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From: lewis.perdue@wineindustryinsight.com

Subject: Breaking the doom loop: Wine desperately needs AgTech to get out of its slump.| WINE EXECUTIVE NEWS | December 17, 2019

Date: 2019-12-17 09:21:23

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Breaking the doom loop: Wine desperately needs AgTech to get out of its slump.

The extensive investment sector reports from Finistere and AgFunder -- on which much of this article is based -- are available only to Wine Executive News Premium Subscribers. Links are at the bottom of this article.  

The wine industry needs AgTech -- innovative products, systems, processes and other effective and efficient ideas and developments -- to pull it out of its current economic stagnation. To do that, wine needs more investment.   Consider wine's investment dilemma: the top 33 VC-funded wine companies have seen less investment in their entire lifespans ($924 million) than AgTech saw in a single year – $16.9 billion in 2018.

Screen Shot 2019-12-11 at 10.15.34 AM

The wine industry's lack of innovation, slow (or no) adoption of current AgTech, and absence of investment in new, more cost effective ways of doing business has helped shove the wine industry into a state of stagnation.   Without AgTech and new investment, the wine industry faces a self-defeating doom-loop: Lack of investment feeds stagnation which leads to less investment, which leads to more stagnation. 

It's notable that AgTech could break the doom-loop, but can't do that without more investment. Unfortunately, the wine industry's lack of financial transparency hampers new investment.  

This means that breaking the doom-loop must start with insightful wine industry businesses who can find existing, financially feasible AgTech developed for other sectors and profitably employ those as examples for others.  

The mission for this new Wine Industry Insight series is to winnow through the vast universe of AgTech and highlight those which can be economically implemented by early adopters.   Clearly the need for this is dire.


Industry metrics show wine's financial stagnation

Select graphics, below, from Silicon Valley Bank's 2018 State of the Wine Industry Report offer a glimpse of the wine industry's current financial stagnation.  
Screen Shot 2019-12-16 at 7.54.44 AM

Right click all charts to view larger images

Screen Shot 2019-12-16 at 7.56.25 AM Screen Shot 2019-12-16 at 7.56.37 AM
Screen Shot 2019-12-16 at 7.56.07 AM Screen Shot 2019-12-16 at 7.55.41 AM


DtC: One notable bright spot

Direct-to-Consumer (DtC) sales is a notable exception to the wine industry's neglect of bottom-line-boosting innovation. It is worth noting that most VC investment in wine has gone to drive DtC, including on-demand delivery.  

Screen Shot 2019-12-16 at 9.26.50 AM


What's causing the Stagnation?

A check of very recent headlines from just one single day (Dec. 16, 2019) touches on just a few of the wine industry's existential challenges:   Stagnant sales growth, feeble (or missing) efforts to counter the NeoProhibitionist movement, the inability to effectively compete against new AlcBev types (hard cider, craft beer) all weigh against the industry.

At the most fundamental level, the industry's current doldrums (and inability to attract new customers and investment) are a result of the failure to widely adopt more modern and efficient methods of managing, growing, producing, marketing, selling, and shipping wine.  

While a few outstanding individual players have challenged the status quo, they are just notable exceptions, not the sort of rule that can lift the entire sector.  

In a shifting consumer market -- and in the current absence of any industry leadership -- survival and success depend on each individual enterprise to increase efficiency and effectiveness -- and through that, to produce better margins and brighter financial results.  

While university research advances knowledge in viticulture and enology those are chronically underfunded.  

In addition, the industry's lack of investment in new university results delay or thwart development into products and services that can be used by the industry.


AgTech efficiencies can lift wine from its current stagnation, facilitate more investment

This series will also identify investment opportunities for our substantial subscriber base of financial institutions, professionals, and individual investors looking for those companies that already have one foot planted in the future.  

In 2017 and 2018, Wine Industry Insight researched and identified the top 48 out of 100 venture funded wine businesses who had received at least $1 million in total funding for the life of the company. WII then profiled the top 23 over several months.  

What this effort revealed was the anorexic state of the wine industry's investment picture.


Top 48 U.S.-based venture-funded wine companies (Total lifetime investment): <$1 billion

The total investment in the top 48 U.S.-based venture-funded wine companies hit about $924.4 million. Not in one year, but for the life of all the companies identified.  

I say “about” because those were just the numbers that could be confirmed.   The industry’s propensity to hide every investment like a dog buries a bone means that the total may be greater than $1 billion.

That "bury the bone" attitude and abysmal lack of transparency also hurts the industry's ability to attract capital.   We will continue to follow-up on those companies, and to profile others when the rare disclosure is made.


AgTech's investment for 2018 alone: $16.9 billion

There is a growing, vibrant and transparent investment sector that is relevant to wine and viticulture which merits closer scrutiny: AgTech aka AgriTech aka AgriFoodTech.

