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Capital fund at the forefront of industry advancement

Andrew and Jocie Bate’s SwarmFarm Robotics start-up has attracted venture capital from the GrainInnovate fund.
Photo: Clarisa Collis

Capital fund at the forefront of industry advancement

Andrew and Jocie Bate’s SwarmFarm Robotics start-up has attracted venture capital from the GrainInnovate fund.
Photo: Clarisa Collis

Dale Schilling of Hillridge weather risk insurance says he could not have built his booming new agtech business without the help of the GrainInnovate venture capital fund. So too do Andrew Bate of SwarmFarm Robotics, Tim Neale of DataFarming and Dan Winson of Zetifi off-grid wireless networks.

What all four leaders in the agricultural sphere have in common is that the $50 million GrainInnovate fund has invested in their early stage ventures, helping these promising fledgling businesses expand, survive and thrive for the benefit of Australian grain growers.

The GrainInnovate fund is half-owned by GRDC, together with specialist venture capital investment management firm Artesian. Using the one-off investment of $25 million spread over five years from GRDC – less than 3 per cent of the $850 million that GRDC spends over five years on R&D and other projects – the GrainInnovate fund has a clear mandate to back Australian and global start-ups focused on tech innovations that have the potential to drive the future profitability and sustainability of the grain industry.

The fund invests from seed to growth stage in agtech start-ups that meet the fund’s clear investment mandate. So far 16 start-up companies – with interests ranging from microwave weed control and soil carbon restoration to digital agriculture, weather risk management, grain storage sensors and field robots – have received investment injections ranging from $50,000 to $1 million.

Fast-tracking industry solutions

The aim of the fund is to fast-track domestic solutions that might otherwise take too long to reach full commercialisation. It also supports selected international start-ups that might not otherwise have developed their solutions with the needs of grain growers in Australia in mind, but which hold the potential to boost profits for local producers.

“This fund is unique because it represents one of the largest institutional pools of agri-focused venture capital that will be used as a beacon to attract world-class ventures and innovations to Australia,” says Artesian director Robert Williams.

“The benefits of GRDC investing in the fund are twofold. Grain growers will benefit directly on their own farms from the transformational technology these early stage companies can deliver, while the fund is also an investment vehicle that takes equity in these start-ups, with returns from the investments from both income and exits coming back into the fund during its life,” Mr Williams says.

One of the largest investments by the fund has been $1 million injected into well-advanced Queensland company SwarmFarm Robotics, run by Emerald grain growers Andrew and Jocie Bate, in return for a minority stake in the world-leading field robotics business. It was critical backing, both financially and as a show of industry confidence, as SwarmFarm sought to raise $4.5 million to take its small robots for spraying weeds autonomously in broadacre crops to commercial release.

Mr Bate says the confidence shown by GRDC in SwarmFarm’s ideas and technology made a huge difference, backing his belief that Australian-developed agricultural hardware, technology, intellectual property and manufacturing capability should stay in Australian hands.

More than 25 of his company’s field robots are now working commercially on cropping farms spread from Clermont and the Darling Downs in Queensland to Esperance in Western Australia.

“The capital raising in 2020 and GrainInnovate’s support gave us the confidence to start building the (robot) delivery teams and scaling up, and (funded us) to build in new features based on the feedback we were getting from our early adopters,” Mr Bate says.

“Often there is a lot of blue-sky investment into R&D projects that don’t quickly deliver outcomes in the field; the GrainInnovate fund is much more focused on technology that will deliver practical and commercial results for growers in less than five years.”

A return on investment

GRDC’s head of business development and commercialisation, Fernando Felquer – who is heavily involved in the fund’s management – says the main difference between the fund and more traditional R&D investments is instead of funding research projects, the money is invested in start-up companies in return for small ownership stakes in the emerging businesses.

This investment will be returned as profit or exit payments by the most successful businesses back into the fund, potentially reinforcing its cyclical nature and freeing it from the need for more grower funds in future years.

“This isn’t a bottomless pit,” Dr Felquer says. “GRDC made a commitment of $25 million – a small part of GRDC’s overall five-year R&D budget – with the potential for maximum impact. It’s all about creating value for Australia grain growers as we build up a portfolio of investments and agtech businesses.”

Key criteria in the decision of whether a start-up or growth company will be supported by GrainInnovate are the unique type of technology it is developing, whether it fills a gap in the agtech marketplace that will directly benefit Australian grain growers and farms, and the enterprise’s risk profile.

Mr Williams says it is inevitable that some start-ups will fail, which is why young companies might initially only attract very small injections of funds. As businesses grow and get closer to commercial launch and market validation, their risk profile improves and GrainInnovate is prepared to invest more.

The standard phased criteria based on risk assessment is that early phase start-ups still progressing their ideas through ag ‘incubators’ can generally attract $25,000 to $100,000 in GrainInnovate seed funding, while ‘angel’ funding available for slightly further advanced companies in the process of ‘scaling up’ is usually between $100,000 to $500,000.

This is not a set-and-forget investment; we take a role in ongoing active management.

Businesses such as SwarmFarm that have already proved the value of their new technology to the industry and are on the brink of commercialisation and wider capital raising – classed as Series A ventures – can be eligible for GrainInnovate investment injections of $500,000 to $5 million.

The earlier the GrainInnovate investment is made – often with a low entry-level price tag attached – the more chance there is of the fund picking up a significant ownership stake in the business.

To ensure the fund’s overall success, a broad ‘portfolio’ approach is taken with investments across a wide range of fields in multiple businesses, ranging from data management and better communication tools to biotech, robotics, financial technology and even soil carbon specialist companies.

