Green Agriculture—The Next Hot Investment Sector?

Judging by the turnout and interest, green agriculture just might be the next hot investment sector.

Eric Wesoff: March 25, 2010

A surprising number of Silicon Valley investors and bankers gathered in the bucolic confines of the Four Seasons Hotel off of Highway 101 in Palo Alto, California to attend the Agriculture 2.0 Silicon Valley Event. I would hazard to say that the closest many of these folks have gotten to agriculture and soil is the Whole Foods produce aisle or perhaps a vineyard. (I actually had a brief but wildly successful stint as a commercial organic farmer, but that's another story.)

It's a testament to the power of the greentech meme that more than 250 Silicon Valley types came out to learn about sustainable farming, water, GMOs, seeds and biodiversity. In the audience were investors from Mohr Davidow, Greylock, Kleiner Perkins, USVP, Redpoint, Rockport, Khosla Ventures, DFJ, Foundation Capital and many more.

It's possible that VCs can do for agriculture what they've done for online dog food delivery, grocery delivery, and gyroscopic scooters. That is, invest in a field they know nothing about, and totally jam it up.

That being said, and now that I've gotten that last bit of snarkiness out of my system -- there are more than a few venture firms with experience in these specialized fields and a few investment professionals with applicable domain experience. And certainly, many of the investors speaking today have their heart in the right place. It was the first time I heard pro-vegetarian views and tales of yoga practices on a VC panel.

Panelist and Kleiner Perkins partner Amol Deshpande has worked for agriculture giant Cargill, at an indoor tilapia aquaculture firm and co-founded a company exploring germplasm in garlic. He believes that there is an investment opportunity in the agriculture space, but it is "painful and difficult to scale." Since coming to Kleiner Perkins he's been involved in two deals that are "notionally affiliated" with sustainable agriculture -- next generation organic waste management by Harvest Power and APT which is focused on water issues that are largely caused by agriculture. Deshpande describes himself as "very interested in this space."

Certainly the markets are huge. Agriculture accounts for 4 percent of the California economy according to Tom Tomich of UC Davis' Agricultural Sustainability Institute (agriculture also accounts for 8 percent of California energy use, 20 percent of California's land area and more than 40 percent of the state's fresh water use). Tomich also said, "The idea of the dumb farmer is truly a myth -- don't make that mistake," and, "Agricultural innovation responds to market forces."

Despite the size of the market, the big question for investors is: Are VC growth expectations and scaling requirements even feasible in the admittedly huge agricultural markets? Limited partners in VC firms aren't going to lower their expectations in order to invest in farms simply because it's the right thing to do. The hope is just as greentech became mainstream, so can green ag.

According to KP's Deshpande, "At KP we try to be creative, asking how can we change that industry." Along those lines, he mentioned in vitro meat production. (See this article in Beef Magazine and check out the work of Jason Metheny.)

Other investors with a green agriculture focus include Stu Rudick of Mindful Investors. Mindful invests exclusively in the natural, organic and sustainable consumer products and services marketplace. One of their portfolio firms, Organic Girl, sells organic greens and vegetables and had $150 million in sales in their second year of business.

And Jim Schultz of Illinois-based Open Prairie Ventures is also focused on agriculture with offices actually located in the middle of farmlands. One of their portfolio firms, Vestaron, is developing green pesticides based on spider venom.

Issues that can be addressed by green ag investors include water, nitrogen, phosphorous, synthetic fertilizer, local foods, aquaculture, pests, and the move towards organics.

Here is a small crop of examples of green ag companies that presented or exhibited at Agriculture 2.0:

AeroFarm Systems: Calling themselves "The Future of Urban Agriculture," AeroFarm is developing aeroponic technology for growers of "leafy greens" in the $4 billion bag salad market. The design of their farming systems uses no soil, a minimum of fertilizers and water, and can be stacked to maximize space. The company envisions using buildings in NYC to grows salad greens with enormous yields using LED-based lighting. The firm is pre-revenue, has raised $500,000 from The Quercus Trust and 21Ventures and is seeking a $5 million Round A.

Inka Biospheric Systems: Vertical food growing systems and "micro-farms" that support hydroponics -- suitable for urban gardens.

Local Dirt: An early-stage firm that matches producers of locally grown food with buyers.

Marrone Bio Innovations: Environmentally responsible products for weed, plant disease and invasive pest management. Marrone uses naturally occurring microorganisms for Integrated Pest Management -- insecticides, herbicides and products for controlling invasive mussels in waterways.

Open Blue Sea Farms: Open ocean, caged "free-range" fish farmers. Open Blue’s initial species is Cobia, a sashimi-grade, marine white fish, targeted for the gourmet seafood market, the upper 20% of the seafood industry in the U.S.

Pasteuria Bioscience: Nematodes, also known as roundworms, are the most numerous multicellular animals on earth and many of them are parasitic on human agricultural products such as turfgrass and strawberries. Chemical control of nematodes is a multi-billion dollar business and Pasteuria Bioscience has developed a cultivation method for naturally occurring soil bacteria that specifically attack plant-parasitic nematodes.

PurFresh: 20 percent to 40 percent of fresh food is lost to over-ripening or decay. PurFresh has a family of products that spans the food supply chain in pre-harvest, post-harvest, transportation and retail to address this issue. Their transport product "snaps" into marine containers and kills mold, bacteria, viruses as well as eliminates ethylene, which accelerates ripening. The unit also measures atmospheric and physical conditions of the food environment, such as door breach, CO2, and O2, and communicates this information via satellite. The firm has 500 customers and 41 direct employees. They just closed a $10 million Round D. Earlier this month, they made our Top 50 Startups list.

Solum: Solum makes a field-deployable measurement tool that gives immediate answers on soil nutrient needs. Fertilizer amounts to 40 to 50 percent of the operating expense for corn but it is currently applied in an inefficient manner based on average values rather than per-acre needs. Solum allows farmers to apply fertilizer in the right amount, at the right place, at the right time.

Verdant Earth Technologies: Developed at the University of Arizona, Verdant’s system is a controlled-environment high-yield agriculture process that will allow crops to be grown anywhere, with no soil and little water, in shipping-type containers that provide a growing environment for a variety of foods. The system can produce up to many times more food per square foot than conventional farming methods.