Investment in agritech is growing fast. According to AgFunderNews, global investment in agritech start-ups reached $24 billion in the first half of 2021, almost as much as the total for 2020. Multiple trends are driving this increase, from climate change and biodiversity concerns to the spread of robotics and Internet of Things (IoT) sensors into agricultural settings.
Nine Steps to Success for Acquirers Targeting Agritech Start-ups
Here are nine issues to consider for acquirers looking to buy into the growing agritech startup ecosystem.
You have to give it time
Conducting proofs of concept in agriculture can take time. Success can depend on the season, soil type, amount of rainfall and many other variables. Acquirers may need to wait months or even years to judge whether a target has what they are looking for.
Be sure you know how to scale the technology
Whether companies are looking to buy product IP or next-generation internal processes and operational innovations, it is critical to understand your target’s operating model and key competencies. If you cannot bridge the gap between different skills and ways of working, the deal will fail.
Do not assume you know how to sell your target’s product
When larger companies acquire smaller ones, the target’s salespeople often leave because the acquirer already has salespeople. Acquirers need to keep the talent that has taken the target’s idea to market. It may well prove hard to replicate.
Focus on more than just the key asset
Acquirers tend to concentrate on the core asset as the source of value for the transaction, and that is a mistake. They need to recognize that they are buying an ecosystem: the start-up’s culture and behaviors, its processes, its employer brand, its approach to R&D and so on.
Focus on regulatory risk
Start-ups often work with next generation, experimental technology that sits in regulatory gray areas. Regulations and laws differ from one country to the next. Bringing experimental technologies to market raises complex questions and will require a range of piloting sites to allow for rules in different regions.
The same goes for ESG
This is becoming an increasingly regulated area as well, so understanding how the start-up’s innovation interacts with environmental concerns such as water balance and biodiversity issues will also be critical. Are there incoming ESG reporting requirements that must be factored in?
Create a cross-functional implementation team
The incumbent needs to understand how the start-up’s proposition fits with its own across every dimension, from ESG disclosure obligations to data requirements or local and regional market regulations.
Both companies need someone they can trust on the other side
This is true before the acquisition and after it closes, not simply to manage integration issues such as culture or risk management, but also to ensure everyone understands the expectations around the time horizon for commercialization, for example.
Acquirer’s need to be transparent about their endgame
Is the acquirer seeking a minority stake with a view to exit once the start-up has scaled up, or are they intending to integrate it fully into their operations? If so, they may prevent the start-up from working with other players, which could hugely reduce its growth opportunity. That could have a big effect on valuation.
Acquiring start-ups brings plenty of challenges, but acquirers that pay attention to these nine pointers should be well-placed to succeed.
Matthew LocsinGlobal Head of Innovation
Oded LavieVP Innovation & Value Creation