Ag Insider Interview: Mark Carlson, Managing Partner at Verdex Capital
Verdex Capital is a Calgary-based venture capital group focused on Agriculture Technology (Ag Tech) investments. We linked up with managing partner Mark Carlson to discuss Ag-Tech trends, Verdex Capital, and much more.
About Verdex Capital:
Verdex Capital has offices in Calgary and Edmonton, and focus primarily on early-stage Ag-Tech startups.
They have recently partnered with Finistere Ventures – a top-tier US Ag Tech investor – to assist with the management of the $150 Million Finistere FVII Fund in Canada through deal sourcing, due diligence, investment recommendations and portfolio monitoring, and exits.
Mark Carlson is managing partner at Verdex Capital, a Canadian ag-tech focused early stage investment firm with offices in Calgary and Edmonton. More on Mark below
Interview with Mark Carlson, Managing Partner of Verdex Capital:
For readers who are unfamiliar with Verdex, what sets it apart from similar early stage Ag-focused firms? What are some promising startups Verdex has invested in to date?
The Verdex Capital team has been investing in pre-revenue and early stage agriculture technologies since 1998. We do not invest in private equity opportunities or in farmland.
Our management team and corporate directors blend decades of investment, commercialization marketing, and venture capital history with a track record of solid returns as well as on-farm operating experience.
We have current investments in companies across the agriculture value chain such as Decisive Farming, Botaneco, and Baby Gourmet.
Are there securities restrictions involving Canadian venture capital firms investing in American ag-tech startups?
Not directly, though funding through some of Canada’s publicly funded agricultural and research programs can come with restrictions, such as requiring a Canadian-owned entity, or Canadian-controlled corporation.
Some of the research must be completed in Canada using Canadian academic expertise. Canada’s securities acts are overseen by provincial regulators and are not harmonized from province to province, though the key jurisdictions are generally considered to be Alberta, Ontario, and British Columbia.
The implications for companies seeking to attract investment and sell securities are increased costs and complexity to manage preparation of legal documentation and disclosure requirements if security offerings are sought in more than one jurisdiction.
In a related issue, crowdfunding for equity based investments varies across Canada for the same reason.There are also fewer barriers for foreign investors looking to fund Canadian startups. Luckily, Section 116 of the Federal Tax Act was changed in 2010.
This piece of legislation historically required tax to be withheld against tax payable upon realizing value from securities held by non-Canadian investors, usually with long delay in ability of foreign investors to receive full proceeds from their venture capital investments. United States investors in Canada can rest easy and seek out Canadian investments without this impediment.
How is valuation of an ag-tech startup different than the more stereotypical (and familiar) pure software startup? Do you believe the protracted timeline for ROI dissuades more investors from entering the Ag space?
Agriculture has a long value chain and employs many technologies from the laboratory to the retail shelf, spanning countless business decision-makers who have broad interests in selling to farmers, suppliers, dealer, manufacturers, processors, and end consumers, all of whom are very sophisticated business people.
This is different than selling an app on the Google Play store. For example, if a new plant genetics technology offers higher levels of healthier oil content, but has lower oil yield, that will impact how food processors’ economics.
Consequently, it may not be a good business decision to offer the new health benefit because the farmer cannot get paid same or higher value for growing the new oil, as the processor may not pay for it or be able to pass along increased costs to consumers.
Or, in a related matter, if the crop yield is lower the farmer may not be incentivized to grow the crop unless, it has a much higher price – and, if consumers do not perceive the value or the market is not of adequate size, the innovation for a “healthier oil” will fail.
All of this has to be carefully evaluated and investors will value companies who offer technologies to the market that must ultimately satisfy commercial requirements. There is also a trend for the larger processors to drive requirements of sustainability into their decisions regarding sourcing of raw inputs.
While large food companies source commodities globally, they are very much aware their brand value in the region of operation requires attention to local regulation as well as customer and business perception.
Consequently they are loathe to use technologies in those jurisdictions that may negatively impact their brand or social license. An investor will need to evaluate market potential for technology on this basis and assess the magnitude of market opportunity.
What is common to investing in agriculture as in other sectors is that investors need to understand what drives purchasing and costing decisions before investing. What is different is that the complexity embedded within the in agriculture value chain is significant.
Verdex is a self-described "early stage" investor, what are the specific maturity levels of companies you invest in?
We seek out innovations that are pre-commercial, or ready to be introduced to the market at the early stage of market validation based on commercial fundamentals, but having achieved a proof of concept that mitigates technology or science risk.
Typically this means the company has achieved adequate capability to utilize $1-5MM of investment to advance commercially and technically.
Verdex Capital is also seeking to identify Canadian technologies and companies which are investable by the Finistere Ventures II fund based in San Diego and Silicon Valley. See http://www.verdexcapital.com/fvii-fund/ for more information on this fund.
What sub niche of ag-tech is the hottest right now in Canada and the United States?
There is no doubt that crop genetics, nutrition, and protection are of the most value to farmers per dollar spent on the deployment of technology. It has been the case generally that farmers require a 3:1 ratio in benefit for every dollar spent in order to justify adopting an innovation on the farm.
But because the value chain is long, there are many other areas of investment opportunity. Animal health is also of some interest in that reduction in certain feed additives is of high interest to global consumers and multinationals.
In the same way that increased crop yields are of interest to growers, increasing feed conversion in the poultry, beef, and swine industries is highly desired.With the advent of Silicon Valley surveying the potential of IT-related innovation, and the large generalist funds entering the Ag Tech sector, the internet, satellites, cellular networks, and database developments are used by mainstream agriculture now.
Sometimes referred to as precision agriculture or decision support technologies, these business models offer services to farmers on a monthly basis to collect and manage data. The benefits are oriented to enhancing revenue and cost management.
These services have been broadly sold in North American the last 3-5 years. However, only now are there emerging companies that have demonstrated sustained profitability in their business model, but require venture capital investment to grow market share. Others are being channeled through equipment manufacturers to speed deployment.
The farm’s primary power equipment are now all sold equipped with this capability but not fully used by famers quite yet. Finally, technology to manage resources such as land and water, provide better human nutrition, and enhance food safety will continue to attract interest as these are essential the long term viability of the agriculture and human health.
Hazelblog has many ag-tech and food-tech startups in their audience, if they want to learn more about Verdex Capital, what is the preferred way to reach out? (i.e. Twitter, Email, Linkedin, etc)
It is best to forward a summary slide deck to us, and follow up with a call to introduce yourself.
See www.verdexcapital.com. We are also on twitter at @VerdexCapital, and LinkedIn.
More on Mark Carlson:
Mark Carlson is the Managing Partner of Verdex Capital Inc. In his role, Mark is responsible for all aspects of investment operations. Mark has directed venture capital and investment financing for a broad range of early-stage technology companies for the past 15 years. His sectors of investment expertise span the agriculture value chain, complemented by internet-powered and related software businesses, manufacturing, and life science which are all synergistic to Ag Tech investing. Furthermore, Mark’s comprehensive, hands-on knowledge of irrigated crop and cow-calf production gleaned from his farm up-bringing and ranching experience augments Verdex’s agricultural technology investment strategy and investment decision. Mark has a Bachelor of Economics and an MBA.Mark has spoken at numerous conferences, including the Agri Innovation Forum, and the AgriInvestment Forums.
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