What Lies Ahead for AgTech
IN CONVERSATION WITH MATT DAVIS, THRIVE ADVISER & SVG PARTNER
Matt Davis is the Founder and Chief Executive Officer of Mateva Capital, LLC, which provides strategic financial advisory services to companies principally involved in the energy, power and mining related industries. Prior to founding Mateva Capital, LLC, he successfully led several major Wall Street investment banking efforts in the Americas, Europe and Africa. These firms included Credit Suisse First Boston and its predecessor firm Donaldson Lufkin & Jenrette (DLJ), as well as Drexel Burnham Lambert and Bankers Trust Company. In 2001, Matt acted as a principal adviser to the California State Assembly during the state’s energy crisis. Since founding Mateva Capital, LLC in San Francisco in 2002, Mr. Davis has been actively working with a wide variety of companies principally involved in the energy and power industry. He has acted for numerous companies as strategic advisor, seconded executive, non-executive board member and chairman. Mr. Davis is a graduate of Harvard College where he majored in physics.
Q: Tell us about your experiences working in the energy and power industry as CEO of Mateva Capital—were there any lessons you learned in these sectors that you apply to your investment strategy?
I formed Mateva Capital in 2002 after nearly two decades of advising, raising capital and investing in the energy and power industry while based in New York, London, Johannesburg and San Francisco. I founded Mateva Capital with the goal of working even closer with specific companies on achieving long-term strategies and making strategic investments. This has included working as strategic advisor to numerous power companies’ CEOs and boards, serving as a seconded executive for one client, and serving as non-executive board director for several others and most recently chairman of a solar power manufacturing company. The power industry is characterized by its capital intensity and cautiously slow adoption of new technologies. As an investor, patience and understanding of that cannot be understated as many VCs unfortunately have learned recently.
Q: Can you provide an overview of what occurred in CleanTech (its audacious promises versus its returns) and how what happened in CleanTech (setting visionary goals and the lure to investors) is a cautionary tale to AgTech investors, entrepreneurs, the ecosystem?
As a banker to the electric utility industry in the 1980’s, I participated in the evolution of what is now called the “CleanTech” industry. At Drexel and DLJ, we were early investors and capital providers to the Independent Power and Renewable Energy industry. This included IPPs such as AES and Calpine and the nascent solar energy companies. In the 1990’s, this expanded to various other forms of more diversified renewable energy companies providing efficiencies, reliability and storage potential. I think the VC community first coined the term “CleanTech” in the early 2000’s as a way of justifying entrance into what was perceived as a new undiscovered investment arena. In my view, the VC community and other new funds established to invest in “cCeanTech” did not have an appreciation for both the capital intensity and slow adoption rates of new technologies by the major participants – namely the highly regulated electric utility industry. I see many parallels between investing in the electric utility industry and the Ag industry. Neither are “new” and both are cautious to adopt new technologies due to their relatively low risk appetite. In my view, industry validation and patience are critical success factors characteristic of both industries.
Q: Why now? What confluence of factors of underlying trends led to the significant increase in investment in AgTech and more generally- the attention being paid to agriculture?
One cannot ignore the macroeconomic demand for the production of food with the limited resource environment. The macro challenges are well known: water scarcity, land availability, labor shortage and safety concerns – with the need to essentially double food production in the next several decades. This must be met by efficiencies driven by technological advancement in this more traditional lower technology industry.
Q: What do you see the growth potential across the agriculture value chain being? The growth potential is across the entire value chain from “farm to fork”?
Improving yields, asset productivity and sustainability will be key drivers in my view with life sciences, information technology, precision farming and supply chain enhancements to solve these challenges.
Q: Where will AgTech investors find the best exits? Is IPO the right path for AgTech companies?
For the foreseeable future, a vast majority of exits will be completed through the M&A process. This is due to a variety of factors that are not specifically Ag related. The public IPO market has essentially been closed for some time except for more mature companies with established track records. And the few AgTech companies that have managed to go public have vastly underperformed which unfortunately affects the entire sector. In addition, many of the new AgTech companies are just too small for the major players in technology or agriculture to spend significant management time or resources, as they don’t contribute in a meaningful way to revenue or profitability in the near term. Hence, the role for private equity to fund these companies until they reach a certain level of maturity until they can be financially accretive to the major public companies. The potential acquirers in technology, chemical, food and equipment represent some of the largest companies in the world with combined market capitalizations in excess of $1tn and in many cases will pay far greater amounts due to their liquidity and equity currency than the public market in any event.
What is the best timeframe for an investor to come in? How do you ensure that choke/ or limit the progression of an AgTech company?
2017 should be an excellent time for new investors. There has been a flurry of recent AgTech investment activity in 2015 and 2016 with limited exits to date. This has many early investors concerned and some VC types are showing early fatigue. Often being the first mover is not an advantage as I witnessed firsthand in the power industry. Investing in AgTech will be a marathon, and not a sprint. The more patient and strategic prospective investors are, the more likely they will experience meaningful returns. Prospective investors that have to have a deep understanding of the industry dynamics to be successful.
What role does non VC capital have in agriculture? As a more ‘patient’ form of capital, is it better suited to the long view of agriculture?
Again, this will be a marathon, and not a sprint. There should be solid investment opportunities for patient investors. SVG Thrive fund’s strategy is to work with its established network of leading industry participants to both identify and validate potential investments. Several of these leading industry participants are also founding investors in the SVG Thrive fund. Through this network, SVG Thrive will not only help guide these young companies but also seek to “pull through” with revenue and/or preferred supplier arrangements within the established network. This strategy is a major differentiator between the traditional more passive VC capital and the SVG Thrive fund as an active strategic investor providing meaningful value thus increasing the probability of success.