Despite its reputational challenges, recent advances in the biologicals space continue to draw our attention. From novel biocontrol products across pests and diseases, to enabling technologies in targeting and delivery, the sector is growing and evolving rapidly. And with advances in genomics and artificial intelligence promising to supercharge the sector further, plus regulatory drivers continuing to emerge, it seems growth is likely to accelerate.

Nevertheless, complexity is inherent and questions remain. Both for individual companies and for larger segments of the industry, we still see critical challenges that aren’t always being addressed or even acknowledged. 

Investors, too, are struggling to make sense of the landscape, and wondering if there are venture-scale opportunities. At Tenacious, while we’ve gotten to conviction on enabling technologies like RapidAIM, we’re yet to make an investment in a biologicals product company. 

My recent conversation with industry veteran Joel Lipsitch on evaluating biologicals businesses helped us to distill our thinking and further inform our approach to assessing these companies. Here are some questions we’re sure to ask.

What category of biologicals are we in? 

The biologicals space is vast, and as Shane Thomas at Upstream Ag Insights has pointed out (including on our podcast back in 2021), conflating the subsegments (e.g., biopesticides vs. biostimulants) can lead to confusion. Fortunately, given the growth and interest, excellent market maps now exist, like this year’s BioControl Landscape from The Mixing Bowl Hub. Starting here may seem obvious, but it’s a step I’ve seen skipped too frequently. 

How well do you know the science? 

A biological company’s first job is to explain what the product can actually do, and why. One of the big reasons that the sector has had a bad reputation is the early proliferation of bio-cocktails that people claimed “just work.” 

Today, companies need to explain the mode of action. As Joel notes, given plants are living systems, this work is perhaps “never done”; still, suspension of disbelief shouldn’t be required to understand how a product works. Explaining technical details clearly is a skill that will continue to serve the company well, so assessing it early is important for more than just increasing confidence in the science.   

What are the lab results? What are the field results? 

It can often seem like field results are the only ones that matter, and talking to farmers only further emphasizes that a lab bench isn’t a good proxy for a commercial operation. And yet, we still need to see both, because field-trial yield results or carbon sequestration charts aren’t enough. Part and parcel of having clear and believable science is being able to illustrate both the lab science and the field science, with good conviction and radical transparency about the limitations in both realms.

How does it fit into the environment?

Joel explains that yield is a function of Genetics x Environment x Management, and the E has two key interactions with biologicals. First, biologicals are often living organisms, so they are subject to conditions (e.g., temperature, moisture) that can impact efficacy as they go from factory to farm. While there are enabling technologies emerging that can de-risk the transition (e.g., drying, encapsulation, etc.), it’s critical to know that the full product lifecycle is well understood. 

The second and far more complex issue is the environment of the soil into which a biological is typically applied. As Joel told me in our prep for the episode, “some soils are depleted by use of fumigants or anhydrous; others are sluggish from overapplication of synthetic fertilizer; and some have robust and healthy biology. It is unclear in which environment a biological is most likely to succeed. And further, there is tons of heterogeneity within fields, so the complexity is nearly endless.” 

Are your milestones focused on scientific or commercial risk? 

The questions to ask here will depend on a company’s stage- earlier in the journey, the science and technology still need to be proven; later, focus will shift toward validating go-to-market hypotheses, proving customer ROIs, and solidifying manufacturing scale up costs (as examples). 

Early on, we therefore look to assess the scientific vs. commercial credentials and acumen of the team (and their self-awareness about their strengths and weaknesses in each). We’ll also make sure they aren’t falling into the classic “if you build it they will come” trap. For later stage companies, Joel advises looking for companies who are tapping into the increasingly specialized world of contract research organizations (CROs) to do field trials efficiently and effectively. 

Whatever the milestones, the key in our experience is for investors and companies to be truly aligned on what’s appropriate - not doing this early sets everyone up to fail.  

Are you building a product or a platform– and why?

As the sector evolves, company’s approaches too are becoming more sophisticated, and it’s not clear what models will pay off. On one hand, spinning out an individual molecule or even a range of products from a University or research group is a fairly well-trod path, but does it have the upside to be a match for venture capital? On the other, tackling the less-precedented space of discovery or targeting platforms could be much more scalable and lucrative, but will likely take longer to find revenue and mature. 

For now, investors - and companies - need to be clear and aligned about not only which model they are pursuing, but also the implications for capital requirements, partnerships, and timeline to revenue. 

What’s your go-to-market? 

Though we’ve definitely seen effective business models start to emerge in the biologicals space, and we’re excited about risk sharing approaches like embedded insurance and (non)performance guarantees, getting in front of growers and actually selling them on a biological company or product is still a heavy lift. Companies who can build deep industry relationships and explore unconventional partnerships with others in the channel that help align incentives, in our view, will be rewarded. 

Given the uncertainty around what will succeed in this space, experimentation will be key. This raises a related question: how attached is the company to one go-to-market strategy? Strong opinions, weakly held is what Joel recommends here.

‍

Ultimately, these questions aren’t a quiz that we expect biological companies to nail during the intro call. Nor are they comprehensive. Hopefully, they can help more investors get comfortable in agtech, help startups find aligned investors, and be useful for companies to reconsider regularly as they move from idea to trials to commercialization.  

‍