By Matt Hinds (Managing Director & Co-founder of AgCrowd)
Australians are some of the best at researching and creating new business ideas, but significantly lack the ability to commercialise them – this means taking concepts to market and beginning to have a sustainable impact in solving the targeted problem.
There are no quick fixes for this conundrum, but there are a number of solutions that we as an ecosystem can implement to make Australia one of the innovation leaders of the world.
This problem is spread across Australia’s sustainable technology sectors currently, particularly AgTech, FoodTech, BioTech, CleanTech and Renewable Energy. In these sectors, we expose a ‘seed gap’ – a gap in funding, knowledge, experience and resources at the seed level of early-stage companies.
This article will demystify why Australia is behind the global benchmark in commercialising sustainable technology, when in fact we have some of the best R&D facilities, minds and idea creators in the world. I will then explain how we as an ecosystem can solve this lack of commercialisation by improving capital inflows, connectivity and direction for the sustainable technology sectors.
Sustainable Technology is becoming a hot topic globally, which appears to be approaching a ‘boom’ in research, conceptualisation and investment. However, it is important to separate the robust from the weak companies (market, product, business model, team, technology), and not to be mislead by oversold ‘disruptive’ business models.
Adopting four key principles will ensure that the sustainable technology company doesn’t fail in R&D stage (Donald Marvin, Forbes 2018):
- Supplement, not substitute, what’s already working. The global agricultural economy currently provides food, fiber and renewable energy to more than 7.6 billion people. AgTech’s role isn’t to entirely throw all the existing infrastructure out, but rather to catalyse further efficiencies in this multi-trillion-dollar global industry and work towards feeding another 2 billion people by 2050.
- The greatest returns come from small changes on a large scale rather than big changes that are thinly spread. Agriculture is, and will remain, a commodity-based industry, one that has operated with thin margins on large volumes. Even small gains in productivity and efficiency, spread over the scale of commodity production and processing, can generate enormous value.
- Novelty doesn’t always equal value, particularly ‘whiz-bang scientific breakthroughs’ developed in the confines of a sterile laboratory that jump straight to market when they clearly aren’t fit for commercialisation.
- Continuous rigorous testing with the key stakeholder – the farmer. Too many sustainable technology companies overlook the role of the farmer in their product testing. Unless you are selling B2B (to agronomists, agribusiness, etc) then the farmer is your customer, and without adequate testing on farms how will you be able to ensure your product entirely captures the customer need?
- I’d love to hear any additions to this list, please add to the comments.
This gives you an idea of where sustainable technologies lie on the financial and social scale, we call this ‘impact investing’.
Bridging the gap between R&D and commercialisation for sustainable technologies.
Over the past few years Australia has seen a number of accelerators and incubators pop up, which are focused towards AgTech, FoodTech, BioTech, CleanTech and Renewable Energy. These accelerators typically provide between $5K – $100K in capital, office space, mentors and access to resources. This study by Finistere Ventures (US-based agricultural venture fund) shows the growth in Australian AgTech accelerators over the past 5-years:
This growth in sector-focused accelerators is fantastic. Check out the amazing work that Rocket Seeder, Sparklabz Cultiv8, Cicada Innovations, CSU AgriTech, UNE Smart Region Incubator and EnergyLab are doing. On top of this, there are facilitators like KPMG High Growth Ventures, AgThentic and Food Agility who connect entrepreneurs, investors, corporates, customers and government with the aim of accelerating innovation for the food and agricultural ecosystem. Government policies have begun to kick-in, including the R&D tax rebate and the accelerating commercialisation grant. CSIRO are continuously refining and building their commercialisation program for deep-tech.
But these implementations are still not enough – there is still a large ‘seed gap’ looming in Australia in terms of funding, knowledge, experience and resources.
Why is there a ‘seed gap’? Problems:
Lack of Access to Capital
What happens when a sustainable technology startup graduates (exits) from an accelerator? Do they have enough traction to keep growing revenue? Are they ready for Angel Investors? When will they be ready for Venture Capital? As mentioned previously, accelerators typically give minimum $5K and maximum $100K to accepted startups over a 6-9 month period.
Angel Investors in Australia are difficult to find if you don’t have the adequate network. Even if you do have the network, some angel investors may not have the specialised expertise required to grow a sustainable technology startup in the agricultural and energy sectors, while some may still be figuring out their life story and play you around for 9 months – distracting you and your team from your core business functions.
Venture Capital typically invest in later stage companies with a proven business model, ready to scale, rather than the higher risk R&D effects. Venture capital generally do not invest with less than $3-5 million investment parcels in a deal nowadays (you know the saying…$5M is the new $1M). A large number of venture capital groups in Australia have been founded by internet entrepreneurs from the dotcom era, therefore not having the required agricultural and energy specialised expertise to invest in and sit on the board of sustainable technology ventures. While there are now a small amount of early-stage venture capital firms (e.g. M8 Ventures) popping up in Australia’s startup ecosystem, none are focused on the sustainable technology sectors.
Therefore, there is a significant gap in seed funding between accelerator and Angel Investor/Venture Capital funding. We call this the ‘extended valley of death’ – when the startup is stuck in negative cash flow + has an inability to scale fast to improve positive cash flows.
Government policy is hardly filling this seed gap. The Federal and State government need to drive greater initiatives for startups to commercialise their product. This means shifting funding from rural R&D corporations to focus less on R&D and more towards commercialisation.
That’s not to say that R&D isn’t a highly important component of the value chain for sustainable technology companies, we just need to focus more funding and resources on converting these R&D effects into companies making commercialised impacts.
