There are fewer greater votes of confidence for an AgTech innovation than farmers & growers investing in it directly. Few in the sector would consider themselves also professional early-stage investors, but crowdfunding is making waves in the world of AgTech by enabling more people in agriculture to back startups they believe in. In doing so, farmers can send very clear signals about what innovations they want to succeed, creating benefits throughout the investing and entrepreneurial ecosystem.
Ben Honan knows all about this dynamic. As Financial Participation Product Builder at Climate KIC, a European organisation designed to tackle climate change through innovation, he describes the role of finance in creating change change like this: “Money makes the world go round. It changes people’s behaviours, it tells people how to spend their time, and it influences what they buy from one another. So we felt it was very important to engage in financial innovation in the context of the climate challenge”.
Crowdfunding turns the traditional equity investment model on its head. It allows many lay-person investors to each invest a smaller amount instead of a few professionals each with large sums of money calling all the shots. These small individual equity investors are aggregated under a single “nominee” shareholder structure.
Crowdfunding is interesting as a mechanism that allows the agricultural sector to literally put its money where its mouth is.
The UK is a leader in crowdfunding due to its supportive regulatory framework. Two companies lead the space, Crowdcube and Seedrs – and AgTech companies have taken to the idea with zeal. UK AgTech companies such as Breedr, Crover and DryGro have all jumped on it.
Why Investment Innovation?
“Impact investors” – who want their investments to generate financial return as well as positive social, environmental or governance benefits – are particularly interested in how we invest. Ben described why with reference to our collective failure to act on Climate Change. We’re making very little progress in tackling this problem in part because we’re wedded to a very narrow, silo-ed way of thinking about problems. He argues that thinking about how we invest in a more joined-up way, including how we invest, will help to create systems-level shifts. “With transformation capital, what we’re trying to do is put a bit of a different logic into the investment world and say, are there more system-based investment decisions that can be made that sort of lean into the flip and get us to net zero quicker?”
“What we’re trying to do is put a bit of a different logic into the investment world”
Crowdfunding is one source of this innovation for Climate KIC because it allows community-wide investment in, and engagement with, the priorities needed to make a shift to a low carbon economy. “From a system perspective some of our businesses need customers, and they need a market, and they need people to be excited about the change and engaged in it. So crowdfunding offers an interesting nexus point to open up, make your business visible to more people, some of which may be potential customers, as well as potential investors and build a little bit of that momentum.”
The Benefits for AgTech
For AgTech entrepreneurs, this same logic holds. A crowd helps to show that others back their vision of the future, something Small Robot Company has capitalised on almost from its inception. As crowdfunding investors become advocates and sales people for the company, they raise awareness. Not to mention creating a pool of advisors and experts that the company can draw on.
Ben described this, saying “All of a sudden it is a different crowd, because you’re looking at people who are interested, specifically in AgTech. They have a farming background, they understand robotics – which sounds that niche, but actually, there maybe is 1000 or 2000, people in the UK, who are in that crowd, in that community, and would be quite interested to invest in the business and also, interestingly, lend a hand. You know, “I know this person who can help you do this part”, “let’s connect you into here”. And so, it starts to build a bit of community action, which I think is quite useful for entrepreneurs who are starting to get off the ground.”
This presents particular opportunities for AgTech. Few professional investors have really deep knowledge of farming, and few farmers or growers are experienced startup investors. These worlds can feel a bit like oil and water. So crowdfunding is interesting as a mechanism that allows the agricultural sector to literally put its money where its mouth is. This shows institutional investors with deeper pockets what the industry values, and also allows a broader community to benefit from the financial upside of success, even if each person invests only only small sums.
“I’m quite convinced that a more eyes on, more people thinking about it, more people involved in it, produces a better outcome”
Ben is a quite the advocate: “I’m quite convinced that more eyes-on, more people thinking about it, more people involved in it, produces a better outcome”. Despite that, he also recognises it’s not for everyone. “Just to sort of triple emphasize, that is a risky game. Yeah. So money, your money is on the line. So it’s not a kind of like Kickstarter, where you might lose 50 euros or something like that. Usually, the numbers are a bit bigger. So you do want to put your serious, serious head on and really get the accountant ruler out and make your own decision about what makes sense for you”