In order to not lose its investment in agricultural innovation, the Canadian government needs to bet on winning companies rather than giants.
Historically, agriculture has experienced three major innovations: mechanization, the introduction of chemicals and the application of modern genetics. All have significantly changed how food is produced. And now the next big revolution has arrived. The Internet of Things (IoT) and big data are enabling “precision farming,” which is driving the timely and accurate application of technology that can maximize profitability and sustainability.
Established in 2010, Semios is rapidly expanding the world’s largest network of agricultural data-gathering devices. Currently 150,000 of our sensors report every 10 minutes from every acre of some of the largest tree fruit and nut farms in North America, measuring weather conditions as well as leaf wetness, soil moisture, insect trap counts and other information that farmers need. We also calculate risks to crops from factors such as pests and frost. Among our current customers, we manage just 10 percent of their farmland, which means we could easily grow to over 1 million sensors simply by expanding on these farms. However, we believe there is a market for over 1 billion sensors worldwide on farms growing high-value crops. To achieve this goal and maintain our first-mover advantage, we need working capital solutions to grow our business.
Having roots in Canada has allowed Semios to innovate quickly and demonstrate added value in key market segments. We are at a stage where an injection of financial support would turn Semios into a global competitor and help establish Canada as a leader in agriculture technology, or agtech. Investing in fast-growth companies like ours would keep the rewards of innovation at home to benefit the Canadian economy.
Innovation in agriculture goes through three stages: research and product development; demonstration and market validation; and commercialization.
Stage 1: Research and product development
Canada is known worldwide for its support of early-stage research. Nowhere is this more apparent than in agriculture technology. The federal and provincial governments are supporting the agtech industry with agencies and programs such as the Industrial Research Assistance Program, the National Sciences and Engineering Research Council of Canada, the National Research Council Canada, Mitacs, the Investment Agriculture Foundation of British Columbia, and the Western Innovation Initiative. Some help organizations working independently, and others help those working in collaboration with university or college research groups. We at Semios had tremendous success working with research teams at the University of British Columbia, Simon Fraser University, the University of Victoria and the University of Guelph.
Our goal was to develop a precision farming platform for high-value crops such as fruits, nuts and grapes. We wanted to draw upon the global IoT network in combination with big data and machine-learning analytics to better understand and predict the risks to crops from pests, diseases, frost and over- or under-irrigation. This was an ambitious project that would require large commitments from investors and research organizations. We proceeded incrementally, gradually increasing the size of the projects and undertakings to continue to validate the technology and better understand the challenges of scaling up in various markets and crop types. Over time, the research organizations and investors gained confidence in our team, leading to larger undertakings and further innovation.
Canada’s startup incubators also have a role in research and product development. These spaces and organizations help entrepreneurs get their ideas off the ground. They often provide some combination of networking, mentorship, capital and desk space. In our case, we worked with Wavefront, VentureLabs and the BC Tech Association.
Stage 2: Demonstration and market validation
This stage is when you find out whether you have simply invented a better mousetrap or whether your idea is truly innovative and valuable. Entrepreneurs, especially those with a science background, can feel uneasy about pushing their ideas out into the world. It’s relatively easy to convince another researcher to collaborate with you, but it’s another matter altogether to ask a customer to try it. Our customers are farmers; for them, “trying it” means potentially risking the crop that represents their entire livelihood. At Semios, we approached larger programs such as the federal AgriInnovation Program and Sustainable Development Technology Canada for support of our larger-scale development and demonstration projections. This helped give our customers the confidence to take that difficult step with us.
As governments consider how best to support demonstration and market validation efforts, it’s important to factor in that the ideal location for these studies is not always in Canada. In some situations, the scale of operations in Canada is just not big enough for appropriate demonstration sites. In any case, we are also looking to build a new agtech industry that serves markets beyond our borders.
Stage 3: Commercialization
This is the most difficult stage for Canadian companies and where many falter or are eventually sold to US partners. Canada simply does not have access to the working capital required to scale up our businesses. The venture capital in our country does not have deep enough pockets to develop all the great opportunities. Our banks are too conservative to take on the risk associated with agtech ventures. As a result, we lose to our competitors or we are taken out.
There appear to be more young, innovative Canadian companies selling to foreign interests than there are large Canadian companies buying foreign innovation. As a result, Canada’s investment in innovation is being lost. A few entrepreneurs and early-stage investors make a profit but our economy doesn’t benefit overall.
As a culture, Canadians seem to prefer equal opportunity for the masses over betting on a few winners. This makes stages 1 and 2 easy but stage 3 a challenge. But stage 3 is where the true added value comes in. It’s when jobs are created. It attracts investors. It supports communities.
Companies looking for working capital in stage 3 are not necessarily looking for handouts. Most are looking for interest-bearing loans with a repayment period that supports fast growth.
Building the future of agriculture
One approach to investing in commercialization is to use debt financing for companies that have reached a certain threshold of growth. The federal government should lend money to fast-growth companies based on their ability to build our future economy. Too often, debt issuance is tied to immediate profitability and short-term ability to finance the loan. To support innovation and a strong economy, debt should be tied to growth metrics instead.
In order to get a true payback on the investment it has put into stages 1 and 2, the Canadian government needs to get comfortable with betting larger amounts of capital on winners rather than on giants. Politically, it may appear safer to give large sums of money to large companies, because they are more likely to avoid bankruptcy. However, economically, it makes more sense to invest in companies that are growing quickly, especially in areas and markets that are more relevant to tomorrow’s economy.
This article is part of the Canadian Agriculture at the Cutting Edge special feature.
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