Recently, the Sydney Institute of Agriculture and the University of Sydney Business School held a day-long symposium titled “Growing the Business of Agriculture”. While much of the day was dedicated to understanding the opportunities in growing our food and fibre production systems, there was also a strong emphasis on the role of innovation in expanding economic activity in agriculture and food.
Where we often look at the role of innovation in making us better producers of food, and identifying opportunities to connect in new and different ways with consumers, we also need to look at how we create companies that focus on creating and delivering those innovations in Australia, and globally.
Without a doubt, the most effective delivery vehicle for innovation in the past several decades is the startup
Without a doubt, the most effective delivery vehicle for innovation in the past several decades is the startup. So, if we want to drive innovation in food and agriculture, we also have to create startups that focus on food and agriculture.
This amazing wave of innovation is not a single phenomenon; it comes in many forms. Importantly, innovation is not just invention. As crucial as that process is to our understanding of Australian ingenuity, invention on its own is not enough. Nor is innovation only about technology. It is certainly true that technological advancement enables and facilitates innovation, but technology doesn’t make innovation happen itself. Innovation must be embedded in a solution that is taken to market. Nor is innovation simply about automation. Discussions about the supposed robot revolution have been inescapable for years, yet automation is not innovation’s only end goal. And innovation isn’t specifically intended to bring disruption, although disruption, disintermediation and the reconfiguration of entire industries will sometimes be the result of innovation.
To be sure, disruption is coming, is targeting the entire supply chain, and is driven in large part by the phenomenal engine room of innovations that startups have become. It’s important to understand that the development of new companies and technologies will happen in parallel with the growth of the agriculture sector itself. And while it may seem at times to be in conflict with that growth (why would we export our competitive advantages), we need to keep the big picture in mind. The big picture, certainly as far as our startups are concerned, is investment. We must create and invite investment in startups to unlock the economic potential of this new part of the global ag and food economy.
In case there is any doubt about the global potential for startups in our industry we can see, that, according to figures released recently by AgFunder, the first half of 2017 saw US$4.4 billion invested in the agri-food technology sector. Comprising of 369 individual funding deals, sadly only 10 of these were in Australia. To put the total investment in agriculture and food into perspective, let’s review some wider industry figures. In late 2016, Softbank launched its massive US$93 billion Vision Fund with the promise of fuelling a new wave of innovation. So far in 2017, SoftBank has made or participated in 23 US$100+ million investments to private companies, including leading the recent investment of US$200 million in Plenty. Closer to home, we have over AU$2 trillion of superannuation funds under management, and to date very little of that has made its way into our startup innovation system.
So what is this field of dreams we should build, how would we build it, and who are the they that will come.
I want to backtrack briefly to tell the story of Observant, a company created to help drive innovations in farm water management. Observant was a startup, in the true sense of the word. It was created to meet a specific challenge set by industry; the MLA donor company to be precise. But ultimately, the founders came from outside the industry. Directly before taking on that challenge, my co-founder Simon and I had both lived and worked in Silicon Valley in the original dot com era. To meet this challenge, we worked alongside researchers and scientists, but ultimately, we were technology entrepreneurs applying an outside set of skills to agriculture.
Now some entrepreneurs are born, but many are made, and often forged in a fire that burns hot. It’s the process of helping to create great founders, great teams and great companies that has received so much attention in the past several years. How do we accelerate the process of creating great, investable opportunity?
How do we accelerate the process of creating great, investable opportunity?
Investors talk about the three Ts — Technology, Team and Traction — and in technology, Australia does pretty well. But technology on its own is not enough, it can come from many different places and should be regarded as a commodity for most startups. Teams are what matter, and as we’ve all heard before, ideas are worth nothing and execution is everything — teams execute.
Traction is what great teams are seeking, and acquiring and measuring traction is another area where large amounts of research, discipline and practice has evolved into a new field of accelerating the growth of high potential companies. These accelerators and incubators have a very specific task; to take all the essential elements that make up the three Ts and help entrepreneurs learn, experiment, learn, fail, as fast as possible, and learn more. This iterative process of accelerated, facilitated learning and building is now part of a vast international ecosystem that has developed to support the identification, selection, and rapid development of the next waves of startups that will help drive innovation in every industry on the planet.
When it comes to how startups will drive innovation in agriculture, you likely have already heard about SproutX, the first AgTech focused accelerator in Australia. SproutX has now been joined by many other organisations and programs like GrowLab from Cicada, Rocket Seeder (where I am a board member), SparkLabs Cultiv8 and yet more to come. This is hugely exciting, and an essential ingredient to success. This is where we are getting on and building it, the pipeline that will grow an ever-increasing crop of promising young startups, from all parts of the country. We’re building the pipeline so they will come.
