Global investments in agriculture technology startups fell 30 percent in 2016

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Global investments in agriculture technology startups fell 30 percent in 2016 as investor interest in companies offering drones and satellite-guided farm machines cooled following the biggest capital inflow ever a year earlier, according to a study released on Tuesday.

Still, the number of deals grew 10 percent from 2015 to a record 580, and the $3.23 billion invested by venture capitalists and others was the second highest annual total on record for the sector, according to the annual report from food and agriculture investment platform AgFunder, reports Reuters.

The pullback outpaced declines in the broader global venture capital market. Weak commodity prices have dragged U.S. farm income to the lowest in seven years, while sales have slumped for industry leaders such as equipment maker Deere & Co and seedmaker Monsanto Co.

Funding for drones and robotics companies, bioenergy and food e-commerce businesses slowed, while crop biotechnology and farm management tools experienced an uptick, AgFunder data showed.

“Investors are becoming more aware of the challenges in distribution and adoption rates,” said AgFunder CEO Rob Leclerc.

“New investors in this space didn’t realize how hard distribution might be. It’s raising risk, it’s seeing companies not growing as fast as they’d like them to grow, and that’s a real challenge,” he said.

Investment was unusually slow in the fourth quarter of the year, a standout period in previous years, as political uncertainty in the United States and Europe kept investors on the sidelines.

Some investors may be waiting for large M&A deals such as the Dow Chemical and DuPont merger and Bayer AG’s takeover of Monsanto Co to be finalized before making large bets, Leclerc said.

The food e-commerce segment, which includes companies like U.S.-based Blue Apron, Germany’s Hello Fresh and China-based Yiguo.com, remained the largest category of investment for a second straight year with $1.29 billion in annual funding. Yiguo.com scored the year’s biggest investment with $200 million raised from Alibaba and private equity firm KKR, AgFunder said.

Agriculture biotechnology investments surged 150 percent to $719 million, led by Indigo, which launched a crop boosting microbial seed coating for cotton, and animal nutrition business Benchmark Holdings.

Ag tech deal flow also had a more international tilt in 2016, with just 48 percent of investments in U.S.-based startups, down from 58 percent in 2015 and 90 percent in 2014.

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