St. Louis’ agricultural prowess has long given it a leg up in growing or attracting companies working to develop the next big breakthrough in that industry. Yet traditional venture capital isn’t always suited for the rhythms of agriculture–making agtech startups’ success more complicated than buzzier bets on technology or artificial intelligence innovation.
Despite tough odds, startups tied to St. Louis have managed to break through this year, including the gene-editing related startup Spearhead Bio, which raised more than $1 million; Plastomics, also in the genetic modification space, secured close to $6 million in a Series B round; and the soil-testing startup TerraBlaster netted close to $4 million in its pre-seed round. And on the other end CoverCress Inc., is finally nearing its big push to market, marking a payoff for Bayer, which has backed the company for a decade.
Keep up with local business news and trends
Subscribe to the St. Louis Business newsletter to get the latest insights sent to your inbox every morning.
Analysts say there is room for more investment.
“The ag space is one that has a significant amount of opportunity that is underserved from a global investment perspective,” says Scott Porter, managing director at Cascadia Capital, where he leads the mid-market investment bank’s food and agribusiness sector.
Porter says agriculture makes up approximately four percent of the global gross domestic product, one quarter of the employed workforce globally, and eight percent of global trade, but only accounts for roughly two percent of mergers and acquisitions and capital markets activities. He adds it has an asset class that he describes as “counter cyclical,” whereby it tends to outperform the overall market when there’s a downturn.
“As the opportunity in agriculture has become clear, as the market has become more educated on [that] opportunity, there’s more interest that has come into the market, and I believe more interest and liquidity will continue to come,” Porter says.
He breaks down the agriculture investing landscape into two worlds: mergers and acquisitions of existing, cash-flow positive and tech-enabled ag businesses and early-stage startups likely to seek venture capital. The former is attracting quite a bit of attention from private equity firms, Porter explains, while investment activity the latter has cooled a bit since earlier this decade when low-interest capital created buzz, but also overinflated valuations.
“It has, I think, caused investors to pull back in the early stage venture ecosystem of agtech,” he says.
TerraBlaster CEO Jorge Heraud is no stranger to raising capital in tougher environments, having done so in 2009 for his previous company, Blue River Technologies, which eventually exited to John Deere for $305 million. He says economic conditions now present a similar challenge. Today’s low commodity prices for farmers can translate into fundraising challenges for companies developing innovative products targeting the farm market.
“It’s not the best and easiest of fundraising times in agriculture, because when the farmer economy is poor, then the big companies start retrenching, and then also investors start retrenching a little bit,” Heraud says.
Heraud says TerraBlaster has managed to break through because the device the company is developing will eventually provide real-time data about soil composition to farmers, circumventing time-consuming and costly soil-testing techniques.
The idea is that more granular information on soil health, water conditions, and other factors will help farmers make better decisions about fertilizing and lead to greater yields.
“Farmers are super interested in being more efficient and more conscious about profit. Part of our big part of our value proposition is that we can help the profitability of a farmer,” he says. “It’s an investment not an expenditure.”
TerraBlaster intends for its first device to enter the market near the end of 2026. That’s a faster development timeline than some other agtech innovations because the company is focused on automation, robotics, or artificial intelligence, which don’t need approvals from government regulators, says Porter. Developing something related to a crops’ genetic traits or a new biological product can take well over a decade, he says.
“It’s critically important that investors understand these timelines, the road map, the capital need, so that they know what they’re getting into ahead of time, and they can better underwrite to the milestones that are to come,” Porter says. “Some of our challenges are, in part, investors not fully appreciating that timeline, and therefore having misaligned expectations relative to the commercialization timeline and the capital necessary.”
Traditional venture capital funds tend to be held to 10-year return cycles, whereas the standard crop technology or crop protection technology can take anywhere from 10 to 13 years to get to market, says PJ Amini, senior director of venture investments with Bayer’s strategic investment unit called Leaps.
“You have something that’s immediately asynchronous with the funding mechanism of venture capital, but it doesn’t mean it’s not investable and that VC doesn’t work,” he says. “These things are still venture investable from the right lens and the understanding of the technology, the regulatory landscape, and the time.”
Leaps operates differently than a traditional venture fund. While Amini does cut checks to support early-stage technology and business models related to Bayer’s main verticals of agriculture, pharmaceutical, and consumer health products, the goal lingering in the background is Bayer eventually being able to partner with the companies it invests in, whether that’s by going to market together, licensing, or completing an acquisition.
