In 2021, the world reported a 42% increase in demand for food and agricultural resources. This presented a challenge for entrepreneurs to create sustainable solutions to combat the looming hunger parade. One of such entrepreneurial solutions involves the infusion of high technology into agriculture to facilitate food production and processing.
What is an agritech startup?
Agricultural technology, also known as agritech/agrotech/agtech startups, are companies that capitalize on technology and technology processes to facilitate farming and other agricultural activities.
Agritechs invest a lot of money to finance and incorporate technology into their business. In 2019, the global agritech industry was valued at a lofty $17,442.7 million.
Interestingly, it is predicted to reach $41,172.5 million by 2027 with an annual growth rate of 12.1%. In addition, world food consumption is on a steady increase, due to rise in population figures and post-COVID effects. This goes to show how much Agritech companies need money to be able to sustain the global food supply chain.
Where does technology fit into all of this?
Smart farming implements agricultural technology trends like drone technology, indoor vertical farming, farm automation, precision agriculture, improved mechanized farming, crowdfarming platforms, livestock tech, Artificial intelligence, and so on.
Technological tools make large-scale farming feasible at low-cost and efficient agriculture system.
Why seek investor funding?
Most startups do not have a well of cash backing their initial operations and it does not differ for companies whose vision it is to feed particular segments of the world population.
Agro-based startups will certainly not survive without funding due to harsh market conditions. In addition, incorporating technology into farming, food production and processing requires a huge capital base to be successful.
Agrotechs need so much money beyond their capacities to be able to scale profitably. While bootstrapping might be feasible at the beginning and for small-scale farmers, agtechs require so much more funding because of the high level of growth associated with them.
Why then should agritech startup owners endure the hard, excruciating journey to get investment funding?
The answer is simple!
To expand, grow, and cater to both new and existing markets without cutting quality. There’s no formula anywhere that lets a founder achieve such a feat without sufficient cash.
When to seek investors?
The best time to reach out for investment in your startup depends on you, the founder!
Start by truthfully answering the following questions:
- Has your startup made any real progress since you started out?
- What’s your market traction like?
- Have you identified your target customer yet?
- How about achieving market-fit for your product?
- Can you confidently convince an investor that your startup company is growing?
- What is your user adoption rate?
How fundraising works is that Investors are willing to place bets on what they presume to be high-potential businesses. They’re not scared of innovative, smart-sounding companies growing up to outmatch them.
Rather, they want to grow with promising startups as well as make money from their uprising by providing financial backing.
So understanding things from an investor’s point of view will greatly help to put things into perspective. Given your current level of startup growth, do you think you could sell your company’s vision, profitability potential and executive team as a glowing opportunity to potential investors?
Does growth level affect fundraising?
Sometimes, the level of company growth determines if founders should go for external funding or not. For some startup companies, a promising idea and a flawless reputation can conveniently do the job of fundraising.
While other companies might have to build something, model a product, or at least get some form of market testing done in order to be funded.
Remember, the goal is to convince investors that your company has the potential to reward them handsomely, should they decide to place their bet on you.
How much capital funding to raise?
The amount to be raised depends on the growth stage and what you need the money for. Though every company wants the kind of funding that will end all fundraising. The bad news is that there will always be bigger projects requiring even more financing.
How to get financing for Agricultural technology companies?
There are different kinds of agtech startup funding some of which are:
- Bootstrapping: Financing business from personal sources such as founders, friends and family.
- Crowdfunding/farming: Crowd farming is the real trend these days. Partnering with fintechs, some agrotechs access public funding through mobile-based applications. These apps can be used by anybody to invest in a number of investments packages at different maturity dates and interest rates.
These tech-enabled platforms are good funding options for large-scale farming. The company will use the invested funds profitably and at the end of the farming season (usually less than a year), share profits with individual investors based on investment volume.
- Government and private grants: There are specialized funding agencies created by the government to encourage innovative farming solutions, biotechnologies and food production.
- Business loans
- Investor’s fundraising
- Venture capital funding
- Business angels
- Startup incubator and accelerator programs
- Private equity investment
Funding and investment guide for agritech startup
Here’s a guide to what every agritech owners seeking investors should know before sending the decks
1. Agritechs should specialize on a niche
Agriculture is a very wide industry. Hence, early-stage agritech startups need to focus on one niche to be profitable, at least until there is enough market stability to diversify into related sectors.
Dabbling into so many things from the onset signals a lack of clear-cut purpose for a startup. Know why you’re in the market, who your primary consumers are, and focus on providing solutions to their needs.
2. Agric insurance is a thing
There is so much uncertainty in the agro-business, what with Mother Nature and all. No investor will be drawn to put money in a risky venture with no form of insurance cover whatsoever. For this reason, insuring agricultural products is a norm among agro-firms.
3. Build business partnerships and network with complementary firms
Before pitching any agricultural technology company to potential investors, founders need to build a service ecosystem that includes producers of complementary products.
For example, a tomato-processing company may partner with tomato farmers to build improved storage facilities they can both benefit from. The goal is to facilitate the production process and service delivery. Plus, it’s a selling point to the company’s image before potential investors.
4. Get familiar with your market numbers
Always be investor-ready with your market data, and never be caught unawares by an investor. Familiarize yourself with metrics like market growth projections, the current customer base of your product, funding amount, financials, and other important information investors need to assess the viability of a business.
5. Build a solid team
Before any investor writes you a check, they want to be sure there’s actually a united group of people who will spend their money productively.
Your team may not comprise only tech people, you’d need marketers, media/publicity personnel, and financial experts too.
6. Determine the best funding option for your agrotech startup
It is no news that not every investor type suits a business. Dealing with difficult investors can prove to be time-wasting and unproductive especially when your goals do not match.
Hence, it is important to define your business objective first before actively seeking investors whose interests align with your set objectives.
When seeking investor’s funding, know that you will have to give up a share of ownership and therefore, partial control will be vested on an investor. To be on the safe side, set up a managerial board to oversee activities and agree on controversial issues.