Our Speaker, Sarah Nolet built an Agtech VC, here's her story

We Built an AgTech VC — what did we learn?

By Sarah Nolet

Three years ago, we launched Tenacious Ventures, Australia’s first specialist agrifood tech venture capital firm, with a blog post and newsletter titled, “Australia Needs an AgTech VC — So We’re Building One.” At the time, we had basically no idea how to find potential investors (in fact, we literally thought that posting that blog would lead to checks… hah!); weren’t familiar with common VC jargon (“con note” and “liq prefs” meant nothing); and could barely say our target fund size- $20M at the time- out loud without giggling at the audaciousness of that figure.

But, we had three hypotheses we strongly believed in:

1. Climate Impact. Our food and agriculture system is facing unprecedented pressures due to climate change, and we desperately need commercially viable solutions to transition to a carbon-neutral (or better) and climate-resilient future

2. Digitally Native Agriculture. Emerging technologies are breaking established paradigms and creating opportunities along the value chain

3. Sector-specific, high conviction, high support. Startups are the key to unlocking the future enabled by (1) and (2) above, but they cannot do it alone. A sector specialist, high conviction, high support partner is needed.

Our belief in these hypotheses is what drove us to overcome the doubts and insecurities around becoming fund managers and take on the responsibility- and privilege- of managing and deploying capital against an ambitious vision.

Three years is not a very long time in agriculture. In our lifetime of agtech investing, though, it feels like a good while. After raising a $35M first fund (oversubscribed at nearly twice our target amount!), we’ve backed ten remarkable startups. So at the end of a big year, we thought it was worth reflecting on our answer to the question: were we right? And perhaps more importantly, what have we learned?

Hypothesis 1: Climate Impact

In our initial pitch deck, we highlighted agriculture’s massive impact on the environment (and economy) and the increasing pressures on the industry.

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Today this is no less true. But it is more evident, and we have less time. In 2019, we spoke about having 60 harvests left to find viable solutions. Two years later, it’s very likely that we have far fewer than 58. The recent IPCC report provides a sober perspective: “climate change is widespread, rapid, and intensifying, and some trends are now irreversible, at least during the present time frame.”

The urgent need for actions to reduce emissions and the acknowledgment of the irreversible climate change already locked in create two major challenges for the food system. First, innovation will be needed to adapt and ensure the food system continues to scale sustainably in a changing and more extreme climate. At the same time, agriculture needs to undergo a complete transition to net-zero, and ideally also provide nature-based climate solutions to aid the transition of other sectors.

If anything, back in 2018, we underestimated the urgency. The recently completed COP26 underlines how strongly the financial world is backing the need to act. We feel more confident than ever that technological and business model innovation in agrifood is a fundamental pathway to achieving necessary emissions reductions and climate adaptation.

Hypothesis 2: Digitally Native Agriculture

Agriculture is inextricably linked to technology. Advancements, from modern transportation networks to the Haber-Bosch process for industrial production of ammonia, have enabled us to build a global food system that’s incredibly efficient at producing and delivering massive amounts of calories all over the world.

Our argument back in 2018 was that this system has evolved in an industrial era and therefore been optimized for industrial era constraints. Field size, machinery size, crop cycles and rotations, timing, and economic outcomes are all fundamentally based on the physical world and direct access to production outputs. Yet, new technologies are emerging that break formerly impenetrable constraints in how we observe, impact, and finance commodities. We call this new paradigm Digitally Native Agriculture.

And today, the digitally native version of agriculture continues to emerge. Digital twins at high spatial, spectral, and temporal resolution are available at low cost and high accuracy. Precise, fully digital, and increasingly automated production technologies mean we can continuously know the status of crops, soil, and water. And conventional boundaries of commerce, transfer of ownership, risk management, insurance, and trade finance are blurring and merging.

In 2018, the signals were weaker as the business models hadn’t kept pace with technology. Today, we’re starting to see the transition play out. When we look forward, we see digitally native as the dominant paradigm for transformation and disruption in agrifood.

Hypothesis 3: Sector-specific, high conviction, high support

Tenacious Ventures was created to invest in startups at the intersection of Climate Impact and Digitally Native Agriculture. The core design characteristics were: sector-specific, high conviction, and high support. This design was based on our experiences as ecosystem builders, advisors, and entrepreneurs before we became investors. Each characteristic in itself was a hypothesis we needed to test, and today, we have some early indications of the results.

