South American Agtech Funding: Winter Chill or Springboard for Opportunity?

• South American Agtech is experiencing a mix of challenges and opportunities amid a significant decline in venture capital funding, with a 50% drop specifically in the agtech sector.
• Despite a reported $6 billion loss in top agtech startups in 2023, some investors believe the current market slowdown presents unique investment opportunities due to lower competition and prices.
• There has been notable growth in venture capital interest in Latin American agtech over the past three years, with some companies achieving over $100 million valuations during this perceived funding drought.
• Startups in the region face high risks and require long-term support from investors, as the enabling environment is less developed compared to places like the U.S.
• Panelists emphasized the need for investment discipline and a shift towards exporting technology and knowledge to improve the perception and success of South American agtech.

Is South American Agtech Facing a “Funding Winter” or Opportunity?

The world of agtech is buzzing with conversations about funding—the good, the bad, and the downright confusing. Just recently, the World Agri-Tech South America Summit brought together investors and experts in Sao Paulo, Brazil, to dissect the current state of agtech funding. With terms like “agtech capital drought” and “agtech funding winter” being thrown around, it’s a hot topic that’s raising eyebrows. But is this really the end of an era for South American agtech, or is it just a momentary pause before a new wave of innovation and investment? Buckle up as we dive into the nuances of South American agtech funding.

The Current Landscape of South American Agtech Funding

So, let’s set the stage. The investor panel at the summit kicked off with some stark statistics. A report from Ag Funder revealed a 35% drop in investments across all venture markets, but a shocking 50% decline specifically in the agtech sector. Ouch! And if that wasn’t enough, McKinsey and Company estimated that about USD $6 billion had been lost in 2023 alone from 30 top agtech startups. The numbers paint a bleak picture, suggesting we may indeed be facing a funding winter.

But wait! Not everyone is ready to throw in the towel. Panelists like Flavio Zaclis of Barn Investments pointed out that these cycles are normal in the investment world. He believes that while the current slowdown might feel rough, it actually opens up opportunities for savvy investors. “When the market is stressed out, your competition is much lower, your prices are much lower, and then you’re probably coming into the cycle when you can exit in the hype,” Zaclis explained. It’s almost like buying a stock when it’s at its lowest point—risky but potentially rewarding!

Related Video

Published on: December 15, 2021 Description: Agrovation is a virtual agri-tech summit with the motive of developing a strong agricultural startup ecosystem in the state.

Agrovation - Seed to Scale - Building an AgTech Company from Ground Zero

Opportunities Amidst the Challenges

If you’ve ever been to a party that started out slow but ended with a bang, you know that sometimes the best things take time to develop. Francisco Jardim, managing director at SP Ventures, echoed this sentiment, describing the tremendous growth in venture capital interest in Latin American agtech over the past few years. “Never have we seen so much investor interest,” he said, referring to the influx of various investors, from corporate ventures to generalist investors, now eyeing the agtech space.

Interestingly, even amidst the so-called “funding winter,” Jardim reported that two of his portfolio companies are gearing up to announce funding rounds at over USD $100 million valuations. This speaks volumes about the potential of agtech in South America—while broader trends may be down, specific sectors or companies are still thriving. It’s a classic case of “one person’s winter is another’s opportunity.”

However, it’s essential to acknowledge that agtech isn’t a cakewalk. With approximately 90% of startups failing, the risk is palpable. Natalie Vergara Giron from Mercy Corps Ventures highlighted the unique challenges facing startups in Latin America, where foundational infrastructures are often lacking. “We need to be here for the long term and be supportive for startups for the whole journey of the investments,” she asserted. The message is clear: patience and persistence are vital.

The Role of Investment Discipline in South American Agtech

Now, getting into the nitty-gritty, panelists discussed the need for investment discipline in South America’s agtech scene. Zaclis pointed out that despite the region’s potential, it’s crucial to assess where the money is going and ensure it’s being invested wisely. “We went through a phase of less discipline, more volume. Maybe we need to go into the phase now of being more specific about the specific things that we want to invest in,” he said.

This idea of investment discipline is particularly important for attracting more capital and fostering a more sustainable ecosystem. If investors keep throwing money at startups that don’t yield returns, they’ll end up in a vicious cycle of constantly needing fresh funding. Jardim added that South America’s investment community is maturing, learning from past mistakes, and refining their strategies to choose better founders and value propositions.

This shift towards a more disciplined approach is encouraging. It reflects a growing understanding that financial returns are just one piece of the puzzle. “There are so many other things that come with it: developing technology, developing ecosystems, bringing money so that entrepreneurs can effectively put ideas to work,” Zaclis emphasized. The world is increasingly recognizing the importance of technology and knowledge transfer, and South America has a lot to offer in that regard.

Looking Ahead: South America’s Agtech Future

So, where does this leave us? Is South American agtech really in a funding winter, or are we standing on the brink of a vibrant new chapter? The general consensus among the panelists is that while challenges exist, the potential for growth and innovation is undeniable. Zaclis pointed out that South America isn’t leading in the amount of money deployed compared to the U.S. market, but that doesn’t mean it can’t catch up. “Should we be leading? Probably,” he said, suggesting that there’s room for improvement.

The key takeaway is that although the current funding environment may feel daunting, it’s essential to remain optimistic. With smart investment strategies, a focus on innovation, and a commitment to supporting startups through their journeys, South American agtech can thrive. The conversation around agtech funding is evolving, and as investors become more discerning, the quality of startups and their potential for success will likely improve.

South American agtech funding may be facing challenges, but it’s also ripe with opportunities. Investors who are willing to weather the storm and support startups with long-term commitments could find themselves at the forefront of a new wave of innovation. As the saying goes, fortune favors the bold—so here’s to the brave souls willing to dive into the agtech waters of South America. Who knows? The next big success story may be just around the corner!