European food tech and agri-tech start-ups last year raised US$1.6 billion in funding across 421 deals, according to the inaugural report from global Venture Capital platform AgFunder, in collaboration with F&A Next. This value was on par with the total in 2017 and a growth of 23 percent was noted in the number of deals, with the majority of activity taking place at the earliest stages. This is “exciting,” AgFunder reports, as it highlights the increasing number of entrepreneurs entering the industry. There remains, however, a clear gap in later stage funding.

There was a 200 percent increase in funding to upstream startups – those operating closer to the farm or earlier in the supply chain, before the retailer. In contrast, downstream investment, particularly food delivery, shrank by half (50 percent) as several start-ups in the category have exited via initial public offering (IPO) or mergers & acquisitions (M&A).

AgFunder says although its reporting might be slightly improved, there is no doubt upstream innovation is rapidly picking up steam in Europe, particularly in farm software and sensing technologies, as well as robotics and novel farming systems. 

The investor base supporting agri-food innovation is varied with only a few dedicated sector funds, but growth is still apparent through 603 unique investors made investments during the year.

"Indeed, more multistage investors are entering the agri-food space, and in our programs, we have been (fore) seeing and driving the trend for more high-quality Agtech start-ups,” says Jan Meiling from StartLife, a founder of F&A Next.

Earlier this month, the 2018 China AgriFood Startup Investing Report by online Venture Capital Platform AgFunder and Chinese food tech VC Bits x Bites, revealed that Chinese agri-food start-ups last year raised US$5.8 billion of investment across 283 deals with 318 investors. The report covers technology startups operating across the agri-food value chain as well as other non-tech startups that are disrupting China’s food industry.

These numbers indicate a 222 percent year-over-year growth in total funding. While AgFunder indicates that there were “a couple of outliers skewing the data somewhat,” there was also a 60 percent increase in the number of deals confirming the growth.

F&A Next shares insights on innovation and investment in early-stage businesses in food and agriculture, and connects promising start-ups to food and agri-tech investors and innovative corporates.

Highlights from the report include:

The US$1.6 billion of funding in 2018 across 421 deals with 603 unique investors represents 9 percent of global funding;

The food tech and agri-tech ecosystem in Europe is very diverse with a more even spread of funding across tech categories;

Upstream start-ups raised US$0.9 billion. Upstream includes Ag Biotech, farm software, farm robotics, midstream tech, innovative food, biomaterials, novel farming systems, and agribusiness marketplaces.

Seed stage deals accounted for almost 70 percent of deal flow, compared to 55 percent globally, and 15 percent of dollars invested compared to just 4 percent globally.

The UK and France lead the way in terms of investment with US$388 million across 103 deals and US$324 million across 62 deals respectively, notes the report. Italy was the third most active ecosystem with 31 deals – the vast majority at the seed and Series A stage.

UK crowdfunding platform, CrowdCube, was the most active investor during the year, making 13 bets, while French firms followed – Bpifrance making 11 and Seraphim, six.

The exit landscape was also bolstered by the US$2.4bn acquisition of French digital livestock technology Antelliq by Germany’s Merck.

Challenges in Europe
While the global food tech ecosystem has shown remarkable growth in recent years, Europe has clearly established is own pace and particularities, according to the report. 

“Europe is regularly positioned as one united market and often characterized as less entrepreneurial with more risk-averse and less sophisticated investors. However, it is a continent with many borders, cultures and preferences. Consequently, it lacks a competitive edge when it comes to the average farm size or the consumer base of one country. In addition, government regulation, on food safety, for example, varies per country, too,” the report notes. 

Last month, a study from the University of Copenhagen and the Technical University of Denmark, asserted that strict EU policy hinders agricultural innovation. 

“The European food tech ecosystem lags other markets today. However, we have every reason to believe that a healthy funnel of promising earlier stage companies, growing investor activity and availability of corporate venture capital will close the gap rather sooner than later,” says Jeroen Leffelaar from Rabobank, another F&A Next founder.

The report also notes that European trends in agri-food investments are similar to those in the US, with a few exceptions and a more even spread of technologies. Novel farming systems, particularly indoor agriculture, are strong on the continent, because of Europe’s leading role in horticulture. 

Europe is also home to a number of insect farming groups aiming to provide protein replacements for traditional feed and food ingredients. 

“Overall investment in agri-food tech start-ups in Europe is on the rise. Expertise, research, and available capital have improved sharply, boosting overall start-up activity in the industry. A healthy funnel of quality earlier stage companies is being developed along with a (slowly) growing number of seed stage investors. Later stage capital for sizable follow-up rounds, however, is still underdeveloped. Corporate venture capital is slowly gaining relevance in the European start-up ecosystem but overall Europe is still playing catch up,” the report notes. 

As the trend toward big businesses collaborating with start-ups continues to gain traction within the food-tech space, flavor powerhouse Givaudan last week joined forces with Dutch food and agri-tech incubator StartLife to address global food challenges.

By Gaynor Selby