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Funding new ventures in agrisciences

combine harvesters

7 Sept 2011

In less than twenty years the world will need to be producing 50% more food and 50% more energy. By 2050, global agriculture will need to be feeding 9 billion people, as well as contributing fuel and energy feedstocks, materials and natural products such as phytopharmaceuticals.

Funding Agri-Innovation: New Ventures In Food Security and Biorenewables brought together scientists and entrepreneurs, investors and business development specialists to discuss funding the innovation required to push agricultural productivity towards meeting these goals. The conference was organised by the BioResources Group and took place in London on 22 March 2011.

Challenges ahead

The UK Agriculture and Horticulture Development Board's chief scientist Ian Crute opened the conference by discussing the need for agri-innovation to produce 'more from less'.

The concept of 'sustainable intensification' is becoming accepted as the way forward. Farmers need to use limited agricultural land carefully: harvesting high yields while protecting soil, water and biodiversity, and reducing emissions of greenhouse gases. Around three times the current area of cropped land area would be required in the absence of crop protection inputs. High yields through optimised inputs result in lower CO2 emissions per unit of production as recent research on best practice use of nitrogen fertiliser and fungicides in wheat has shown.

Not all important targets for innovation will be profitable. This points to the future importance of partnerships between public and private sectors to find the necessary funding for new ventures. Agriculture also has an important role in meeting ambitious targets for biorenewables. The EU aims for 20% of all energy to come from renewable sources by 2020. The National Non-Food Crop Centre's Adrian Higson described how the European Commission's Lead Market Initiative for Bio-based Products aims to facilitate early market adoption of novel technologies.

The initiative targets bioplastics, biolubricants, biofibres, composite materials, chemical and pharmaceutical building blocks, and enzymes. Early sales of sufficient scale are needed to encourage investment, reduce unit production costs and mitigate risks. The initiative will include providing finance through public and private funds, and partnerships for research or proof of concept studies; access to demonstration facilities to bridge the gap between research and market readiness; fiscal incentives and grants for manufacturing; and stimulating the availability of crop or waste biofeedstocks.

Technology Strategy Board

In the UK the Technology Strategy Board supports the development of new agricultural technologies via The Sustainable Agriculture and Food Innovation Platform, alongside similar platforms for genomics and industrial biotechnology. Calum Murray described how funding is being made available in various rounds over the next five years, often jointly with industry, DEFRA and the Research Councils.

Participation and collaboration are being encouraged by holding consortium building workshops. The innovation platform will focus on four interlinked areas: crop productivity, sustainable livestock production, waste reduction and management, and greenhouse gas reduction. Within the crop productivity area the focus is on crop protection and nutrition. 2010 saw the first call for projects under new approaches to crop protection with 32 projects ultimately funded. In 2011 a call will address the issue of the shortfall in vegetable protein production.

What catches the eye of investors?

Simon Turner (Canopus Management) and David Buckeridge (Paine & Partners, a US-based investment company specialising exclusively in the agri-food sector) described how entrepreneurs can maximise their chances of success with investors by setting out their stall appropriately.

In the UK, investment by venture capitalists has fallen to very low levels. Their total annual investment was estimated to be £11 billion in 2007, but this has since fallen by more than 70% and most goes into ICT projects. Investment in start-ups is particularly low. It is important to pitch to the right kind of investor, in terms of the size of investment needed and their particular interests. Entrepreneurs need to be clear about their product, its market and how they will extract value.

Investors provide capital in anticipation of attractive returns but they want to appreciate the risks. What will stop competitors and what will the money be used for? Investors want the managers of their investments to be totally embroiled in the company, always available, yet completely dispassionate when it comes to divestments. They also like to see consistency in the management team and attention paid to the skill-sets necessary to take projects to the next stage.

Banks

  • Numerous loans, low risk, cheap debt
  • Focus on risks
  • No personal relationships
  • Short-term view

Private Equity

  • Build portfolios
  • Plan for growth, coach management
  • Invest then raise debt
  • Mid-term view

Venture Capitalists

  • Build high risk, high return portfolios
  • Fund ideas, support management
  • Place many bets expecting 70% of returns from 6% of investments
  • Repeat funding, long term view

Intellectual property

A broad technology platform for potentially multiple applications is most attractive. Intellectual property needs to be exploitable, ie strong protection and freedom to operate. The technology needs to be sufficiently developed and in an area of strong current interest. To give robustness, breadth is important, eg interest specifically in biofuels has waned, but interest in biorefineries has increased recently. The right sort of hands-on management is needed and the financial plan has to be right: a viable business model, realistic milestones, and a plausible exit plan.