Sector-specific

Our early belief was that agtech is a horizontal, not a vertical, and that spending all of our time in the industry would make us better partners for our investors, founders, and co-investors. Why? Because we’d be able to do the work to develop unique insights about how to unlock commercial success and impact.

Being all agtech, all the time has indeed helped us to identify pathways for impact at scale, build confidence to invest early, and get into competitive rounds. It also means we develop insights that help us work with founders to shape their business models and go-to-market strategies to address the unique barriers to adoption that arise at the intersection of human psychology and incumbent supply chain structures.

For us, that has meant striving to be as much “ag” as we are “tech,” working hard to understand the natural systems and value chains that feed and clothe our global economy. Sometimes this means getting mud on our boots. Other times it means recognizing that we aren’t the expert, but we know who to ask and aren’t afraid of sounding stupid when we do.

We’ve learned that though the technology is the sexy part if you get the agriculture part of agtech wrong, you might as well pack up and go home.‍

High conviction‍

Back when we were advisors working with and connecting startups and investors, we made a few concerning observations. First, despite interest in agtech, investors lacked conviction on the sector, meaning there were plenty of follow-on offers, but few in the ecosystem who would price and lead rounds. Second, and perhaps related, agtech companies diverged from the standard VC template, with deeptech rather than software companies, and first-time (often female) founders from non-traditional backgrounds.

Agtech investing is a long-term game and like all funds, we won’t have an answer on returns for a few years. What we can say is that agriculture is complex and takes place in the real world, where it’s often hot, wet, dusty, or freezing. So driving change in agriculture means getting your hands dirty and making products that can take punishment and keep going. High conviction in agtech, to us, means backing companies doing hard things, specifically those getting deep into hardware and manufacturing, and backing teams with grit and insight, no matter where it comes from.

To do this, we’ve had to adapt our investment process. We use behavioral interviews to get to know the humans — their motivations, fears, and past experiences — behind the Founders, and we’re comfortable with various forms of traction, especially when traditional software-focused metrics don’t apply. For example, while other investors may gain comfort from realized revenue, we appreciate that having devices deployed may lead to short-term revenue, but can actually be devastating for reputations and the bottom line if done too early.

High support

There’s a lot of talk about investors providing “more than money” in the venture landscape. We set out to walk this talk, building partnerships with our portfolio companies, providing support in areas such as manufacturing, partnerships, and sales, and digging in to help pull together subsequent fundraises.

We work hard to live up to this, but ultimately it’s not for us to say whether we do- you’ll have to ask the founders we’ve partnered with :)

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What we can share is what we’ve learned: “partnership” is easy to say, but hard to do. And though being “hands-on, high support” is by far the most rewarding and fun part of being an investor, it’s also the hardest.

There are many reasons, starting with the transition to the “other” side of the table, which was challenging perhaps because we are still in many ways founders at heart. We’ve also had to work to leave our egos at the door- avoiding “helping” so that WE feel good, and remembering that asking “how can I help?” is in fact creating work, not delivering value, no matter the intentions. Having the humility to remember that we aren’t living it day to day is hard. Balancing a board role and the well-being of founders is hard. We’ve had to accept that we can only vicariously experience the unparalleled highs and lows of being a founder who’s changing the world.

Hypotheses for the future

Looking back, we have learned a ton and have much to be proud of. Not only do we (mostly) “speak VC,” we also have a growing portfolio of rockstar, transformative companies to point to as evidence of our hypotheses playing out in real-time.

Looking ahead, we appreciate how much work is yet to be done. We recognize that our hypotheses for how we do what we do will change as we expand globally and identify new pathways to impact at scale. And as future forces shape the world and industry around us. But our vision of partnering with agtech startups who are solving climate change by building the digitally native food system of the future has not waivered. In fact, it is stronger today than ever. And belief in this vision is still what gets us up every morning to face the next seemingly insurmountable challenge.

This post was co-authored by Sarah Nolet and Matthew Pryor, Agthentic Group (including Tenacious Ventures) co-founders. To get regular podcasts, research & insights on all things agtech, subscribe to our newsletter.

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