The truth in the rumor of inevitable startup consolidation

For as long as I have been involved in agtech (depending on how you count, that could be 20 years) there have been ongoing conversations about the inevitable consolidation of startups into a vertically integrated powerhouse. This new structure would prevail where individual startups had failed. It’s scale and vertical integration would solve many problems, not least of which would be farmer adoption – something that was supposedly held back due to the dizzying number of point solutions to choose from.

The version of the consolidation story you heard might be a bit different: a business model tweak here; a market focus change there. The basic narrative, however, has been staunchly persistent .. inevitable .. and yet we are still waiting. 

For something to have stuck around for so long, there has to be some truth to it. I believe there is definitely some truth at the core of this much repeated prediction.

Startups face unique and tough challenges as innovators in agri-food

We believe that startups are key to addressing the challenges faced by the global food system, but there are also endemic challenges for startups as solution providers. Startups only exist because they are bred to be nimble and efficient. This survival skill is core to the genetic specialization that selects winners. It also makes for a serious impedance mismatch with the incumbents of the global agrifood system.

So many startups literally wither on the vine that is the inexorable corporate cycle of death by pilot. It's not unreasonable for big players to want to prove out a solution, but the burden is often unreasonably borne by startups. I don’t think there are silver bullets here, but better awareness of the impact of the size/resource mismatch is certainly a starting point. There are plenty of good examples of novel engagement models also, where intermediaries can help bridge the gap, or aggregated corporate interest can provide more sustainable funding for startups to scale into viable solutions (W23 Global being a relevant example). Venture studios can also provide a bridge here, and the recently launched Beanstalk Drought Venture Studio is a great example of public-private collaboration to give startups a longer runway to get to scale.

Another challenge, especially for startups seeking to drive nature/climate outcomes, is what you might call temporal dissonance. This is an example of the User vs Beneficiary conundrum where the funding to implement a solution is needed now, but the financial benefit does not show up for a long time, and often accrues to other stakeholders. Startups are not appropriately resourced to cashflow these lengthy gaps. It is often a secondary challenge that their business model has to span stakeholders in order for them to capture a significant share of the value that their initial solution creates. Project developers and technical innovators in the Australian carbon market are well acquainted with these challenges: Australian Carbon Credit Units (ACCUs) can take many years to reach financial maturity, yet the costs and complexities of carbon projects that generate them are all front loaded.

Business model innovation is key

Another core belief we hold is in the primary importance of business models in addressing the challenges highlighted above. Many startups fail because they are never able to capture a sustainable portion of the value they create. Innovation is key here, and the sort of innovation matters. Startups sometimes overindex on the technical innovation in their product, and not enough on the innovation needed in their business model. Business model innovation often needs to span stakeholders and delve into financial innovation.

Geora is a portfolio company of ours that significantly relies on business model innovation. Recognizing the challenge of temporal dissonance in supporting farmers to transition to sustainable practices, they innovated in some core financial ways. Initially by looking to support asset backed finance, and using novel crypto market dynamics to source financiers. More recently, by providing a high-provenance digital brokerage between sustainable farms and providers of farm credit looking for green lending opportunities.

In line with the challenges above, Geora used its startup superpowers to keep iterating. The challenge is big however, and at times, it can feel almost too big to solve. So this is where the story comes back to the beginning — the grain of truth in the consolidation narrative.

A new way to face down the old challenges of startup innovation… and an acquisition! 

We are thrilled with the news that the Geora platform is now a fully integrated part of AgriProve. The combined solution will offer farmers something that is far greater than the individual pieces and is very well placed to address the challenges outlined above.

Farmers need access to a diversity of ways to be recognised and rewarded for their nature-positive practices. With the addition of the Geora Platform to AgriProve, farmers now have more ways to see significant financial and production benefits when they are investing in climate-improving on-farm practices. AgriProve+Geora can operate a more sophisticated business model, with several ways to bridge the gap between when farmers need to invest and when the benefits of their nature positive practices can be recognized and rewarded. This enhanced ability to span time and bridge stakeholders will be a core strategy in addressing the challenge of temporal dissonance in financing nature- and climate-positive transition.

AgriProve is Australia’s leading carbon soiltech developer with over 75% per cent of all soil carbon projects successfully registered in the ACCU Scheme and is the fastest growing developer in Australia. They have pioneered the soil carbon market in Australia, and have forged a highly strategic partnership with GreenCollar. GreenCollar has deep international connections in nature repair markets and more broadly in finance and investment. This is exactly the sort of long-term partnership that can help address the impedance mismatch between innovators and large corporate partners.

Innovation can also come in the form of corporate innovation. The integration of the Geora Platform into the AgriProve business is an insightful move, and promises to enable a step change in financially supporting farmers to a more resilient and profitable future. 

While this is an exciting and important milestone, it’s only the next step of many in delivering technology-enabled impact at scale. We are excited to see where this new combined journey goes!