Ag tech venture capital stays on sidelines

Agriculture venture capital investment was an outlier in 2023, as it increased slightly over 2022, according to the Canadian Venture Capital Association (CVCA)

However, that news belied pessimism on the state of ag tech at the recent Agri Tech Venture Forum in Toronto. The forum heard that the availability of capital for agriculture technology entrepreneurs has dried up significantly compared to the heady days of investment growth during the pandemic years.

David Kornacki, of the Canadian Venture Capital Association, reported that agribusiness had a record year in 2023, with $273 million invested in 50 deals.

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That compares to a decline of 34 per cent last year in venture capital deals outside of agriculture and a 50 per cent decline the year before.

Kornacki says the declines in 2023 and 2022 are a return to normal.

“If we’re taking out the pandemic years, we still saw a an increase of investment in comparison to 2019,” he says.

The sentiment from venture capital investors at the forum wasn’t as optimistic.

“It’s been a challenging probably 18 months in terms of putting together deals, finding lead investors, finding significant partners,” said Jonathon Goodkey, of the Business Development Bank of Canada (BDC).

Pitchbook, the industry go-to information source on investment deals, showed a decrease in North American agriculture venture capital investment in early 2024 compared to the high-spending times of 2021.

“I agree, it’s tough times,” says Louis Brown of Carrot Ventures.

Paige Addesi, of Yaletown, another venture capital company, however, said that some great businesses can be built in a downturn.

“This industry doesn’t just go away and founders building businesses at this point in time are quite resilient,” she says.

Concern about interest rates has been one of the biggest drivers of the decline in venture capital being spent, but the potential impact of increased taxation of capital gains passed in the recent federal government budget will also have a cooling impact on investment in Canada, says Kornacki.

Agriculture technology entrepreneurs have to work harder and will have to make sure they have an understanding of the company’s plan to develop and show a route to profit.

When ag tech founders find an investor, they will also find that the valuations put on companies aren’t as high as they were.

“We want our returns, and we don’t want to admit that we are worth less than we were two years ago,” says Artem Zemskov, who works for the Canadian office of the Radicle Growth fund.

Many valuations were high because the venture capital money was flowing freely and some people didn’t understand what they were paying for.

The venture capitalists on the panel at the forum agreed that there is a lot of money sitting in people’s accounts not being spent, and that will change at some point. For now, entrepreneurs will have to make sure they are more realistic about what to expect when looking for investors.

—John Greig is senior technology editor for Farmtario