Ingrid Fung | Finistere Ventures

Agrifoodtech venture capital firm Finistere is investing out of its third fund, and investment director Fung comments on the lack of acquisition activity in the sector and being smart about backing disruptive technologies for a conservative industry

By Murielle Gonzalez

With a background in plant molecular biology, it’s not surprising that Ingrid Fung is engaged in the agrifoodtech world with passion and know-how. An investment director at venture capital firm Finistere Ventures, Fung focuses on deal flow with businesses that apply life sciences technologies within agriculture and food. She is actively involved in US-based portfolio companies EnkoChem, a crop protection pioneer, and computational plant breeding company Hi Fidelity Genetics, for example. “I actually started my career in pharmaceuticals,” she reveals. “When I graduated, I wanted to get a job for one or two years, figure out what industry looks like in Canada, and then go back for a PhD knowing where I would end up in the industry,” she says, admitting academia wouldn’t be the place for her.

Based in Toronto, Fung joined Finistere after a two-year tenure at Canada’s food and agtech accelerator BioEntreprise – and tells me the science and technology ethos of Finistere’s team has been a great fit. “Finistere is a pretty technically disciplined investor, and this is evident when the team does due diligence and looks at product-market fit,” she says.

Finistere Ventures has been around since 2006 and has positioned itself as an innovation-driven, agriculture investor. The firm is currently investing out of its third fund with a target close of $200 million – and this fund is Finistere’s first to encompass investments in agriculture and food.

“We’re looking at on- and off-farm technologies, and you can see that in the initial investments we’ve made,” says Fung. “We’ve invested in companies like EnkoChem, which does crop protection discovery using DNA-encoded libraries, all the way to companies like Memphis Meats and Tovala, which are a lot more consumer-facing food businesses. We now span the full gamut of agrifood.”

An early-stage fund, Finistere participates in Series A and beyond. “We like to be actively involved with our companies, guide them to grow and to take a board position,” she says, noting that a typical cheque size is up to $10 million for any initial deal. “The follow-on capital that we tend to reserve for companies depends on the sector, but typical early-stage cheque size is between, three-to-five million,” she notes.

Most of the new portfolio companies work with a business-to-business model, but Fung recognises the fund’s interest is going further down the value chain.

To the point

How do you assess the product-market fit in the agtech space?

The product-market fit is tricky because you want a novel, innovative technology that will change things, but it must solve a problem that exists. If you have to convince people that there’s a need and a problem, it’s really tough for a start-up to do.

So, we look for companies that have innovations that service existing markets. We’re willing to take a risk on the technology, but we don’t want the team to build out the market.

We also look at technologies that serve an existing market, and a pain point that’s either under service or there’s some reason why the current products aren’t servicing it well or existing services aren’t addressing a problem.

Then we look for a minimum market size globally, probably in the billions, and an addressable and immediate serviceable market that we think the company has the right team and networks to access with reasonable ease.

Do you see patient capital invested in the agrifoodtech sector?

There is an aspect of being patient with your investments, depending on the segment that you’re investing in. There are segments of agriculture and food that can drive really good traditional venture returns, certainly on the consumer brand side where there’s more exit activity.

The idea that you can have a food or a foodservice company that can IPO was probably unthinkable five years ago. Now, that’s very much a reality.

On the agtech side, if you’re placing your money wisely, I still think there’s a lot that can be done for crop protection, and innovation in food production. These are really important sectors to our way of life, but we haven’t put significant capital into developing these pretty critical technologies – since the 1970s, when government programmes were heavily investing in technology and innovation.

We now see the impact of increasing deforestation, encroachment on natural habitats, and what that can do to our lives today. If we don’t invest in these spaces, we’re increasingly going to come across issues like Covid-19 due to increased contact between wildlife and people.

So, you’re starting to see sovereign wealth groups, family offices, and groups looking into the future, becoming really aware of that. We’re also seeing pension funds start to focus a more long-term ESG lens into their investments.

I think the more later-stage growth capital that comes into the space, the more room we’ll have in the future to grow more fulsome companies, in addition to consolidation and top-tier food and ag companies we see now.

