From boom to prudence: Analysing the rise and fall of investments in Indian agri-tech start-ups

Investments in Indian agri-tech start-ups fell by 45% between FY22 and FY23, primarily due to a hike in global interest rates and heightened investor caution amid rising uncertainty. Meanwhile, global agri-tech investments declined by 10% between calendar years 2022 and 2023, reveals consulting firm FSG’s new report, `India’s Unfolding Agri-Tech Story: Updates and Emerging Themes in India’s Agricultural Technology Sector’.

While FY22 witnessed a boom in agri-tech start-up investments, which drove start-up valuations to unprecedented heights, the correction in FY23 has led to a more prudent investment climate. In a positive trend, start-ups operating in the mid-stream agri-tech category in India are starting to mature, as the bulk of investments (~75%) in this space are now in growth (Series B and C) and late (Series D+) stages, FSG’s analysis shows.

FSG is a global mission-driving consulting firm that partners with corporations and foundations to create equitable systems change. Its new report is a significant update to its insightful Agri-tech Report 2022, “What’s Next for Indian Agri-Tech?”

The latest report delves into the dynamic changes that have shaped the Indian agri-tech landscape over the last year, providing valuable insights into investment trends, the evolution of agri-tech start-ups, and the growing emphasis on sustainable and climate-smart agriculture.

Some of the key findings of the report are as follows:

• Investment slowdown: India’s agri-tech sector witnessed its most successful year in terms of venture capital funding in FY22, followed by a significant decline in FY23 amid a global funding slowdown. While the number of investment deals rose from 121 in FY22 to 140 in FY23, the total funding raised by agri-tech start-ups in India fell from US$ 1,279 million in FY22 to US$ 706 million in FY23.
• Going forward, FSG expects the funding slump to continue into FY24, before springing back in FY25. It expects that start-ups will continue focusing on profitability to tide over the next financial year. Investors are likely to continue being cautious, and direct their limited funding towards established business models, such as follow-on funding for companies in the mid-stream agri-tech category.
• Mid-stream maturation: Mid-stream tech has consistently had higher ticket sizes when compared with up-stream start-ups, starting in FY20. The report highlights that mid-stream agri-tech start-ups have begun to mature, with investments primarily in growth and late-stage funding rounds. For example, 56% of investments in start-ups focusing on output linkages and quality management were in their growth and late stages. The corresponding figure for other mid-stream start-ups, such as those offering agri-carbon or agri-fintech solutions, was as high as 91%.
• Many mid-stream tech start-ups have also ventured into inorganic expansion through strategic acquisitions.
• Early-stage deals in upstream tech: While the upstream tech category has seen a sharp rise in total investments over the last two years, early stage deals (pre-seed to Series A) continue to be the dominant investment stage in this category, accounting for ~50% of total investment.
• Traditional companies alter course: Traditional agriculture companies expanded their footprint across the value chain through inorganic growth, spin-offs, and pilot ventures. However, over the last two years, several key players have announced plans to consolidate and streamline pilot projects, and to try to refocus closer to their core business. 
• FSG expects this trend to continue into FY24, with traditional companies continuing to adopt a cautious approach, and expanding into areas adjacent to their core business lines rather than placing big bets in new value chain stages where they have limited expertise, resources, and farmer networks.
• Sustainability and climate focus: Sustainable solutions and climate-smart agriculture have emerged as key focus areas in the Indian agri-tech sector, driven by a growing focus on environmental conservation and climate resilience, and supported by several government initiatives.

Commenting on the trends identified by the firm, Rishi Agarwal, Managing Director, Head-Asia, FSG, said, “The shift in investment dynamics highlights the Indian agri-tech sector’s sensitivity to global economic trends. Start-ups must use periods of slower investment to refine their business models and drive towards profitability. These moments can be invaluable for building a robust foundation that can withstand market fluctuations.”

He added, “Those in the upstream agri-tech space can seize this moment to innovate and capture market share, while midstream start-ups must focus on sustainable growth strategies, leveraging their maturing status and acquisition capabilities. The decision by some key traditional agriculture companies to streamline pilot projects and focus on their core business suggests a need for a strategic pause to recalibrate their approach. This strategic shift must be executed thoughtfully to ensure they remain agile in responding to the evolving market dynamics. Balancing consolidation with continuous innovation is a tightrope they must walk.

FSG’s report provides invaluable insights for industry stakeholders, investors, and policymakers seeking to navigate the evolving agri-tech landscape in India. With the data-driven analysis and forward-looking perspectives presented in this update, organizations can make informed decisions to thrive in this dynamic sector.

“With government facilitating collectivisation, mechanisation, and digitization of Indian farms, there are plenty of emerging opportunities available for agri-tech innovations that address the key farmer problems of agro-climatic information, yield management, and price realisation. Just like UPI facilitated a paradigm shift in the Indian financial sector, a unified digitised land and soil database can provide significant grassroots impact,” said Agarwal.

“The emphasis on sustainable solutions and climate-smart agriculture, bolstered by government support, signals a significant paradigm shift. Agri-tech’s transition towards sustainability isn’t merely a trend; it’s an absolute necessity. Innovations in sustainable farming practices and technologies are poised to be the driving force behind the sector’s future growth and resilience. Companies that prioritise eco-friendly solutions and climate-smart practices today will not only meet consumer demands but also ensure the long-term viability of the sector,” he added.

About FSG

FSG is a global mission-driven consulting firm that partners with foundations and corporations to create equitable systems change. Through customised consulting services, innovative thought leadership, and learning communities, we're working to create a world where everyone can live up to their full potential. FSG serves as a strategic advisor to leaders and teams at corporations on how they can leverage their core business, CSR, and philanthropic activities to create a more equitable and sustainable world while strengthening their competitive positioning and profitability.