This magical they is the other half of the dynamic duo that has built the most innovative companies in the world, venture capitalists or VCs. It’s hard to argue with the global success of this symbiotic partnership between startup and VC, forged in Silicon Valley, that has since spread all over the planet.
Even if we don’t question the startup — VC model, it’s prudent for us to review how we’re going trying to grow own variety of this powerful partnership here in Australia. We need to look at what works well, and what could work even better.
No doubt the VC community in Australia continues to grow rapidly, but there are challenges. Historically, industry average returns have not met market expectations, and specifically when we look at food and agriculture innovation, there has been a lack of domain expertise that has held back the industry. To be sure we have, and want to keep growing, a combination of local and international VCs. We also want to see far more of our superannuation used to provide the necessary capital to create more and larger VC funds. We already have some great success and we all need to do our part to talk up those successes — nothing breeds more success like success.
When we look at the role of government in creating and stimulating the conditions for growth, we see a pretty bright picture. The ESVCLP legislation and associated tax treatment are the envy of investors and fund managers the world over. The R&D tax concession scheme, despite some challenges, provides great incentive for companies to invest in quality research. The coming changes to allow new crowd equity models will also drive a new wave of capital sources to fuel growth. Importantly, policy and government shouldn’t be in the business of picking winners. Policy should focus on new racetracks, gyms and coaches. Teaching innovators to fish, not giving them a free feed. Also we need to be patient, this is a long game and a lot is working well already but of course we need more.
And when we look at the role for large corporations we also see an opportunity to support startups. Large companies can use their strength to help startup access new markets, new channels and new customers by opening up and looking for ways to collaborate and build.
The best way to help a startup is to become a customer
The best way to help a startup is to become a customer and resist the temptation to own or control the destiny of a startup. It’s often the case that innovation flourishes outside and can become encumbered if it moves inside too early. And importantly, Australia is building a world class innovation ecosystem in food and agriculture innovation, so look for every chance to invest locally to help that growth.
Australia has a global and well-deserved reputation for research. We have many excellent university and industry research institutes. It’s been amazing to see how new innovation models have been adopted by our research groups with programs like CSIRO’s ON program and many more. But in addition to creating programs within, we all need to collaborate more, creating, as early as possible, combinations of startups, research and venture capital to accelerate development.
Sometimes, letting go is the best way
Sometimes, letting go is the best way. And keep in mind that small investments today return many times over tomorrow. There are many creative, non-traditional avenues out there to explore, so look to the wisdom of the crowd for alternatives when you hit roadblocks. Risk feels uncomfortable, so understand that entrepreneurs eat risk for breakfast, you want them on your side of the table.
To the entrepreneurs, the founders, the risk takers from every corner of the country, we welcome you. We want you thinking about how exciting it will be to join the agriculture, food and fibre industries and be part of creating a new century of growth. We want to find ways to bring in as many of you as we can. We need to be a broad church and offer opportunity to everyone willing to take a risk and try something new. It’s vital that your journey include a journey to know yourself, your strengths, your limitations and what you don’t know. Failure is an option, embracing and understanding possible failure is the only way to succeed. So, think global from the start and build scalable companies.
To the innovation programs, we must collaborate. We must work together to overcome the challenges that this country’s vast distances pose in bringing our regions into this wave of innovation. We must paint a big canvas for investors to be drawn to and direct our efforts to the entire agriculture and food innovation system. We need to build capability and create world class teams. And we have to be founder friendly, because founders will beget founders and build the ecosystem faster than we can on our own. We must find ways to reward risk and encourage and embrace failure for the learning opportunity it is. We’re playing on a world stage, so let’s not get caught up with interstate rivalry.
Right now, in Australia, we are only an aspirant, not a player. So, let’s celebrate and promote our successes, and launch a thousand startups to help drive innovation in our country’s most important industry, agriculture.
Tenacious Ventures Management Pty Ltd (CAR 001275760), Tenacious Ventures Management Partnership, LP (CAR 001298484), Tenacious Ventures Fund II Management Partnership, LP (CAR 001298483), and Tenacious Ventures Fund II Staple Co Pty Ltd (CAR 001298487) are Corporate Authorised Representatives of Sandford Capital Pty Ltd (ABN 82 600 590 887), Australian Financial Services Licence No 461981, and are authorised to provide advisory and dealing in connection with investments to wholesale clients only.