John Cripps heads Syngenta Ventures, a subsidiary of Syngenta. As a separate legal entity, corporate venturing allows the nurturing of firms which might ultimately be suitable for acquisition while maintaining confidentiality or fostering collaboration as appropriate. Syngenta Ventures has a $100 million fund and typically invests $1-5 million in early stage companies, followed by $10-15 million over 5-7 years.

In 2009, Syngenta Ventures made a first investment of $12 million in Metabolon, a US-based company specialising in biochemical profiling, or metabolomics. Metabolon has expertise and intellectual property covering methods, data analysis and small molecule biomarkers for diseases. Other deals have included Chromatin Inc.'s novel gene stacking 'mini-chromosome' technology' which allows the simultaneous and precise introduction of multiple genes into germplasm.

Stories from the innovators

Arysta LifeScience is a relatively new player in the agrochemicals sector, based in Tokyo. Chairman Chris Richards discussed the challenges of innovation and funding its worldwide operations. Bought by Permira Funds in 2008, Arysta draws in the financial support of a syndicate of more than 50 banks, and aims to deliver short term performance and mid-term growth.

Arysta does not research new molecules or manufacture, but sees itself as positioned between the industry majors which offer product leadership and the global generics which go for price leadership, a strategy Richards described as 'segment focused'. Innovation comes into the portfolio mainly from partnering with smaller companies who may lack the expertise to globalise promising new technologies.

Richards' advice on how entrepreneurs should approach a company like Arysta would be to:

  • Find the right contact who can make decisions, eg CEO, head of marketing
  • Cultivate the technical experts
  • Simplify customer benefits, back-up with data
  • State benefits for investor and clarify both sides of the deal with an agreement including headlines and milestones

Biotechnology company Oxitec is developing products to control insects in agriculture and public health markets using Sterile Insect Technique programmes. The core technology is known as RIDL® (Release of Insects carrying a Dominant Lethal gene). CEO Hadyn Parry told how the company (an Oxford University spin-out) has received funding from organisations including the Wellcome Trust, Gates Foundation Grand Challenges and venture capitalists.

The first major target has been the mosquito Aedes aegypti which is the principle vector of dengue fever. WHO estimates that there are over 50 million cases per annum at a cost of $5 billion and around 2.5 billion people are at risk. There is no specific medication or vaccine for dengue fever, so vector control is the only practical solution. Insecticide-impregnated bed nets are not effective because the mosquito bites during daylight hours. RIDL® technology is used to breed insects with a genetic modification that causes their offspring to die. Sterile A. aegypti males are released to compete with wild males for females. There are no viable offspring from females which have mated with a RIDL® male and if sufficient numbers are released, the next generation will be reduced, ultimately suppressing or even eliminating the pest population.

Other aspects of the technology include incorporating a fluorescent marker gene into the insect genome so that the distribution of released males can be tracked and administering an antidote when breeding each pre-release population of male steriles. Male insects do not bite humans or spread disease. Unfortunately, despite the enthusiasm of the likes of the Malaysian Ministry of Health, who have taken on much of the regulatory costs in partnership, there is a good deal of reluctance amongst NGOs to support the GM technology.

Open Innovation

Finally, Rupert Osborn (IP Pragmatics) and John French (InCrops Enterprise Hub) offered several examples of young European companies growing or having been recently acquired by larger companies. The concept of 'Open Innovation' is creating opportunities for research institutes and universities to secure more industry funding as companies increasingly look externally for new products and platform technologies:

  • BASF Plant Science acquired the Belgian company CropDesign for its expertise in high throughput screening of traits targeting yield enhancement, abiotic stress reduction and nutrient use efficiency.
  • Icon Genetics, a German phytopharmaceutical company was acquired by Bayer Innovation.
  • Plastid AS is a Norwegian company originating from the University of Stavanger specialises in the transformation of chloroplasts, whereby transgenes are inserted in to plastid DNA and not nuclear DNA, so avoiding any issues of cross-pollination from GM plants. It has raised £1 million consisting of mainly business angel funding supported by research councils and others.
  • Rothamsted Research is working with BASF on the novel oilseed crop Camelina sativa ('gold of pleasure') as a biodiesel feedstock and to successfully express genes for long chain omega 3 fatty acids to improve the nutritional content of the oil.
  • Ampika, a Cambridge University spin-out works with indigenous people in Peru to identify and develop pharmaceuticals from traditional medicinal plants.
  • German biomass combustion company Pyreg aims to exploit the biochar by-product as a soil amendment.
  • Hemp Technology manufactures a variety of biocomposite products based on fibre extracted from industrial hemp (Low THC Cannabis sativa) for the 'green built environment' sector. Products include insulation boards and low density 'hempcrete' building blocks which have excellent thermal, acoustic and fire retardant properties.

Alan Baylis, Chair, SCI BioResources Group


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