Current Innovation in Israeli AgriFood-tech – Part I

The Israeli innovation sector has found itself in the spotlight lately for a number of reasons, including winning four of 13 prizes in the AgFunder Awards at Rethink’s World Agri-Tech Summit, placing three of seven international finalists for the IFC’s Transformational Solutions in Food, Water and Land award, and the Radicle Challenge Israel (ongoing).

Another noteworthy event is the first Israel-focused AgFunder Investing Report , co-published recently by Start-Up Nation Central together with American VC AgFunder. This is the third report in AgFunder’s new country-focus series, following one on China’s AgriFood-tech innovation, and one on India’s. Covering investment and exit activity in the Israeli AgriFood-tech sector in 2014 – 2018, the report relies on a great deal of data curated from Start-Up Nation Finder, and is presented using AgFunder’s reporting methodology and design.

2014-2018 – An Overview

Between 2014 – 2018, Israeli AgriFood-tech start-ups raised nearly $800M in 250 deals, nearly three-quarters of the total dollar amount going to start-ups targeting the upstream of the AgriFood value chain. This indicates how Israel’s nearly-700 AgriFood-tech companies are more preoccupied with technology than business models; globally, business models are what largely typify downstream innovation. While the total value of investment capital dipped $45M in 2018 compared to that of the previous year, it maintained the upward trend of the five-year period.

Top Tech Categories for Investors

Israeli AgriFood-tech innovation spans all of AgFunder’s 14 tech categories, but three have drawn the most investor activity, and all were upstream. Farm Management Software, Sensing & IoT leads in investment value at $208M – representing more than a quarter of the sector’s total financing during the 2014 – 2018 period. Ag Biotechnology companies raised $60M less than the former, but in seven more deals. Since both categories include an industry chameleon that raised two rounds or more that were the largest in their groups, the emphasis of Israeli Agritech innovation seems to be somewhat equally distributed between Farm Management SW, Sensing & IoT and Ag Biotechnology. Not far behind them is the Midstream Technologies category, which actually raised less than one downstream category (Restaurant Marketplaces) but drew three times the number of rounds. During 2014 – 2018, these three upstream categories drew well over half of the sector’s investment dollars ($435M out of $759) and deals (147 out of 278).

The Key is Data Processing

The common denominator between these three upstream categories that prevail in Israeli AgriFood-tech innovation is data processing. Leading each of these categories’ investments are companies whose core technology is a home-grown algorithm, imbued with the agronomic knowledge of teams’ professional scientists, and often paired with proprietary sensing and imagery. This technology is inherent in Farm Management Software, Sensing & IoT, and Midstream Technologies, whereas Ag Biotechnology typically refers to innovation in materials.

In Israel, however, all but two of the Ag Biotechnology companies among the top-ten deals of 2014 – 2018 root their product in data processing (for breeding or input discovery). There are a couple of notable exceptions among the top investments, namely Rootility (Ag Biotechnology) and Tipa (Midstream Technologies). However, the hardcore tech skills that define Israel’s high-tech ecosystem likewise lead its Agritech (upstream) sector.

Upstream vs. Downstream in Terms of VC Backing

The tendency towards upstream technologies is what distinguishes the Israeli sector from the other hubs of AgriFood-tech throughout the world. In 2018, the reverse describes the AgriFood-tech sectors of the USA, China, and India – the three countries that raised the most venture capital that year [1] – all of which drew more investment for downstream technologies than upstream ones. Assuming VC and number of companies are indications of high-potential impact in the global AgriFood industry and consumer markets: while downstream concerns command the attention of most AgriFood-tech innovators worldwide, upstream problems are the domain of very few countries, including Israel.

Particularly dramatic is the difference in VC backing for upstream vs. downstream solutions between the Israeli sector and those of China, India, and also Europe. In recent years, most of the VC these sectors have drawn has weighted heavily on downstream. In China, 94% of total investment value in 2017 was downstream; in India, 89% during 2013 – 2017; and in Europe, at least 90% during 2014 – H1 2018 [2] Israeli upstream innovation, in contrast, raised more in 2017 alone than the Chinese sector that year and more than the Indian sector in all of 2013 – 2017, while these countries’ downstream solutions drew far more than did the Israeli sector. With the difference in population between Israel and these two countries on the order of 150 million, the tiny Western Mediterranean country exhibits a particularly strong culture of Agritech (upstream) innovation.

In absolute figures, the Israeli sector appears to be far less significant to global AgriFood markets than these other global hubs. Israeli upstream raised less than 2% of global upstream’s total value, and Israeli downstream raised less than a percentile. In 2018, the median of the 20 largest American deals upstream was $105M and downstream was $195M; of the 20 largest non-US deals upstream, $126M was the median upstream, $210M downstream[3] In Israel, of the ten largest deals in 2018 the median value upstream was merely $7M and that of downstream $11M.[4] Here we encounter the limits of the use in comparing innovation founded on basic tallies of investment dollars. This metric conveys investor perception of a whole business’s potential market value, including both technology and business expansion, and also local economic considerations such as employee compensation and resources. The Israeli sector draws relatively small deals probably because of its strength in tech and not in corporate expansion, and also lower salaries plus easier access to resources, thanks to a highly interconnected innovation ecosystem.

[1] AgFunder AgriFood Tech Investing Report 2018, AgFunder (March 2019) 46.[2] China AgriFood Startup Investing Report 2017, AgFunder and Bits x Bites (Sept 2018) 11; India AgriFood Startup Investing Report 2013–2017, AgFunder and Omnivore (Dec 2018) 10; and Foodtech in Europe: Foodtech Investments from 2014 to 2018 (H1), DigitalFoodLab, CCI Paris Ile-De-France, Eutopia, Sopexa, and Vitagora (2018) 57.[3] AgFunder (2019) 49.[4] Start-Up Nation Finder.

Read part II of this blog here.