies adopt farming and grazing practices that reverse in an effort to reverse climate change, rebuild organic matter, and restore degraded soil.
Why is agtech important?
To handle increased food demand and navigate environmental threats in the coming years, the agriculture industry will need to embrace digitization—especially in underserved regions.
Practicing the industry’s adage of producing more with less will be crucial for maintaining global food output for future generations. The Food and Agriculture Organization (FAO) has predicted that adverse effects of climate change will affect populations experiencing food vulnerability the most severely in the decades to come. Forecasts anticipate that by 2030, 300 million people will be at risk for food insecurity and malnourishment.
Implementing smart agriculture will require a considerable investment from VCs into R&D and advanced infrastructure. While agtech has the potential to transform agriculture as we understand it, its scalability depends on sustainable and equitable digitization.
To learn more about emerging opportunities in agtech, read our Q3 2023 Emerging Tech Research Agtech Report.
Market drivers of agtech adoption
Agriculture has a long history of adopting new technologies, from the cotton gin to tractors and the ubiquitous use of synthetic fertilizer. However, as one of the world’s largest sectors, it remains stuck in outdated models that favor industrial production over localized approaches.
Supply chain and infrastructure hurdles—intensified by COVID-19—have furthered the need for connectivity infrastructure, especially in rural territories. The full agtech lifecycle involves multiple stakeholders, including farmers, distributors, packagers, consumers, and many other intermediaries. For small and mid-tier farmers who lack data connectivity or 5G networks, agtech platforms cut out costly intermediaries, as well as predict accurate demand and enhance traceability practices to ensure the quality of food.
A leader in greenhouse gas emissions, agriculture accounts for 11% of global emissions as of 2020. Cemented by government subsidies and hefty tax breaks, the sector’s traditional tactics, including livestock production for consumption and soil and crop management, increase atmospheric methane and nitrous oxide levels. The convergence of agriculture and renewable energy sources, such as solar panels and wind turbines, can assist farmers in making data-driven decisions that reduce emissions.
Consumer-led demand for traceability, sustainably sourced food, and ethical supply chain practices is boosting the incorporation of Environmental, Social and Governance (ESG) frameworks. Increased concerns over the health impacts of GMO products and transparency related to animal welfare and food safety are continuing to reshape industrialized farming. From certification compliance to verifying whether food is locally sourced and organic, agtech solutions seek to address consumer concerns and help retailers command premium prices through precise data and analytics.
Agtech industry quick stats
Source: PitchBook | Geography: Global | *As of November 30, 2023
Agtech blooms in developed regions
Agronomists across Europe and Northern America have started to unlock crop resilience, driven by more sustainable practices that couple AI solutions with advancements in precision ag, ag biotech, and indoor farming. According to our emerging tech 2022 Agtech Overview report, 47.4% of total funding by deal value was focused on North America, followed closely by Asia, which generated 22.5% of overall value.
Developing technologies—from biofertilizers to AI and ML—are boosting global food supply with an eye toward ecological regeneration and biodiversity. Opportunities in biofertilizer technologies that take atmospheric carbon into the soil will contribute to the growth of healthier crops, while ML capabilities can traverse ecological risks through automated decision-making.
Field robotics from Augmenta and Rowbot help to reduce inputs, boost efficiency, and cut costs while protecting the environment, while Hortau increases water efficiency by monitoring plant yield. Halter’s herd management software sets geographic boundaries and virtual fences for cattle to improve their well-being and manages overgrazing, which can lead to soil erosion.
Learn more about stock performance, valuations, and market caps—as well as revenue forecasts of key public companies in our Q2 2023 Agtech Public Comp Sheet and Valuation Guide.
What are the five agtech segments?
Precision ag and vertical farming innovation
Advancements in precision agriculture and indoor. vertical farming continue to lead the way in changing how our food is produced and consumed globally. An increased focus on sustainability due to climate change and the need to meet growing food demands necessitates an increased focus on the next generation of agtech technologies.
Precision agriculture technologies optimize planting methods and reduce organic inputs such as fertilizer and pesticides with drone aerial imaging, data analytics, and even robotics for optimal decision-making. Farmers can reduce their environmental footprint while optimizing operations with real-time insights into crop health, potential diseases, social conditions, and predictive weather patterns.
Encouraged by the advent of GPS, precision agriculture tools create maps of spatial variability to measure crop yield, soil, topography, organic matter, and more. By collecting data using GPS equipment farmers can enable specific applications of inputs such as fertilizers and seeds depending on variations.
