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Silicon Valley Did Not Kill Agtech—and It’s All Agtech’s Fault By Walt Duflock, Vice President of Innovation One of the ongoing questions in agtech is why agtech startups so often struggle to raise venture capital. Through multiple blog posts, podcasts and social media posts, Sarah Nolet, Matthew Pryor and I have produced content that provides two different answers for these struggles. Two of the most significant and common challenges are as follows:

much demand for limited funds. Given that, why should we ever expect Silicon Valley to change their financial models? The far more likely path is that agtech figures out how to build their businesses and business models to fit Silicon Valley’s requirements more effectively. Agtech founders need to build startups that can compete with startups in other segments who are also fundraising. Silicon Valley isn’t aggressively trying to under-invest in agtech. They are merely using the valuation models that work for every other segment. There is no need to change the model from the venture investor side of the table. It’s the job of the startup founders and CEOs to build and tell a better narrative. Western Growers Innovation is aware of this challenge, and we are doing a few things to help WG Center for Innovation and Technology startups fundraise effectively: 1. Educate startups on the Silicon Valley customer acquisition cost/lifetime value model—what does it cost to acquire a customer and what is the customer worth? This is a big part of the Silicon Valley model startups need to know when pitching. 2. Help startups build fundraising pitch narratives that fit Silicon Valley models. To date, clearly controlled environment agriculture (CEA | indoor farming—with $2.8 billion in investment the past three years) and alternative proteins (Beyond Meat | Impossible Burger) have figured out how to build narratives that work for Silicon Valley venture investors. 3. Help agtech startups with the longest development cycles, like harvest startups, understand the full range of non-venture capital investors, such as crowdfunding and SBIR (Small Business Innovation Research) grants, and how to target ag-friendly investor segments like ESG (environmental, social, and governance) investing, where the sustainability of agriculture favors agtech relative to other segments. So back to the headline—agtech needs to work better with Silicon Valley models, not expect Silicon Valley to change their models. The WG Innovation team knows this and will work with member startups to help them understand the models, build their pitch narratives to fit the models, and make them aware of non-venture funding sources and when those might be a better fit for agtech startups.

1. The long R&D cycles make exits inside most fund’s 10-year fund window difficult, so many funds favor segments like mobile apps that have a much easier fit into their timeframes. 2. The capital-intensive nature of many agtech segments (including most agtech robots) makes it hard for agtech startups to get to scale for anything less than $25-$50 million in many segments. In most startup segments, getting $25 million or more from venture investors means the basic product is built and tested and the funds will go to scaling the business by ramping up sales and marketing. In agtech, this process can take significantly longer, which makes fundraising more competitive for agtech startups. Sarah and Matthew argue that Silicon Valley financial models need to change because agtech startups often do not work well with those valuation models, and valuation is one of the key investor metrics they evaluate when deciding which startups to invest in. In short, they blame Silicon Valley models for not working well with agtech startups and believe those models need to change. While I agree with their premise, I come to the completely opposite conclusion. I believe the fault lies with agtech startups for one simple reason—supply and demand. The investor financial models have resulted in tremendous financial results in many segments that have emerged over the last 25 years—think eBay and Amazon in e-commerce, Google in search, Facebook and LinkedIn in social networking, and PayPal and Stripe in fintech/payments. In fact, CB Insights reports that there are currently 943 companies valued at $1 billion or more, worth a cumulative valuation of $3.05 trillion. So, the financial models Silicon Valley uses are delivering good returns for the funds and their limited partners (the organizations that give them the money to invest). In addition, venture investments are made after looking at hundreds of startups and investing in only a few, largely based on the team and estimated market size. Silicon Valley venture funds already get way too many startups looking for investments who walk into the pitch meeting knowing the expectation and valuation models for the investor they are pitching. The models are working as designed and there is too

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