A new report from McKinsey has shown that 20 times more capital was invested in AgTech in 2021 than there was in 2012, as the focus on companies’ environmental, social and governance policies continues to intensify.
Findings from the study show that AgTech start-ups have consistently thrived over the last decade, securing significant venture capital (VC) investment each year, despite an overall slowdown in capital availability in 2021.
The report ‘How AgTech start-ups can survive a capital drought’ investigated the rapid rise and decline in VC investment across all industries over the past ten years.
It noted that capital availability became tight towards the backend of 2021 with many start-ups securing lower funding than previously achieved, yet AgTech companies continued to thrive.
This prompted the consultancy to follow 150 companies across five different AgTech themes: alternative proteins, sustainable materials, controlled environment agriculture, precision agriculture and sustainable inputs.
The study showed that an AgTech start-up typically spends about 15 to 20 months between rounds of funding, and funding levels usually grow from an average of $3.5 million in the seed round, to $65 million in series C3.
It also found that while funding for AgTech companies fell by 36% in the third quarter of 2021, its value at that point was still higher than any other quarter before quarter four that year.
Following this, in 2022, AgTech investment began to rise steadily over the second and third quarters of the year, while overall VC investments continued to decline.
According to McKinsey, there are several reasons to be optimistic about AgTech and investment in the sector. The report stated that “food and sustainability remain high-priority areas for a number of investors, particularly those with environmental, social and governance agendas”.
“Capital droughts do not last forever, and it’s important to remember that today’s level of investment in AgTech remains significantly higher than it was five to ten years ago.
“Making the right moves now could mean the difference between rising market momentum in the years to come or falling behind,” it concluded.