Impact investors call for more ‘creative capital’ for agtech innovation

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Agtech has a very important role to play in building a more efficient, equitable and sustainable global food system. From digital to biological tools, agtech entrepreneurs are collectively working to help farmers and food manufacturers create more efficient and healthier food products. 

But it will require billions from investors in order to turn this potential into scalable products and services that can help feed a growing population while simultaneously reducing environmental degradation. 

“Creative capital” is one way to achieve this. Panelists at this year’s AgTech NEXT conference, October 11 – 13 at the Donald Danforth Plant Science Center in St. Louis, Missouri, will discuss exactly what this type of investment is (and isn’t) and how the agtech community can generate more of it.

Nancy Pfund, founder and managing partner at DBL Partners, will kick off the discussion with a keynote address on the topic. This will be followed by a panel discussion featuring Adam Bergman, managing director, Clean Energy Transition Group & Global Head of AgTech Investment at Citi. Martha Schlicher, PhD, entrepreneur in residence at BioGenerator and The Lightsmith Group co-founder and managing director Sanjay Wagle will also join the panel.

Defining ‘creative capital’

While it goes by many names (“impact capital,” “confluence capital”), creative capital usually refers to patient, long-term capital that doesn’t require a quick return.

Pfund says DBL Partners, whose portfolio includes Tesla and foodtech unicorn Apeel, calls it “double bottom line capital.”

“The commonality of all of these words is to bring more impact to bear on your investment rather than just a financial return,” she tells AFN. “We basically focus on driving top tier financial returns at the same time that we drive environmental, social and economic progress in the sectors in which we invest.”

Bergman tells AFN that creative capital includes “all other financing options outside of equity that companies are utilizing, which is especially important today when it might be a challenge to raise equity financing.”

Citi’s Adam Bergman. Image credit: Citi

Behind the push for more creative capital

Agriculture is responsible for nearly one-third (27%) of global greenhouse gas emissions, according to recent numbers from McKinsey. To decarbonize the sector and create a more sustainable food system, farmers, producers, corporates and startups along the value chain need to be embracing new advances in ag innovation. That’s includes everything from implementing geospatial tech in the field to transitioning to regenerative farming practices that sequester carbon and ultimately help other industries decarbonize.  

But many of these technologies are far more difficult to fund than, say, apps and software services found at the consumer level. In the early stages, says Bergman, agtech companies are typically capital intensive and take a long time to prove the technology and get to market. Equity fundraising isn’t always the answer here.

“The economics of raising equity to build facilities, to use for working capital or to pay for equipment isn’t really there. In terms of creative capital, I’m referring to some of the less-dilutive and non-dilutive sources which could include mezzanine debt, a government loan program, or a partnership with a corporate strategic.”

Pfund, whose firm has been making impact investments for more than two decades, firmly believes investments don’t have to choose between financial returns and environmental benefits. “We drive top-tier financial returns at the same time that we drive environmental, social and economic progress in the sectors in which we invest,” she says of DBL Partners. “Since we’ve been doing this for so long, we have a lot of case studies and can show people there is no concession and that the two goals enhance each other.”

Today’s challenges

It’s tough to have a discussion these days about investing without discussing the current economic climate.

Climate-focused technologies may be faring better than other agrifoodtech sectors, but most of the companies in the space are still at the early stages of development and refining their technology. Few have material, commercial traction, says Bergman, and even fewer have positive EBITA. 

“We’re talking about early-stage companies that are often capital intensive, have a long path towards commercialization, and often find it challenging to raise capital in the current financing market,” he says.

“The fact that there have been no IPOs since the first quarter [of 2022] and various private raises are down, this hurts the overall ecosystem,” adds Pfund. “You have companies that are reaching scale, and they need to access the public markets to really grow and become dominant the way you know, a Tesla or the solar companies did many years ago.” 

On a more positive note, she says the current economic environment as well as today’s food security and environmental concerns are spurring the kind of innovation that encourages longer-term capital.

“Any kind of a giant company that was born in the 20th century pretty much depends on carbon generation as part of its business model,” says Pfund. “We currently see a paucity of innovative companies [in ag] and by contrast, we see a lot of incumbents in the sector. That’s an incentive for us to jump in an important way and to replace incumbents that are tied to a carbon 20th-century model.”

Bergman, meanwhile, says he’s “very bullish” on the agtech and foodtech sector and sees significant investments. Promising sectors include ag biotech, robotics and automation, precision agriculture, and reducing food waste, to name a few.

A new era for impact investing

Part of this shift is generational. Ample research suggests younger generations like Millennials and Gen Z are “more active” when it comes to addressing climate change.  

Bergman says he’s seen a new generation of investors entering the sector that take a longer-term horizon for their investments. “That’s everyone from family offices to corporate strategics and impact investors to sovereign wealth funds. We also see a growing number of specialized agtech and foodtech sector investors.”

“[Impact investing] is really a juggernaut that is here to stay because a lot of it is driven by the demands really of younger folks who don’t want to sacrifice their moral and social priorities for profit and gain,” says Pfund. Even with this downturn, we are still making huge progress.”

Plenty of time for action-oriented networking is built into the October event. Learn more about the rest of the thought-provoking program and register to reserve your spot.

Go to Publisher: AFN
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