“This is not a set-and-forget investment; we take a role in ongoing active management and invest not just capital but also time, resources and expertise with these companies to help them grow and scale,” Dr Felquer says.

“The fund will most often be a minority investor, but we want to act as a trusted adviser and help them reach customers – who are the Australian grain growers who have shown faith in their business in the first place through these investments.”

Weather insurance

Three years ago, Dale Schilling, the son of a wheat and sheep farmer in Victoria’s Mallee near Mildura, puzzled about what he saw as a big gap in the agricultural sector – the lack of weather risk insurance.

While major corporations around the globe involved in the energy sector, such as gas and electricity companies, can hedge against the risk of a low profits due to warm winters and lower demand for power by buying ‘weather derivatives’ on financial markets, Schilling wondered why Australian growers, who are so vulnerable to drought, rain, frost and heatwaves, could not do the same.

Multi-peril crop insurance had not been successful because the premiums for growers to insure crops were so high and it was a one-size-fits-all product. But Mr Schilling believed other types of hedging based on decades of local Bureau of Meteorology (BoM) data to offset potential farm and crop losses might be possible.

So he formed Hillridge, which provides the technology and BoM data analysis to help growers reduce risk by taking out short-term Weather Index Insurance.

Since GrainInnovate invested $125,000 in the business as part of a pre-seed funding round in 2020, the technology has been licensed to Nutrien Ag Solutions together with Marsh Insurance. The insurance product was launched two months ago to growers as Weather Index Insurance, underwritten by Mitsui Sumitomo Insurance.

“Growing up, I saw farmers like my dad put their heart and soul into a crop, have a great growing season, only then to see it hit by rain, frost or heat just before harvest. The effect of that on growers, their families and entire livelihoods can be devastating,” Mr Schilling says.

“Weather Index Insurance allows the grower who can see a good crop in the ground to look at local BoM data and hedge against the risk of a certain amount of rain, frost, heat or drought in the months before harvest.

“The premium is based on how much the farmer wants to get paid in compensation if that event occurs. Some farmers want to be able to cover just the costs of seed and sowing so they can pay for next year’s crop to go in, others want to insure against yield loss, while some want to cover the value of the entire crop. It’s all very flexible, localised and individual.”

For example, if Mr Schilling’s father in the Mallee had taken out Weather Index Insurance before the last harvest, he might have paid $8 to $9 a hectare across his 1000-hectare wheat and barley crop – up to $9000 in total – to insure the crop for $100,000 against the risk of a rainfall event in the last fortnight before harvest of more than 80 millimetres.

Due to the wet November in 2021, he would have immediately been paid his $100,000 compensation, without the need for any crop damage assessment.

“GrainInnovate was one of our first investors and helped us get the technology to the point where we could sign with Marsh and Nutrien Ag Solutions; they made a real difference and we couldn’t have launched this new product without it,” Mr Schilling says.

“The technology is now proven, there is interest globally, and GrainInnovate holds a meaningful (less than 10 per cent) equity stake in Hillridge. Show me a farmer who hasn’t been affected by adverse weather who wouldn’t welcome the opportunity to be able to affordably hedge against it?”

Digital connectivity

Another business backed by GrainInnovate is Wagga Wagga-based Zetifi, a wireless networking company that addresses one of the main barriers to agtech adoption with a suite of products that provides farm-wide digital connectivity for phones and machinery in poor mobile phone/wi-fi coverage areas.

The company’s founder and wireless network engineer, Dan Winson, recognised that inadequate or unreliable high-speed connectivity was preventing growers from making the most of the digital tools available.

“Farmers are still reluctant to commit to digital solutions such as remote virtual fencing or cloud-based record-keeping if they know that they can’t access this information in the paddock or that they lose internet entirely a couple of times a week; it’s too big a risk,” Mr Winson says.

One year after Zetifi was formed to bridge the gap, seed funding from GrainInnovate and other investors has enabled the business to develop new solutions for farmers that incorporate innovative power management, new antenna designs and software-defined networking technology to provide long-range wi-fi for private or public data connections in areas that mobile phone carriers cannot reach.

Since GrainInnovate’s initial investment, the business has completed successful pilots and trials with Birchip Cropping Group, the NSW Department of Industry and the Australian Government via the Alternative Voice Services Trials program. Commercial sales are poised to increase in 2022.

“There’s no one thing that signifies a transition from start-up to scale-up, but we now spend as much time developing systems to keep up with sales as we do researching and developing our products, so we’re definitely on the way,” Mr Winson says.

“We’ve doubled our team to 15 staff over the last 12 months and a lot of this has been driven by the demand that’s occurred organically over the last few months, so we’re excited to continue this momentum in 2022.”

Zetifi’s growth is continuing, with its sights now set on the global agricultural market. A new office will be opened in New York in early 2022, thanks to a US$500,000 prize in the Cornell University Grow-NY business competition.

“This will allow us to tap into a fantastic talent pool of software developers and network engineers as well as positioning us close to productive agricultural regions where we know connectivity is a big issue,” Mr Winson says.

GRDC’s Dr Felquer says the growth of businesses such as Zetifi, DataFarming and Hillridge demonstrates the practical new technologies and farming systems that are being accelerated in their development by GrainInnovate’s support.

The decision by GrainInnovate to invest in a business has another major spin-off: it encourages other investors and institutions to follow suit. The fund has co-invested alongside leading Australian and offshore venture capital firms and institutions, global agribusinesses and private Australian investors including Microsoft’s venture fund M12, Cargill, Rabobank, the Clean Energy Finance Corporation and Hostplus.

“GrainInnovate is seen in the industry as an institutional investor and we are playing a significant role in our own right as an investor in these individual start-ups,” Dr Felquer says.

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