San Eng thinks the agri-food technology investment climate in Canada might improve, but a “venture capital ecosystem” must develop quickly or the nation will lose out.
“The people I’ve talked to are overlooking the sector — they don’t think it’s sexy enough, which is disappointing because the potential is there,” says the serial entrepreneur who has co-founded and led half a dozen ventures, the latest of which is Umai Global. It’s an investment and advisory firm specifically aimed at “attracting, investing in and nurturing the best entrepreneurs” in the agri-food tech sector.
There’s lots of buzz and money from elsewhere floating around in the burgeoning sector.
In early 2019, AgFunder, a U.S. based venture capital platform, released its 2018 investing report which showed a $6.4 billion increase — or more than 44 per cent — in upstream venture investments globally over 2017. Upstream includes startups from the farm to the retailer, in such areas as biotechnology, robotics and innovative food.
AgFunder defines agri-food tech as “the small but growing segment of the startup and venture capital universe that’s aiming to improve or disrupt the global food and agriculture industry.”
Country Guide talked to Eng and three other experts in the space. Each has their own opinion about the future for Canadian entrepreneurs looking for capital to fund their ventures.
Dave Smardon, president and CEO of Bioenterprise, says the vast majority of investment is coming from the U.S., Europe and Asia. Most traditional Canadian investors, he says, don’t understand agri-food technology, the industry or the value chain.
Bioenterprise is a non-profit commercialization accelerator that has raised $285 million and helped launch more than 1,000 products. The companies it has helped have created 2,600 jobs.
“Investment in generic agriculture and agri-food is in a very dismal state of affairs,” Smardon says, adding that investors are highly conservative, and they have an attitude of “show me first.”
Smardon says Canada doesn’t have an entrepreneurial culture, and that while the technologies being developed are fine, the entrepreneurs are young and management teams are inexperienced.
“The older folks who may have made some money buy cottages up north and go to Florida instead of reinvesting in the sector,” Smardon says.
On the other hand, Aki Georgacacos, co-founder and managing partner of RIO (formerly AVRIO Capital) is a bit more optimistic.
“Broadly, there’s been a recognition by government that they need to prime the pump for entrepreneurs,” Georgacacos says. “It’s getting better.”
RIO is a Calgary-based company that was founded in 2002 to identify and invest in ag-tech companies, specifically those aimed at providing solutions to global problems in health, wellness and sustainability. It has completed more than 50 investments worth $250 million, actively helping the companies they invest in to succeed globally. They deal with companies that have a proven competitive edge, a strong management team and a profitable business model.
Georgacacos says that until recently, there’d been a shortage of funds for those in the earlier stages.
Georgacacos also points to new programs like the Venture Capital Catalyst Initiative. This program, which the federal government announced in June 2018, will use $400 million to invest in startups and early-stage growth companies in all sectors. He also pointed to Inovia, a Canadian firm that recently announced $600 million in new capital, which it will use to fund mostly information technology (IT) companies at the startup and growth stages.
A trend noted by all the experts is that IT firms are catching on to the potential in agri-food tech by buying companies or bringing on talent to develop products in the space.
Keith Gillard, a partner in Pangaea Ventures Ltd., has noted an increasing enthusiasm for the sector, particularly over the past five years. Pangaea is an advanced materials venture capital firm that invests in the energy, electronics, health and sustainability sectors.
“There’s so much attention going to agri-food tech investment,” Gillard says, adding that he had just spoken on March 28 at a large conference sponsored by Deloitte in Vancouver that was focused on this very topic.
Gillard does, however, agree with Smardon that while there are pockets of really good investors like RIO, the Business Development Bank of Canada (BDC) doesn’t have resources or staff that work in agri-food technology.
“Building a syndicate around a deal is tough in the ag sector no matter where you are in the world. But in Canada, having the largest most important investor unable to act in this field, it’s really difficult,” he says.
Umai Global’s San Eng adds that the MaRS Discovery District — a huge Toronto-based organization that supports research and helps launch startups in the technology sector — doesn’t have a category for agri-food technology either, and that so far, ag seems to be falling through the cracks.
He sees great potential for growth, particularly in the Golden Horseshoe area of Ontario where there is the technological know-how, talent and an innovative spirit.
“We still have a chance,” Eng says. He has talked to Chinese contacts about the potential for investing in the sector, pointing out that Toronto could be a marketing base with access to all of North America, and the Guelph-Waterloo area could be an research and development base.
He also warns Canada may be left behind. The Toronto investment community has a stereotyped attitude toward ag tech that isn’t present in countries like China, Israel and the Netherlands.
“There are a lot of investors — in San Francisco, New York and Hong Kong — who believe that agri-food tech is scalable and there’s money to be made from it,” he says.
It’s early days, and there has yet to be an initial public offering issued in North America in the sector. But where the money goes, the companies and talent will go too, so all our investors say it’s looking like a must-win.