Companies to watch
- Founded in 2023 by Stanford University graduate students, Blumen is a farm management software that uses advanced ML & AI to reduce the use of fertilizer and encourage regenerative practices on large farms. Backed by leading early-stage investors, such as Caffeinated Capital, Haystack Ventures and Susa Ventures, their proprietary software builds, and AI system is based on, geospatial datasets and regulatory documentation to identify soil’s mineral status.
- Climate, a subsidiary of Bayer, produces digital tools that integrate data analytics, field-level insights, and real-time weather information to help farmers optimize their decisions. Their analytics examine weather, soil, and field information to help farmers identify potential issues in their fields.
Indoor vertical farms
These alternative farms provide year-round harvests in numerous controlled environments—especially advantageous to urban areas. By reducing the need for scarce, arable land to cultivate food, indoor farms aim to minimize the external effects of climate and pesticides on crops. Using reusable energy sources not only creates a circular economy but also mitigates organic waste while holding the potential for solving food scarcity.
Vertical farming cultivates crops indoors in stacked layers using LED light systems’ similar spectrum of sunlight needed to grow plants. Instead of using soil, vertical farms utilize hydroponic and aeroponic techniques, which also reduce water consumption. AI advances vertical farming by analyzing factors such as temperature and nutrient levels, and can even be used predictively to prevent crop disease.
Companies to watch
- Plenty is a leading vertical farming company based in California that utilizes hydroponic systems and specialized machine learning to cultivate plants outdoors. The company utilizes its proprietary vertical farming systems that combine engineering and crop science to produce crops that require less water, enabling users to consume healthy food all year long without GMOs or pesticides. The company raised $400 million in venture funding led by One Madison Group and JS Capital Management in January 2022, with the company’s pre-money valuation at $1.03 billion.
- New York City-based Gotham Greens produces greenhouse-grown vegetables and herbs intended to provide a year-round, local supply of pesticide-free produce. The company’s products include herbs and leafy vegetables grown using integrated pest management techniques, including biological controls such as using beneficial insects to prey on harmful pests.
Emerging agtech solutions
Emerging agtech tools work to strengthen conventional farm management with the aim of replacing existing methodologies. Two areas are expected to experience significant growth in the years ahead: biopesticides and environmentally friendly ag biologicals.
According to our Q3 2023 Agtech Report, VCs have their eye on biotech companies developing alternative environmentally friendly biopesticides.
Ag biologicals, part of the ag biotech segment, focus on reducing dependency on synthetic fertilizers through organic alternatives. As an extension of precision ag, soil measuring, and carbon farming, these tools holistically address and support soil health. We dive into both in more detail below.
Biopesticides and agbiologicals
Synthetic fertilizer has supported farmers in producing higher yields since the early 19th century. However, its high nitrogen phosphorous levels have also significantly damaged the environment. Pesticides can cause disease as well as create runoff that winds up in waterways and aquifers, contribute to higher greenhouse gas levels, and acidify soil, which prohibits its ability to absorb atmospheric carbon.
Derived from organic matter such as plants, bacteria, fungi, and minerals, biopesticides provide an environmental alternative to conventional chemical pesticides. They leave a lower environmental footprint and are degradable to preserve soil health. Apart from consumer-led support for minimizing the use of chemicals in produce, regulations across countries are favoring biopesticides by creating incentives for adoption.
Produced by Bayer and startups, ag biologicals use naturally occurring microbes and microorganisms in seed, insecticide, and pesticide treatment. Some examples of ag biologicals startups include the following companies:
- AgBiome, headquartered in Durham, North Carolina, is the developer of a microbial screening platform that can search for microbes that provide pest control and crop protection.
- AgBiTech produces insecticides that use a technique called nuclear polyhedrosis virus (NPV) to target pests such as bollworms, suppressing the pest without affecting other insect populations.
According to data from Statista, the overall agtech market is expected to reach $22 billion in value by 2025. Since agtech is one of PitchBook’s analyst-curated verticals and Industry and Technology Research report offerings, we will continue to publish proprietary agtech research and market updates as the space evolves. See some of our latest reports below:
Learn more about agtech
Read our Annual Agtech Overview report for a closer look at the vertical
Download our 2022 Annual Agtech Overview to see how climate change is driving growth
Discover how precision ag optimizes farming operations
Read our blog on the crucial role of precision ag in farm management
Learn more about agtech’s recovery after the height of market volatility and where VCs are investing
Read Q2 2023 Agtech Report to learn more