We'll just use the term AgTech to cover the whole sector because, as we will explain, the vast overlapping categories defy a single name.   Significantly, one top investment firm -- AgFunder -- says that AgTech investment hit $16.9 billion in a single year: 2018. That number agrees with an estimate from another top AgTech investment firm, FInistere Ventures.


What the heck IS AgTech?

Two charts (below) look at the taxonomy of what AgTech includes.   The following two charts summarize one top investment company's:
  1. Category deal flow, and,
  2. Where wine fits in.


Deal flow by category



Where wine fits in (0.3% of 2018 AgTech VC)

Top 20 eGrocery Deals, 2018   Other than Chinese e-commerce wine giant 1919, only two other companies show up as wine-related: Drizly and Wine.com. They count for 0.3% of the total of 2018 AgTech investment


But ... Wine IS Ag... it just needs the right Tech

However, 2018's VC investment of $16.9 billion includes a lot more AgTech companies that are relevant to wine. After all, wine begins with agriculture: Planting, farming and harvest segue to biotech (fermentation), food processing, packaging, transport, marketing and sales.


Our new series will be sort through every category to identify the companies and investments that are most relevant to wine and viticulture as well as to investors

Very few companies in the vast universe of AgTech companies (see graphics below) emphasize or even mention wine or viticulture on their websites.

In fact, wine is rarely mentioned even by companies whose products, services and technologies are relevant.


Our AgTech effort will be different from our previous series

Because venture capital and financial transparency are such novelties in the wine business, our previous effort focused more on the investment structure, rounds of financing and investors and less on the companies themselves. As uncommon as it is, subscribers were astounded that outsiders might be interested in investing in wine as an industry.  

Because of that, this new series will search for new, useful technologies and companies which have the potential to increase efficiency for the wine industry from dirt to the consumer's first sip.  

The 10,000-foot view of AgTech

As mentioned above, the taxonomy of AgTech varies from place to place and firm to firm. The categories overlap, but the following two views will offer a viewpoint showing the breadth of the AgTech category and some of the companies that play in each sector.


Defining by Technology Categories

Source: Finistere Ventures -- "2018 Agtech Investment Review"   Categories from image, below (clockwise from the top).
  • Animal Technologies
  • Imagery
  • Sensors and Smart Farm Equipment
  • Precision Ag
  • Ag Marketplace and Fintech
  • Indoor Ag
  • Crop Protection and Input Management
  • Plant Sciences
NOTE: There are two images below (necessary to capture the full graphic). Right click on each of the graphics to view much larger images.  

Screen Shot 2019-12-10 at 1.21.42 PMScreen Shot 2019-12-10 at 1.22.02 PM


Defining by Functional & Market Categories - Source: "Agrifood Tech Funding Report: Year Review 2018 -- Agfunder.Com"

Screen Shot 2019-12-10 at 1.37.30 PM


Defining by Tech First Then Ag

Source: SVG Ventures-THRIVE   Screen Shot 2019-12-10 at 3.40.13 PM    


Defining by Ag First then maybe involve tech of some sort

Source: Grow-NY Competition administered by Cornell University
The “food and agriculture space” includes food and agriculture companies at every point in the agri-food value chain that are working to serve a growing population, while striving to employ sustainable, environmentally conscious, and/or healthy methods. Examples of food and agriculture startups include, but are not limited to, companies that:
  • Research and design new crop varieties
  • Offer new methods and/or tools to support the efficient growing, monitoring, and harvesting of crops and livestock
  • Offer new and/or improved methods for producing, preparing, and packaging food and beverage products or ingredients
  • Represent high-growth opportunities for new and innovative food and beverage products or ingredients
The following businesses are NOT eligible for the competition: investment vehicles that invest in the securities of other entities, residential real property and retail businesses, sports venues, gaming and gambling businesses, places of overnight accommodation, past Grow-NY cash-prize winners, or entertainment-related establishments. For this purpose, “retail business” means a business that is primarily engaged in making retail sales of goods or services to customers who personally visit such facilities to obtain goods or services. In addition, generally excluded are the following: buy-outs, roll-ups, real estate syndications, tax shelters and franchise-based outlets.

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NOTE: Wine Industry Insight publisher Lewis Perdue's business, financial and technology reporting includes Dow-Jones, TheStreet.Com, Wall Street Journal Online, Marketwatch, InfoWorld, InfoWorld, PC World, TechWeek, Embedded Systems Journal and others. He also founded the first mobile phone merchandise payments system, and helped start a company bought by Cisco. Lew graduated with distinction from the Cornell University College of Agriculture and Life Sciences. More information at this link. 

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