Venture capital is flowing to Canadian AgTech | Blake, Cassels & Graydon LLP

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Technology and innovation are transforming one of Canada’s most traditional industries, and venture capitalists aren’t getting tired of it.

As the venture capital (VC) market as a whole finds itself in the midst of a correction that reflects continued equity market volatility and global economic uncertainty, the agtech (agtech) sector may have held its own. on trend. According to PitchBook, Canadian deal volume in this space tripled between 2020 and 2021, and early indications for 2022 suggest we are on track to double the 2021 figure again by the end of the year. It is possible, however, that the market downturn has not yet been confirmed in the data, but in any case, agtech is and will continue to be an important focus for the venture capital industry. Below, we outline some of the reasons why and what it means for investors.

AGTECH BECOMES CONSUMER

Over the past two years, plant-based alternative protein companies such as Impossible Foods and Beyond Meat – both VC-backed – have become household names, accelerating the rise of the entire FoodTech industry. , including the agtech sector within it.

New technologies are inherently risky prospects, and VCs know they will write off the vast majority of their investments. The whole space operates on the basis that success is possible as long as you hit a few home runs – those holding companies that offer investors a 10x (or more) return on investment.

However, these types of returns are only possible for companies with large market sizes. And while agtech encompasses much more than alternative proteins, the consumer buy-in and proven success of these start-ups has been a boon to the wider industry by signaling market size and adoption potential. wider.

In our experience, companies in related fields – including precision agriculture and seed technology – now have an easier time attracting the attention of traditional venture capital funds and strategic corporate investors. who hope to consolidate their place in the agricultural sector of the future.

Nonetheless, challenges remain in converting interest into actual investment, thanks to industry-wide caution on company valuations and careful scrutiny of earnings.

CANADIAN SOIL PROVIDES FERTILE GROUND FOR AGTECH START-UPS

Agriculture has been a mainstay of the Canadian economy for centuries, and is well positioned to remain so well into the future, thanks to a thriving venture capital ecosystem that is helping the next generation of agricultural entrepreneurs thrive, wherever they are in the country. An ongoing challenge that the sector is increasingly taking up is to ensure that this ecosystem continues to become more interconnected. on the other side the country.

The sector has also helped Canada unlock potential outside of its three most populous provinces, through the development of emerging venture capital infrastructure in western regions where the bulk of crops are grown. .

For example, a proliferation of accelerators and incubators like Startup Edmonton and Platform Calgary have helped make Alberta a magnet for ag-tech talent, providing founders and their start-ups with the support networks they need in their early stages of development. And when the federal government unveiled its Silicon Valley-inspired innovation supercluster initiative in 2018, it allocated more than C$170 million in federal funds to Saskatchewan-based Protein Industries Canada to match industry investments. private.

The supercluster provides a focal point for academic institutions, non-profit organizations and companies of all sizes involved in plant protein research, while a number of provincial government incentive programs target companies in the field. agricultural technologies.

OLD PROBLEMS, NEW OPPORTUNITIES

While climate change and supply chain disruption – exacerbated by the Covid pandemic and Russia’s war in Ukraine – have caused the agricultural sector some of its biggest problems in recent years, agtech developers attract investment by presenting themselves as the solutions.

The agricultural sector has often found itself in the crosshairs of climate activists as the world shifts its focus to environmental issues. Indeed, the Government of Canada estimates that up to 10% of the country’s total greenhouse gas emissions can be attributed to agriculture and livestock production.

However, agritech companies harnessing developments in alternative proteins, regenerative agriculture and carbon capture look poised to play a major role in reducing the industry’s carbon footprint and combating climate change. climate more generally.

Meanwhile, smart farming methods powered by artificial intelligence and big data analytics promise to tackle local shortages and boost food exports by increasing efficiency and improving crop yields.

CHOICE OF WINNERS

None of the heat of the agtech market makes it easier for venture capital funds and corporate strategies to find the value they seek for their investments. So how should they protect themselves in their search for early career partners? Here are our top three tips:

  • Look at the direction: Founders will need to demonstrate not only that they have the expertise and training to deliver growth, but also the determination and character to withstand the grueling ups and downs of startup life.

  • Obtain sector expertise: Compared to other start-up spaces, agtech relies heavily on a strong command of science, including life sciences. Businesses tend to be faced with difficult technical questions that only intensive scientific research can answer. As a result, investors will have to go beyond their instincts, giving themselves access to a wealth of specialized knowledge about the target’s field of activity.

  • Request legal advice: Ideally, you should seek legal advice from a full-service law firm that can provide end-to-end coverage of the food and agribusiness industry, as well as extensive experience in venture capital funding.

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