The St. Louis-based startup CoverCress Inc. offers a prime example. Starting in 2013, the company has sought to alter pennycress, an unwanted weed on farmers’ fields, into a commercially viable crop whose seeds could be crushed for their oil and refined into a form of sustainable aviation fuel. Critically, it grows over winter and is harvested in spring, creating a revenue stream outside of the main cash crop season.
“Utilizing that land to grow another crop is really paramount to not only CoverCress’ success, but I think for the farmer as they try to kind of reimagine how they can drive more revenues,” says CoverCress CEO Jim Hedges.
Monsanto was an early investor in CoverCress, a stake Bayer maintained after its acquisition of the crop science company in 2018. In 2022, Bayer took a majority 65 percent ownership position in CoverCress with the remaining 35 percent split between Chevron U.S.A. Inc. and Bunge.
“We saw this as something that was good for the soil, good for biofuel production, good for the farmers’ economics, and was doing some element of nitrogen fixation as well,” Amini says.
What Amini calls a “moonshot if we could develop this” in CoverCress is finally nearing its long-awaited commercialization ramp-up almost 15 years since the company formed. CoverCress’ product is on about 13,000 acres this year, which Hedges projects will grow to 100,000 over the next three to four years. (For comparison, there are roughly 135 million acres of corn and soy grown across the Midwest and Great Plains, according to the 2022 Ag Census.)
“We’re getting growers acclimated to it. We’re building the right agency network. We’re getting our regulatory freedom to operate,” he says. “From a technical standpoint, we’re ready to go from a product, which is really a luxury.”
There are a variety of reasons it’s taken this long for CoverCress to get ready to scale. Hedges says the company needed time to get into a position where it could extract the “true value” from the crop that comes from crushing its seeds and processing their oil into the aviation fuel alternative.
There are also regulatory approvals. Since CoverCress’ product is gene edited, the company needed an FDA approval recognizing the crop as generally safe for poultry feed, Hedges says. Plus, the crop isn’t on chemical labels yet, limiting where it can be planted for now, he adds.
It also took time to learn how the plant behaves and the best management practices for it over multiple growing seasons, Hedges says. Without that information, it’s too risky for a new company to scale quickly, he adds.
“Just because it works in the lab, doesn’t mean you have a product,” Hedges says.
Out in “the true proving grounds” of farm fields, there’s no control over rain, temperature, humidity, light intensity, fertility and many other growing conditions, he says. Even with innovations like the device TerraBlaster is developing outside of crop science, the rugged farming landscape still presents its challenges.
“[Our sensor is mounted] behind a tractor that’s moving and there’s dust [that] gets created, there’s unevenness in the soil,” says Heraud. “It creates all sorts of little and big challenges we’re having to solve one by one.”
The company spent this fall using its prototype equipment to gather spectrum data of soil from many locations in Iowa. “Using this data as calibration we will be able to output measurements in real-time starting next fall” Heraud says.
Crop-focused innovations don’t enjoy such a fast iteration cycle. Artificial intelligence tools are becoming powerful enough to shave years off the early development timeline for a new crop or biological product, says Amini, but “I still need to grow a plant, test it, see how that does. And I’m limited by the timeliness of the physical world.”
Adds Hedges: “Once you get out into the field, [it’s] one iteration a year. So it’s going to take patient capital.” And St. Louis does have firms willing to make such long-term bets, such as Lewis & Clark’s Agrifood fund, Cultivation Capital and The Yield Lab, and BioGenerator Ventures.
Both Hedges and Heraud say this reality in the ag sector places importance on startups developing or leaning into partnerships with bigger strategic players. In the case of CoverCress, its split ownership between Bayer, Bunge, and Chevron takes care of each piece of the supply chain for the company’s crop, from seeds and distribution to farmers, to crushing to the eventual end users.
“It’s all complementary,” says Hedges. “Trying to vertically integrate all this [at CoverCress], we would never raise enough money, and we would never have enough time. We don’t want to recreate or duplicate what already exists.”
It helps to avoid bloat within the startup and allows more attention on developing what’s truly innovative.
“Startups need to focus in order to be successful,” says Heraud. “It’s very easy to try and do too many things, but there’s only so much time that is supported by the money you raised.”
