Capital flows into Indian agtech were slightly muted in the first half of 2022 compared to the previous year due to a cautious investment environment, a report by ThinkAg said.

In its latest report ‘Agtech in India: Investment Landscape Report’, ThinkAg said 34 agtech firms attracted an investment of $498 million in the first half of 2022. In calendar 2021, about 66 companies had raised an investment of $1.18 billion.

ThinkAg is an agtech platform that bring together innovators, corporate entities, and investors to improve outcomes in Indian food and agriculture.

Deal sizes up

The deal sizes have increased considerably for agtech start-ups across all stages of funding — from enterprises raising their first institutional investments to those with mature models and many fundraising rounds under their belt. The report said that average first cheque size during H1 2022 was $3.85 million, higher than $3.05 million in 2021. However, the median investment was slightly lower at $3.78 million during H1 2022, when compared to $4.27 million in the previous year.

The muted capital flows during H1 2022 can be attributed to a more cautious investment environment, prompted by agtech start-up deal sizes and valuations growing substantially in 2021, even though many of their models are yet to demonstrate profitability, the report said. “While this does potentially point to a year-on-year dip in investment values in 2022, it reflects an adjustment in the amount of capital flows rather than a shift in outlook and will likely herald a greater emphasis on monetisation and unit economics in India’s agtech sector going forward,” the report said.

Outlook

“Given that most mature agtech models are yet to achieve profitability and that many of their strategies involve the expensive task of vertically integrating across value chains, investors are likely to proceed more cautiously going forward. Investment activity in the first half of 2022, suggests that this will primarily impact the value of agtech deals on average, rather than the number of ag-tech investments. While the long-term outlook for Indian agtech remains intact, we can expect capital markets to be more constrained and a greater focus on monetisation and healthy unit economics for agtech solutions,” the report said.

First-time deals

The report said the number of large first-time deals is on the rise during H1 2022, painting the picture of an agtech ecosystem where promising new solutions are now able to fundraise and scale at a much faster pace. “Many of the sector’s largest follow-on deals were also inked during this period, chiefly by private equity and strategic investors. However, these large deals now account for a smaller proportion of total investment values than they have in previous years, indicating a higher level of maturity for India’s agtech sector overall,” it said.

Further the report observed that in contrast to previous years, consumer-proximate supply chain solutions were no longer the only dominant category in India’s agtech ecosystem. “Farm-proximate solutions have begun to realise greater traction, with input supply chain digitisation and precision agtech solutions raising larger investments.”

This is supported by ThinkAg’s survey of farmers which reveals that pre-harvest services like access to better inputs, agronomic advisory and precision technologies — solutions that enhance productivity of farming operations — are offerings that farmers have experienced to be most helpful and therefore, are what they report greatest interest in. Though driving adoption of these solutions continues to be a challenge, farmer-facing agtech start-ups are increasingly able to collaborate with agri-corporate players to this end, by partnering with them to access scale and, in some cases, even alternate business models.

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