Venture capitalists put more money into the food and agriculture industries year after year, hoping to get in early with the companies that could transform the way the world eats.
In Chicago, a couple of funds dedicated to these sectors are drawing on collaborators across industries and the globe to form investing syndicates able to pour even more money into food and agriculture technology companies.
Take Seed 2 Growth Ventures, a new $125 million multi-stage fund based in Chicago that invests in mission-driven companies that are working to change the food system from “soil to shelf,” according to co-founder and managing director Victor Friedberg. Chuck Templeton, founder and former CEO of OpenTable and chairman of Impact Engine, and Sanjeev Krishnan, former director at CLSA Capital Partners, are other managing directors.
The fund already has invested in eight companies including Midwestern BioAg, which analyzes and improves soil, and ShopWell, an app that helps users figure out what to eat based on health and wellness goals.
Chicago is also home to Cultivian Sandbox, which this year raised $115 million for a second fund dedicated to investing in technologies to support food production and agricultural innovation.
That firm has invested in 11 companies since April, and it expects to do three to four more deals for this fund, said managing partner Ron Meeusen. New porfolio companies include Vestaron, which develops natural insecticides, and Conservis, which offers enterprise farm management software.
“The most promising way of creating impact in the food system was to do it through empowering entrepreneurs to change the food system,” Friedberg said.
The total dollars poured into both agricultural technology and food deals across the U.S. has soared since 2011, according to data provided by Pitchbook, a Seattle-based private equity and venture capital research firm. Venture capitalists have invested more than $1.4 billion in agtech so far in 2015, more than double the amount invested in 2014 and more than 17 times the amount invested in 2011.
National investments in food deals have followed a similar trajectory, with venture capitalists investing nearly $1.2 billion so far this year, compared to more than $887 million in 2014. Back in 2011, investments in food totaled about $190 million.
For the most part, those trends do not hold true for deals in the Midwest. In agtech, venture capitalists have invested about $7.3 million so far this year, about 12 percent of the more than $60 million they invested in 2014. Food deals have fared a bit better, with investors putting in more than $3.3 million so far in 2015, compared to less than $1 million in 2014.
Despite the Midwest’s historical expertise in agriculture, venture capital activity suggests the region is not dominating in terms of producing innovations in that sector.
Meeusen said North America leads in agricultural technology innovation and that 80 percent of Cultivian Sandbox’s investments are in the U.S. and Canada. He said deals are relatively scattered across North America, Western Europe and Israel — with one exception.
“The one surprise has been that we’ve ended up with five deals in the Boston area,” Meeusen said. “Even though it’s not an agricultural powerhouse, it seems to spawn companies more effectively in this space.”
Friedberg said he likes being based in Chicago, close to S2G’s co-investors, because of the city’s proximity to farmland and access to leaders in the food industry.
“The historical infrastructure could position Chicago and Illinois as the leading area for the food system and next wave of innovation on that,” Friedberg said.
Templeton, his fellow managing partner, offers another perspective.
“Although Chicago is an amazing place, food is produced all over the United States,” said Templeton, who recently moved to Boulder, Colo., after a yearlong sabbatical in Costa Rica. He said he’s “making sure we don’t get too focused on a single market.”
Both funds emphasize sustainability as they seek long-term solutions to what they see as a food system in need of repair. But national investment in sustainable food companies dropped to more than $76 million so far in 2015, less than a third of the $237 million invested in 2014, according to Pitchbook.
Meeusen said investment in food and agriculture innovations is still in a “pre-competitive, collaborative stage.”
“We welcome new entrants into this area, like S2G,” Meeusen said. “It makes the whole sector strong.”
It also allows sector-specific funds such as S2G and Cultivian Sandbox partner with other investors who may lack industry expertise but have funds to deploy.
“When we bring in these syndicates is it sort of leverages our capital,” Templeton said, acknowledging the difficulty of trying to change a $1.4 trillion industry with a $125 million fund. “By getting other investors involved, that brings in more capital.”
This article originally appeared in the Chicago Tribune.