Hatching New Industries

By Jennifer Ginn, CSG Associate Editor
The story behind emerging technologies in agriculture begins with a simple truth. Everybody needs to eat.
With an estimated global population of more than 9 billion by 2050 and with no commensurate growth in arable land, that means farmers and ranchers will need to find new ways to produce more food on the same amount of land. New advances in agricultural technology may help the producers, but the ag tech startups that create those advances haven’t been getting a lot of support themselves. 
That’s starting to change.
Overwhelming Demand
Mark Knudsen is executive director of the Great Lakes Ag-Tech Business Incubator, a new program started by the Ottawa County government in Michigan and run out of county offices. It began when the surveys of residents showed they wanted their elected officials to be more involved in economic development. A feasibility study revealed that the county was strong in agriculture, but nobody was looking at how to turn agriculture into jobs other than farming.
“We looked at a study that had been done by the National Business Incubator Association three, four years ago,” Knudsen said. “Worldwide, there were 4,800 business incubators and there were only 25 focused on agribusiness. The majority of those were in Africa and Asia and they were really designed to help create farms and farmers to help feed the population. … (We) discovered there was overwhelming demand in the agriculture community among entrepreneurs for assistance related to ag technology.”
After a successful pilot project, the incubator secured $500,000 from the state and $250,000 in private and public sector donations to operate for three years. Participants are not charged for the services—which includes intensive counseling—but they do agree to give up 2 percent of their gross sales with a buy-out option after 10 years.
Neighboring counties can buy into the incubator by paying to sponsor one or more farmers. Half of the profits received by the incubator are returned to the sponsoring county, which must agree to reinvest those profits in additional participants.
“Based upon our projections, even with a certain number of businesses not making it,” Knudsen said, “we can make this incubator operate after three years solely … based on this revenue being generated from the clients we’ve helped.”
The state funding was given to the incubator with the intention of expanding the idea to other regions of Michigan. Former state Rep. Joe Haveman, who term-limited out in December, said he helped secure the funding because he liked how big a return the state could get for a small investment.
“What I liked about this, it wasn’t a typical incubator where you’re building a big building (and) putting a ton of infrastructure costs in, because those tools are out there in the private sector,” Haveman said. “The county was really saying, ‘We want to offer the expertise to create markets for you or to help the private sector create a market.’
“This was just seed money. We like planting seeds. If it does fail, the state isn’t out an exceptional amount of money. If it succeeds, the state steps aside and says, ‘Okay, you’re on your own.’”
Many Different Models
The RoyseLaw AgTech Incubator just completed its first five-month mentoring program with 12 startups. Located in Palo Alto, Calif., the nonprofit provides office space, legal and back office support, instructional meetings, and access to investors and major agricultural and food companies.
Roger Royse, founder of the incubator, said while he has been working with startups and investors for a long time, ag tech has been slow to develop. While the Michigan incubator deals primarily with farmers adapting technology they have developed on their own farms, the RoyseLaw AgTech Incubator is more involved with technology and software developers.
“The thing that put all of this on the map was Monsanto’s acquisition of Climate Corp.,” Royse said. “That was almost a billion dollar deal. That’s what I think sparked a lot of interest. That’s when people realized there really was something there.”
Sanjay Kumar Rajpoot, chief executive office of FarmX, is one of the first class of business owners to go through the RoyseLaw AgTech Incubator. His company creates sensors farmers can use to monitor the moisture and health of their plants remotely to save water and keep crops healthier.
Rajpoot said he sees a lot of potential in agriculture technology and incubators can play a vital role.
“I don’t believe that investors understand it very well,” he said. “I don’t believe entrepreneurs understand it very well. And I believe that’s why there’s a huge amount of value creation at stake. It’s the reason why there’s a good market. Agriculture is, I think, one of the last frontiers for many technologies to come out and reach, which is why it’s so great.”
Thad Simons is a managing director and founding member of The Yield Lab, a new for-profit ag technology incubator in St. Louis. They invest $100,000 in promising startups and one of the four managing directors—all of whom have extensive experience in large corporations—mentors them over the course of nine months.
“We’ll be involved in terms of business plans, marketing plans,” Simons said. “And if they’re still involved in rounds of capital raising, we’ll be discussing that as well and providing them access to our networks, people who are ready and willing to support them.”
Simons said he thinks the agriculture technology area will grow quickly in the near future, but there still is a lot of room for incubators.
“Yes, there should be these kind of programs in every state,” he said. “Agriculture, I can’t think of any state where agriculture is not an important part of the economy.”
Michigan’s Haveman said he thinks states have a role to play in establishing new ag tech incubators.
“Just help plant the seed and then go away,” he said. “If it succeeds, it succeeds. If it fails, nothing ventured, nothing gained. Sometimes you’ve got to take a chance in order to see if something works.”