Dive Brief:
- Investment in early-stage agrifood tech startups grew 6% to $4.4 billion in the first half of this year compared to a year ago, according to the AgFunder AgriFood Tech Investing Report - MidYear 2017. Series A funding hit a record $660 million, AgFunder reported.
- While the total number of deals declined to 369 as seed-stage activity dropped, large ones pushed up the total dollar figure. The biggest outlier was $1 billion in Series H funding for Chinese Restaurant Marketplace.
- There was great interest in food delivery startups, with that sector raising $2.7 billion. Farm technologies raised $1.1 billion — a 56% hike in year-over-year growth — and novel farming systems, such as insect and vertical farms, raised $198 million — a 36% increase from the first half of 2016.
Dive Insight:
The report is from New York-based AgFunder, an online investment platform for agrifood technologies. It describes itself as helping accredited and institutional investors discover and invest in startups that are transforming the food and agriculture industries through proprietary research, big data and machine learning. Agrifood tech is defined as the small but growing segment of the startup and venture capital universe trying to improve or disrupt the global food and agriculture industry from the farm to the consumer.
According to AgFunder, today's agrifood sector is largely inefficient. With the increasing demands and constraints being placed on it — including changing consumer preferences, a growing population, climate change, environmental degradation and waste — an opportunity exists for entrepreneurs to create new efficiencies using the latest in software, artificial intelligence, biotech, IoT and robotics.
The global nature of agrifood tech investment was striking in the report, with startups from 42 different countries featured. Of the parties involved, 702 were unique investors, including Silicon Valley venture capital funds, dedicated agrifood investors, corporate venture arms, governments and pension funds.
While it's no surprise that these entities might want to get involved near the ground floor in potentially profitable agrifood tech startups, the total dollar value is impressive for just the first six months of this year. Chances are these kinds of investments will only continue to grow if the funded startups can prove their worth over time.
According to CB Insights, U.S. venture capital-backed food tech funding hit $449 million in the fourth quarter of 2014, with Series C funding of $220 million for Instacart and $90 million for Hampton Creek included in that total. In 2014, the total zoomed to $1.07 billion, which was a 272% jump from the previous year.
While there was a pullback from mega-funding rounds in early 2016, a few significant deals were made in the months leading up to the beginning of last year. They included Blue Apron's $135 million in Series D funding in the second quarter of 2015, $126 million to German meal-kit delivery service HelloFresh, and $120 million to Indian local food delivery service Grofers.
Not everything has gone well for those three firms since — mostly due to growing pains. Grofers invested a lot of money in marketing and had technical issues when its app broke and services were unavailable in areas where it had run ads. HelloFresh had to revamp its products after customers complained it took too long to chop meal ingredients, and Blue Apron's stock dropped more than 40% after its disappointing IPO in June, prompting the co-founder and COO to step down while another executive was promoted.
Growing pains are inevitable with any startup, and jitters among investors are also inevitable. But given the impressive dollar figure of total investment in agrifood tech for the first six months of this year, it's possible that sector has already started to reach a post-shakeout period.