What are the themes within the sector that you are most excited about?

I’m still pretty excited about sensors and automation in agriculture. As we get better at collecting data, we can finally apply analytics that we were looking to have 10 years ago in this space and do something practical. 

Across the plant sciences and crop protection space, there’s a lot of innovations that can be borrowed from other sectors [like pharma] and applied here. And despite the massive impact they had, moving the needle forward in agriculture in terms of GM traits and making it easier to produce things, crop protection allows us to produce food more densely and efficiently.

How is the appetite for investing in these areas?

We haven’t done a great job as venture capital investors in backing this space smartly – there haven’t been many deals in this space that make sense, and we haven’t seen good acquisition activity either.

I think it’s still a little bit blue sky, and there’s room for developing smart investment thesis within the sector and building that out.

What do you mean by developing smart investment thesis?

We tend to see a lot of trends come and go in the sector, right? Categories get hot valuations and overheat a little bit, and then it becomes tough to drive further investments in that space. So, it’s about being a little bit more disciplined in building out your investment thesis instead of just investing in trends.

When you have conversations with people that have been in the industry for a long time and evaluate why certain technologies haven’t been adopted or haven’t resulted in an acquisition, or what the sales actually are, or why a product was branded using this or that value proposition, and so forth, then you start to distil down why things worked and why they didn’t. 

Being a little bit more disciplined about where the capital has gone in the past and seeing what has worked will help us be a little bit more cautious in our investments and strategy.

What can companies do to attract investors?

We’re starting to see companies that are producing [plant] breeding technologies or traits, for example. They are thinking about being more consumer-facing and communicating to the consumer what their value proposition is in terms of improved nutritional profile, and in terms of improved carbon footprint. 

As soon as people my age, who are more technology-savvy, become the primary consumer, which we already are, that’ll become increasingly important in the agrifood space. And that’s something that traditional agriculture companies haven’t done really well. And food companies haven’t been as savvy about it in terms of direct consumer communication. They’re great with branding, but that dialogue, the authenticity piece that Millennials are seeking is lacking in our sector.

You see investment in retail companies that go-direct-to-consumer, and it’s just all about the storytelling. You see that in food, but you don’t see that as much in agriculture.

What are the risks in an agrifoodtech investment?

The fact that the industry is relatively conservative, and rightly so. Farmers, particularly here in North America, are borrowing against their family land to pay operating costs, so the risk they’re taking could cost them their home.

But the biggest risk is the consolidation that’s taken place across the agrifood sector over the past several decades, which makes it difficult for a lot of these large corporates to adopt an innovation if they’ve invested heavily into the way they do things now – the supply chain and the channels they have now, for example.

We’re investing in new technologies that disrupt current practices and are hoping they will be adopted from a widespread perspective, but [farmers] are disincentivised from adopting a new technology that will change the way they do things entirety. And that’s pretty much the case in the developed world. So, it becomes really challenging to invest in truly disruptive technologies.

I think over the next couple of years, that will change a little bit. The models and channels that the new companies are opening up with online connectivity could transform how business is done in agriculture.

Fung tells me the lack of exit activity in the agtech world is worrying, especially given the capital invested in the sector. In her blog about “Lessons for crop protection from pharma’s small molecules discovery space“, she reveals crop protection is the most highly invested segments in agtech, attracting some $4.5 billion in venture capital funding over the past decade. Venture capital investors deployed $1.2 billion across 39 rounds for the first three quarters of last year alone.

“If you look at the total value of the sector, and the global market size, I don’t think it’s necessarily saturated yet,” she tells me. “As investors, we may have chased the wrong trends over the past 10 years, and we’re misaligning where the market need is compared to where we’ve been investing,” she adds.

For Fung, this is why it’s important to be disciplined in the way investors build their investment thesis and place capital where it potentially helps. 

“We’re also starting to see a lot of ag and food companies think about the next level of growth through public markets. As that becomes possible, I think it’ll change the dynamic in the space,” she concludes.