Impact investing – funding companies or organizations that can make a real difference to society – is creating a buzz in equity circles, but is it all that different from traditional venture capital? Three food and agtech investors explain.
More than a quarter of all money under professional management in the US is invested in companies or organizations that aim to deliver socially responsible outcomes. So concluded the biennial US SIF Report on US Sustainable, Responsible and Impact Investing Trends, released at the end of October 2018.
That’s around $12 trillion, a dizzying amount that shows just how mainstream impact investment has become. And increasingly, investors are identifying food and agriculture as a sector that can make a huge difference, delivering real, tangible impact.
The 2017 AgFunder Report shows investment in the food and agriculture sector has grown twenty times in size since 2010 and totalled more than $10 billion in 2017. Huge sums are being invested in food and agriculture firms that are disrupting the status quo and changing the way we grow, process, distribute, sell and consume food.
But according to Jaleh Daie, Chair of AgriFood Tech, Band of Angels and Managing Partner at Aurora Equity, ‘impact’ investing has become something of a buzzword.
“Almost all investments in food and ag are ‘impact investing’”- Jaleh Daie, AgriFood Tech
Food for the human condition
“Almost all venture investments in food and agriculture are ‘impact investing,’” says Daie. “Because food is the most fundamental need for human beings, so whatever improvements we make in this space ultimately improve the human condition. The reason I think it’s a buzzword is because it’s a new space for a lot of investors.”
Daie has spent her entire career in the food and agriculture sectors and it’s this experience that shapes her investment approach.
“We have deep domain expertise and started investing in food and agriculture technologies some twenty years ago – way ahead of the curve, which makes us valuation conscious. Food and agriculture is not another social media app or dotcom company. It needs special expertise and a sense of industry-appropriate valuation.”
“Food and agriculture are not social media apps or dotcom companies”- Jaleh Daie, AgriFood Tech
That said, investing in a company that could make a real difference can bring rewards that more than justify the initial outlay. “We want to do something positive to improve the human condition, but we want an attractive return alongside that,” says Daie.
“An example of impact investing we did is in a company that developed a way of producing difficult to obtain ingredients such as natural insecticides and food ingredients such as vanilla through a yeast fermentation process, easing the pressure on conventional vanilla production in Madagascar. The company was subsequently acquired by Swiss biotech company Evolva.”
Social imperatives meet technological advances
The opportunity to change society for the better through investment is what drives Managing Director of London-based Matador Ventures Severine Balick. Her work supports the transition of the food system towards a more transparent and sustainable model.
“Because we don’t have a ‘Planet B,’ we need to act now to solve some of these global issues to improve the health and welfare of our planet, soils, animals and farmers,” she says. “Impact investments provide us with powerful collaborative tools. We work with academics, politicians, investors and non-profits to reinvent our broken food system by supporting innovative ideas, technologies and entrepreneurs in the food and agtech space.”
“We need to act now, because we don’t have a ‘Planet B’”- Severine Balick, Matador Ventures
Balick believes that, by raising more awareness about these investment opportunities and fostering more collaboration, we can achieve a more equitable food system in which consumers and farmers have more power. She thinks the time is ripe for bigger and more significant food and agriculture investments.
“We can’t keep looking at our food system and not act,” she says. “Today, there are powerful macro-drivers combined to sociological and cultural trends that are converging to make food and agriculture a highly compelling case for investors.
“There’s never been a better time to invest: consumers are demanding more transparency and better food with less negative impact on the planet, while technology costs are falling. That means we can leverage the Internet of Things, artificial intelligence, machine learning and automation to create better and cheaper solutions that change the way we produce, distribute and consume food.”
More than just financial support
Getting behind early stage, innovative companies that will add value to the food and agriculture supply chains is the focus of the Rabobank Food and Agriculture Innovation Fund (RFAIF). Managing Director Richard O’Gorman believes that added value creates impact by definition: “I fully believe that, if innovative companies can bring solid value propositions to the food and agriculture supply chains alongside a well-designed business and execution model, this goes a long way to success.”
He continues: “When we make investment decisions, we are more focused on ‘big picture’ solutions companies can offer to the food and agriculture community – farmers, producers, distributors, retailers – and, if executed as planned, then the company will grow and both the impact and the return will be there. They go hand in hand.”
“A company that requires only capital isn’t the right fit for us”- Richard O’Gorman, Rabobank
RFAIF identifies early-stage companies that not only provide value propositions but also that would benefit significantly from Rabobank’s advice, expertise and international reach.
“The way we create impact is by not only investing money but also giving start-ups access to our network and knowledge,” says O’Gorman. “So in that respect, a company that requires only capital isn’t the right fit for us. We work closely with the companies we invest in and give them optimal access to our resources. We want to give them the best possible chance of creating the kind of change we believe they can deliver to the food and agriculture system.”
More sustainable, more profitable
All three venture capitalists agree on the importance of investment in food and agriculture.
“Some technologies quickly become obsolete,” says Daie. “No one rents a video these days, but we still watch movies. When it comes to food, there is no substitute. But we can disrupt an outdated system and make it more sustainable, less wasteful, more efficient and profitable.
“Margins are low in food and agriculture, so removing inefficiencies improves profits – and the great intangible reward is a smaller footprint on earth. That’s why so-called ‘impact investing’ is critically essential in food and agriculture. Not doing so is not an option. We are in the second innings and I am thrilled to be in the middle of it.”