This week, AgFunder News asked if venture capital (VC) is a suitable model for agtech. It's a question we, and our investors, have thought a lot about (e.g., here, here, and here).

It also relates to a question on the minds of the founders, funders, and farmers attending the Regenerative Food System Investment Forum this week in Denver: is venture capital a fit for scaling regenerative agriculture and enabling technologies, and if not, what else is?

To explore this in detail, Connie Bowen (Farmhand Ventures) and Eva Goulbourne (Littlefoot Ventures) developed a fictional case study of a hypothetical agtech company, PrecisionBean. Myself and several other lucky table hosts led over 100 participants in an exploration of two scenarios: funding PrecisionBean with (1) VC alone; and (2) a blended capital stack of philanthropic and for profit debt and equity.

We explored the impacts and consequences of both scenarios for a range of stakeholders— from employees to eaters to customers to the planet.

Whatever role you play, I’m excited to hear what you think. How would you fund PrecisionBean and why?

PrecisionBean - Pioneering Smart Equipment for Sustainable Soybean Farming (the Case Study)

Founded in 2022, PrecisionBean is an early stage agtech startup that's quickly gaining attention for its innovative approach to soybean cultivation equipment. The company was co-founded by Dr. Olivia Chen, an agricultural engineer specializing in precision farming technologies, and Marcus Reeves, a serial entrepreneur with a track record in agricultural technology ventures. Their combined skills have been crucial in creating a prototype that addresses specific needs of soybean farmers while supporting sustainable farming practices.

The Product: SoyScout

PrecisionBean's flagship product, SoyScout, is an advanced robotic platform designed to enhance soybean health monitoring, increase yields, and improve overall farm efficiency. SoyScout is engineered to work seamlessly with cover cropping and no-till practices, maximizing the benefits of these sustainable farming methods. In particular, SoyScout is focused on:

1. Non-invasive crop monitoring using advanced sensors and AI
2. Precision spot-spraying for targeted pest and disease control
3. Automated soil sampling and analysis
4. Integration with existing farm management systems

Current Funding Status

PrecisionBean successfully closed a $4 million seed round in early 2023, led by AgTech Ventures with participation from several angel investors. This initial funding allowed the company to:

• Develop and refine the SoyScout prototype
• Conduct initial field trials with select farmers in Iowa and Illinois
• File key patents for their proprietary technology
• Build a core team of 12 employees, including engineers and agronomists

Upcoming Series A Round and Capital Requirements

PrecisionBean is now preparing to raise a $10 million Series A round. The funds from this round will be allocated to product development ($4M), manufacturing and supply chain ($2.5M), market entry and sales ($2M), talent acquisition ($1M), and working capital ($0.5M).

Looking forward, PrecisionBean projects that it will require additional funding to reach profitability, including a Series B ($20M-$25M) expected in 2025 and a Series C ($30M-$40M) projected for 2027.

The company anticipates reaching profitability by 2028, with projected annual revenues of $100 million. This timeline assumes successful product adoption in key soybean-producing regions and the ability to scale manufacturing to meet demand.

Market Traction and Future Outlook

Since unveiling their prototype in late 2023, PrecisionBean has garnered significant interest from soybean farmers in the Midwest. The company has signed letters of intent with 50 farms for beta testing in the 2024 growing season.

As global demand for sustainably produced soybeans continues to rise, PrecisionBean is positioning itself as a key player in the transition towards more sustainable and efficient soybean production systems. The company's focus on integrating with regenerative agriculture practices while leveraging cutting-edge technology presents a compelling value proposition for farmers and investors alike.

Scenario 1: VC all the way

In this first scenario, PrecisionBean raises $10M in Series A funding from traditional venture capital firms. This funding will be primarily focused on scaling production of their crop input, trialing in new crops, expanding market reach within their beachhead market (corn), and hiring key talent.

Some questions to consider:

1. What are the benefits of securing traditional venture capital funding for a company like PrecisionBean?
2. How does this funding align with the company’s long-term goals?
3. What pressures could arise from investors prioritizing financial returns, and how might this affect product affordability for your stakeholders?

Scenario 2: Blended Capital Stack

Alternatively, PrecisionBean could pursue a blended capital approach, combining venture capital with concessionary loans and philanthropic grants. Perhaps this model would allow the company to expand operations but also focus on environmental outcomes and societal benefits, like improving soil health and food security, without needing to prioritize short-term financial returns.

What might this look like? Who would fund this? And...

1. How does a blended capital model align with PrecisionBean’s mission to balance profitability with environmental sustainability ?
2. What types of philanthropic or concessional funding could be most beneficial for PrecisionBean’s goals (e.g., reducing agricultural emissions, improving soil health)?
3. How might a blended capital approach better support long-term outcomes compared to traditional venture capital?
4. Could this approach enable more affordable pricing or wider adoption of SoyScout in under-resourced farming communities? Could it catalyzing partnerships? Adoption?
5. What challenges might arise when balancing the interests of venture capitalists, philanthropists, and concessional funders? How could PrecisionBean manage those tensions to maximize positive social and environmental outcomes?

PrecisionBean's funding journey....So What?

At the workshop, I led the “CPG/Big Ag” table, and we ultimately saw a lot of value in various non-dilutive options, as well as participation from our hypothetical internal corporate venture arm, to ensure this capital intensive company gets to scale (without too high a valuation, so that acquisition stays on the table).

While this is a fictional scenario, it's not too far from existing situations happening right now in agtech. And while there’s ultimately no right answer, it seems clear that innovating and collaborating in funding models holds massive potential to scale impact.

Where did you land? What tradeoffs did you consider? We'd love to hear from you!

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