Venture Capital and the Transformation of Private R&D for Agriculture: A First Look
This chapter is a preliminary draft unless otherwise noted. It may not have been subjected to the formal review process of the NBER. This page will be updated as the chapter is revised.
Chapter in forthcoming NBER book Economics of Research and Innovation in Agriculture, Petra Moser, editor
Venture capital (VC) investments in privately held startup companies that are intensively engaged in agricultural research and development (R&D) has increased substantially in recent years, from just tens of millions of dollars annually in the early 2000s to reportedly several billions of dollars by 2018. These investments are important for several reasons. First, while such VC investments used to be negligible relative to overall levels of private-sector agricultural R&D, they are no longer, yet they have not typically been accounted for in estimates of agricultural R&D spending. Second, these investments are supporting R&D being conducted by new entrants in markets that have been highly concentrated and where incumbents may have been taking relatively incremental approaches to R&D strategy. Third, R&D by technology-based startups represent an important channel for diffusion of results from public sector agricultural research, in both developed and developing countries. This chapter analyses recent trends in agricultural technology startups and VC investments made in those startups. It seeks to answer questions about what accounts for the upturn in VC investments in agricultural technology startups in recent years. To do so, a dataset of more than 4,500 startups, located in 125 countries, is constructed. For a subset of these startups, information on investment and exit deals from 1981 to 2018 allows for detailed analysis of investment life cycles and exit outcomes. Results indicate that the overall supply of venture capital in the economy, the growth in agricultural commodity prices, and previous successful exits—including initial public offerings (IPOs) and mergers and acquisitions (M&As)—lead to higher VC investments. The broader implications of the surge in VC investments in agricultural technology startups are explored and discussed.