Lack of Connectivity
Connectivity is the umbrella term we will use for knowledge, experience and exposure. Connectivity is the real output of an effective startup ecosystem, and due to the premature nature of this ecosystem in Australia, our connectivity is particularly underdeveloped.
Australia has not yet bred many tech unicorns and global startup success stories, with a lack of Australian entrepreneurs who have successfully taken a startup from concept to MVP → built → scaled → diversified → exited. The premise of the ecosystem effect, is that the entrepreneurs who have successfully taken a startup all the way through the business cycle, are essential in passing on knowledge to early-stage startups, as board members, advisors, mentors, consultants, angel investors and venture capital. This is an essential piece of the startup ecosystem that Australia is underdeveloped in. With the likes of Atlassian growing to be a global tech unicorn, this has sparked the beginning for Australia’s startup ecosystem, but we need this knowledge cycle to begin within the Australian sustainable technology sectors. Australia has some of the best R&D facilities and minds in the world, but not enough individuals who are experienced and knowledgeable enough to commercialise them effectively.
Lack of Direction
Direction is about connecting entrepreneurs to the right people at the right time, without distracting them from core business functions at their current stage. Direction includes education, it includes being clear with agendas and producing a common optimal outcome. The key business functions that are essential to the development of a successful startup include:
- Legal Advice: Law firms are only now shifting focus to startups, and it is still difficult to get low cost, high quality work done in the time agreed upon.
- Technical Development: It is still difficult to build cost-effective, high quality, timely technology in Australia. The majority of entrepreneurs in Australia are new to the startup ecosystem and have differing views regarding whether to build tech in-house or outsource domestically or offshore.
- Marketing: The majority of marketing individuals in Australia don’t have enough experience exposing startups, connecting them emotionally with all stakeholders.
Again, direction will be the outcome of an effective ecosystem model, education which is passed down from successful Australian entrepreneurs. This is a principle that needs to begin in the sustainable technology sectors.
How can we solve these three key problems?
Australia needs a vertical investment platform which combines capital inflows, connectivity and direction for the sustainable technology sectors, agriculture and energy.
Which platform covers a method of financing which is most suitable for growing sustainable technology companies, and focuses specifically on the agricultural and energy industries?
AgCrowd uses to equity crowdfunding as the medium-term solution to the above three problems, and the launch of a sustainable venture fund as the long-term solution.
How will AgCrowd’s equity crowdfunding model solve the 3 key problems of capital, connectivity and direction?
- Market Validation: a crowd of people only invest in an equity crowdfunding campaign if they believe in its problem, solution, product, technology, team, financials and market. Equity crowdfunding is the all-round validation and robustness test for the sustainable technology company.
- Access to Investors (Capital): via AgCrowd’s online investment platform, sustainable technology companies will be exposed to thousands of investors, who are able to invest quickly and easily online. Investors all have a vested interest in the success of the company, which may lead to new customers, partnerships and market opportunities.
- Access to Customers (Revenue): just as you are exposed to investors, you are exposed to potential customers. AgCrowd provides an online platform which exposes the company to all actors of the ecosystem – investors, customers, corporates, government, partners, collaborators, mentors, advisors. Investors can become customers, and customers can become investors. The entrepreneur creates an army of loyal customers in the equity crowdfunding investors. Since equity crowdfunding is more personal than selling shares in the open market, investors feel a strong level of buy-in with the company.
- Real-time Feedback: analytics of investors investing in the equity crowdfunding campaign will allow the company to assess their target market reach and impact, allowing them to make ongoing adjustments.
- Join a network of clean, green and sustainability-focused companies.
One of the main arguments against equity crowdfunding is that the company must extend its share registry. Yes, it is considered a small pain to accommodate for a larger share registry, although companies undertaking equity crowdfunding in Australia are exempt from the 50 investor limit – Corporations Act (Crowd-sourced Funding) 2017.
However, the benefits of market validation, access to capital (retail & wholesale investors), access to more customers, real-time feedback, a strong network and a proven business model are a much larger value-add than a smaller share registry.
AgCrowd is on a journey to solve these three key problems: capital, connectivity and direction. We are positioned to fill Australia’s valley of death for sustainable technology companies who have a proven business model and are generating revenue.
Value to you as an investor (socially and financially):
- You can access the Agricultural and Energy markets.
- You can invest in the most innovative sustainable technology companies which are solving the most important food and energy problems globally.
- You can make a social impact, whilst earning a financial return on your investment (impact investing).
- You can improve diversification of assets, as AgCrowd provides an alternative investment platform to standard ASX-traded securities.
- You can become your own Angel Investor/Venture Capitalist, investing in early-stage companies using AgCrowd’s equity crowdfunding model.
- You can join AgCrowd’s ‘mob’ of green investors who push for Australia’s sustainable future.
While AgCrowd is positioning itself as an ecosystem which will fill this ‘seed gap’, ultimately it is you as the investor who must fill this seed gap in sustainable technologies and make an impact on food and energy production for generations to come. You can invest as little as $50 into AgCrowd’s sustainable technology companies.
You can register you interest here if you’re keen to make an impact: www.agcrowd.com.au
Follow our Instagram (@agcrowd) to hear about some of the companies you can invest in.
I’ll soon be writing an article on the best strategies for you to minimise your downside risk while maximising your upside potential with equity crowdfunding – enhancing your investment’s financial and social impact.
I will also break-down the different types of AgTech, FoodTech, BioTech, CleanTech and Renewable Energy that you can invest in – in industry, market, company type, stage, risk profile, expected returns, product and technology.
We are very excited to launch soon – Australia’s first sustainability-focused technology investment platform.
I welcome all your valuable thoughts and discussions.
Please reach out to me if you have any feedback, ideas or questions. My email is firstname.lastname@example.org