Ag startups see green

Photo credit: Lars Plougmann

Startups coming up with ways to feed an increasingly hungry planet reaped almost $74 million in venture capital investments in this year’s first quarter, says Kachan & Co., a San Francisco clean tech research firm. 

That may be a small bite of the more than $2.57 billion investors directed to clean tech startups in the first quarter, according to new numbers released Tuesday by the Cleantech Group, but it points to a growing interest in companies seeking to lessen the environmental impacts of our food supplies, analysts say.

What’s stoking VCs’ appetite for ag startups? Look no further than the triple threat of extreme weather, water shortages, and rising fuel and energy costs, says Dallas Kachan, managing partner of Kachan & Co.

“The rising cost of energy makes it increasingly difficult to make food cost-effectively,” Kachan says. “Anything that can offer increased efficiency is going to be needed. This represents a great market opportunity for nascent companies.”

One such fledgling company is WeatherBill. The San Francisco startup aggregates massive amounts of data to create weather simulations and sells crop insurance for extreme weather events and conditions. In February, it closed a $42 million Series B funding round in February that included investors Khosla Ventures and Google Ventures.

“Global agriculture production is more than $3 trillion per year,” WeatherBill’s chief executive David Friedberg said in a statement when the funding was announced. “More than 90 percent of crop losses are due to unexpected weather and climate change is increasing the frequency of extreme weather events.

Another California company, AgraQuest, makes biopesticides brought in $17.7 million last month in a funding round led by Al Gore’s Generation Investment Management.

Kachan cautioned against reading too much into one especially high of low quarter, but says for agriculture startups, the trend in VC investments has been “up and to the right” for some time. And unlike water startups, where the low water prices, complex regulatory structures and entrenched utilities can squelch innovation, agriculture companies are more likely to offer the kinds of returns investors expect.

“The economics of food production technology can be made very clearly,” Kachan says.

Overall, the first quarter's totals represent an increase of more than 50 percent from last quarter, and an uptick from the first part of 2010, according the Cleantech Group report. The solar sector saw the biggest investment, with $641 million poured into companies including BrightSource Energy and thin-film maker Miasole.