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Sep. 5, 2023 by Janette Barnard, Prime Future "Low-interest rates gave the U.S. economy a lot of new real-estate businesses it probably didn't need. A.I.-powered house flipping, luxury timeshare startups, apps and platforms for everything from bidding on rent to showing office tenants where the conference room is--they all emerged from a seemingly endless stream of cheap money that no longer exists. Some may not survive." This was from a WSJ article on how interest rates are impacting the real estate market as the consensus view of investors shifts to the assumption that interest rates are likely to remain higher for the foreseeable future. We can say almost the exact same thing about agtech, right? I'll admit that for most of this year, I have looked around at agtech and thought, 'What are we even doing here?' While there are some really bright spots to point to, they are few and very far between despite billions invested. I'd been wondering if this is a blue ocean with the potential to create long-term producer and consumer value or if agtech had become a murky sinkhole. I don't want to be a critic of those in the arena, but Indigo's big news this week is a brutal example of easy money in agtech. According to Pitchbook, Indigo has raised $1.7 billion to date. Their last valuation was $3.5 billion in 2021. Until July 2023, when they raised an undisclosed amount at a $200 million valuation. 94% of equity was wiped out. But that is shocking only to those who haven't been watching the Indigo story for the last decade. Shane Thomas published a great analysis of the drivers and assumptions that is definitely worth the read. Here's a rough summary of the company's evolution over the last decade: The company started in 2013 with a seed treatment, then hired a CEO with a marketplace playbook who, not shockingly, applied the same playbook to a new industry. Suddenly, the well-funded company with a seed treatment was spinning up vertical marketplaces in commodities like corn and soybeans. While these types of marketplaces fail for a number of reasons in ag, no other player had as much funding as Indigo when attempting this playbook so it seemed like there was a tiny chance it might work. But a few years into that experiment, the red flags were on fire - like why they were paying close to 2x market rates for salaries and why they only talked about the value of what was listed on the marketplace, not the value that actually transacted (a classic way to make a marketplace sound more robust than it is). Finally, they (privately) called it that the marketplaces didn't work, the CEO was out, and the company went hard at the next great wave: carbon. And now here we are. I am not drawing conclusions about anything other than the fact that this wasn't even the classic challenge of technology in search of a problem; this was excessive amounts of venture capital in a decade-long search of a real business. The scale of this phenomenon could only happen in an easy money low-interest rate environment. And I like to think that higher interest rates will drive that kind of silliness out of agtech, leaving only serious companies tackling high-value challenges. To read the entire article click here. Tweet |
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