Venture capital investments to the irrigation agritech market have remained extremely low, with just $52 million invested over the last five years, according to a report by Daugherty Water for Food Global Institute at the University of Nebraska.
Investors are not putting money into the sector for a variety of reasons, including its slow growth and non-compelling returns on investment, the study finds.
“It's really challenging to find traction for irrigation agritech start-ups because customer adoption of new technologies occurs around growing seasons, and there are only a limited number of these each year. This creates slower growth trajectories for agritech start-ups than in other sectors and reduces the appeal of investments. In addition, agriculture is a complex sector and many investors may not be fully aware of the potential of agritech start-ups focused on water management. Hence, they may overlook these opportunities,” Ankit Chandra, one of the authors of the report said. Chandra is a Research Program Manager at the institute. Irrigation agritech start-ups focuses on water management to address water crisis in irrigated agriculture, enhance climate resilience, decrease water and energy consumption, and leverage water data for managing water risks and minimizing environmental impact.
The study has identified and mapped 21 active agritech start-ups in the agricultural water use ecosystem, of which 15 are backed by private equity or venture capital investors. Funded start-ups include Oorja, Claro Energy, AgriRain, Bhungroo, Fasal, GramworkX, AgWiQ/ KisanRaja, FlyBird, NEERx, Yuktix, Agrimations, AgSmartic, Mobitech Wireless, Intech Harness, Ecozen, Soilsens, Cultyvate, Treeni, Kritsnam, and Khethworks.
Private equity funders, VCs and accelerators such as Omnivore, Indian Angel Network, Acumen, Villgro, Indigram Labs, Center for Innovation and Agripreneurship, and others have an active presence in the ecosystem.
“Agri/water management start-ups may require a longer time frame for returns on investment compared to other sectors. Some investors may prefer quicker returns and hence overlook investments in the sector. Another challenge is that in India, there is a lack of comprehensive data collection on water use in agriculture, which makes it difficult for start-ups to develop effective solutions and convince investors of their potential impact,” Chandra said.
The larger agritech industry, including start-ups offering agri and food products and services, have raised a total of $4.6 billion in the fiscal year ending 31 March, 2022, reveals a joint report released by investment firms AgFunder and Omnivore. These start-ups include full-stack platforms, precision tech, agri-fintech, agri-biotech, upstream/downstream supply chain management and others. Irrigation agritech start-ups in the country are mostly engaged with developing and deploying sensors and IoT solutions and automation products. This includes automated irrigation controls, water flow measurement devices, satellite data, sensors, and IoT devices to measure crop water requirements and schedule irrigation. The biggest challenge for irrigation agritech start-ups is to reduce customer acquisition costs while scaling up, which is often exacerbated by time pressure from investors, particularly those without long-term experience in agricultural innovation. Employing a direct-to-customer marketing approach, the need for in-field education and after-sales support for small farmers makes it difficult for companies to grow their customer network. To overcome these challenges, some start-ups are now looking towards building partner relationships to operate through existing distribution channels, the study finds.
It should be noted that there have been no strategic partnerships between industry incumbents and start-ups in the sector till date while in mature markets, irrigation manufacturers often partner with start-ups or acquire them to add value across their distribution network. Examples include US irrigation equipment and services company Valmont Industries snapping up Israeli crop analytics start-up Prospera for $300 million, Israel-headquartered Rivulis’s acquisition of Manna Irrigation, or the partnership between Nebraska-based Reinke and Israel’s CropX. As of the end of 2022, the only example of an Indian irrigation tech start-up exit is GramworkX’s IP acquisition by WayCool, the report said.
“Investments in sustainability and climate mitigation solutions are increasing, and irrigation tech innovations align well with these trends. We believe that as more agritech start-ups focused on water management frame their business models in the context of climate change and sustainability, it could potentially attract more VC investment,” he added.
Last year, IT services company HCL Group committed to contribute $15 million to UpLink, the open innovation platform of the World Economic Forum, to support innovation around water conversation and management. Speaking at Business Today's 'The Most Powerful Women in Business' event on Wednesday, HCL chairperson Roshni Nadar Malhotra said it is a five-year commitment to find 10 aqua-entrepreneurs each year and that she plans to take the initial batch of entrepreneurs to India next year to pilot their solutions.
“In five years, we will have 50 entrepreneurs. Some of the solutions that are coming out are around platforms and water credits, water recycling, innovations within buildings and infrastructure. And there are many other solutions. I'm hoping to get them to India later in the year and then pilot some of the solutions,” Malhotra said.
Despite low investment, there is potential for growth as more start-ups focus on sustainability and climate change. Additionally, large enterprises are investing in this sector, indicating a potential shift in the industry.
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