The previous post listed agricultural and plant sciences as a field with the potential to make revolutionary advances with big economic impact. Here is a technology from the University of Saskatchewan as an example. It serves as a good case study too.
Last December, I was speaking to a venture capital associate from Vancouver. She told me that the University of Saskatchewan is doing a lot of interesting things. After the call I immediately searched the World Intellectual Property database for patent applications from that university. The search returned over 870 results, which was not unexpected. Reading through each title, this one struck me immediately:
(WO2014121366) Endophytic microbial symbionts in plant prenatal care
Reading the claims on the application, claim 10 says:
A method of improving seed vitality, plant health and/or yield comprising inoculating a seed with the endophyte or culture of any one of claims 1-6 or a combination or mixture thereof or with the composition of claim 7; and cultivating the seed into a first generation plant.
This is an invention to improve plant yields by using natural organisms already living symbiotically in the plant seeds. No chemical fertilizers or genetic modifications of the seed are required.
This has breathtaking potential!
Two professors are listed as inventors. I immediately set out to phone one of them, professor Vladimir Vujanovic, but he was on sabbatical. So I contacted the university’s licensing office instead. I spoke to the licensing officer responsible for the agricultural portfolio.
I was deflated when he told me that the patents have already been licensed out. He then spent twenty minutes telling me that there were no ready licensors in Canada, and that it would take a lot of capital to develop the technology. This type of capital is not available in Canada. He said he went to an investment event in the U.S. to present the technology. There was a group that was interested immediately. The licensing deal was completed very quickly, and that company went on to subsequently raise ten million dollars and they further raised over a hundred million a few years later.
It was a demoralizing phone call, because I got the impression that there was little hope of finding local financing to advance any technologies invented locally.
He didn’t give any more details, likely because of non-disclosure agreements. However, it was not hard to piece together what happened.
The Entrepreneur from Boston
In Boston in 2010, a young entrepreneur called Geoffrey von Maltzahn co-founded a biotechnology company called Seres Therapeutics. Seres is a microbiome company. It is developing products based on live bacteria to treat gastrointestinal conditions. It was also one of the hottest microbiome companies at the time: it would go on to raise $134 million in a successful IPO.
By 2012, von Maltzahn’s role as Chief Technology Officer at Seres had wound down. von Maltzahn is a restless serial entrepreneur. He graduated with a Ph.D. from MIT in 2010 and had already co-founded two other companies – Sienna Biopharmaceuticals and Axcella Health – before co-founding Seres.
He was now looking for another company to co-found based on microbiome technology, the use of “good” bacteria, in health or industrial applications. He was doing this as an entrepreneur-in-residence at a venture capital (VC) firm in Boston called Flagship Pioneering.
The VC that Conceives, Creates, Resources and Invests in Startups
Flagship Pioneering is not an “old school” venture firm. The “old school” model solicits, evaluates, and closes in-bound investment deals.
Flagship takes an active role in creating companies based on ideas that their own partners develop. The leader in developing and executing on each idea is the role of the entrepreneur-in-residence who becomes the eventual co-founder. Once the business plan is robust, the venture firm invests substantial amounts to create and manage the company.
This is a new model of investing that a small number of VC firms started practicing, for example, by Nestec in 1999, Flagship Pioneering in 1999, Third Rock Ventures in 2007, and Versant Ventures via their “Discovery Engines” in 2011. It is now becoming more popular with the newer well-funded VC firms, because it can be very effective, as we will now see.
On February 5, 2013, the University of Saskatchewan filed the patent application (the one I listed above) invented by professors Vladimir Vujanovic and Jim Germida along with a PhD student.
In 2013, von Maltzahn came across the University of Saskatchewan’s invention.
Did the work of the scientists at the University of Saskatchewan inspire von Maltzahn to action, or did he already have the idea himself? I suspect the former. Either way, everything happened very fast thereafter.
The IP licensing deal between von Maltzahn and the University of Saskatchewan was completed in 2013. (1)
On April 9, 2013, and June 26, 2013, independent patent applications were filed by von Maltzahn’s shell company. This is how fast Flagship Pioneering works to strengthen the patent estate. These were provisional patent applications, filed to get the priority date, while Flagship provided seed funding to quickly hire and contract their own in-house scientists to do the experiments and gather the data for the actual patent filing one year later (there were 10 scientists listed on those patent filings plus von Maltzahn). These scientists worked in Flagship’s own in-house wet labs called VentureLabs. (2)
On December 24, 2013, the Austrian Institute of Technology filed patents in this same area. This shows how competitive new ideas can be. It is very common for new discoveries to arise simultaneously from different groups. von Maltzahn closed a licensing deal on that patent estate as well.
In 2014, von Maltzahn incorporated his company, called Symbiota (as in plant symbiosis), and Flagship Pioneering invested $7.5 million in a Series A round (all values in USD).
In 2015, they hired a CEO, David Perry. Perry has an MBA from Harvard and founded ChemDex, an online marketplace selling life science lab supplies, in 1997. He then co-founded Anacor Pharmaceuticals in 2002 and was CEO before it was acquired by Pfizer for $5.2 billion. When these VC funds invest, they play to win by hiring the best talent.
In February 2016, Perry renames the company Indigo Agriculture to make it sound more familiar to farmers. They are already pivoting from a technology company to a product company.
Also, in 2016, they close another patent licensing deal with Flinders University in Australia to grow the patent estate. (3) Along with in-house patents, the company currently has over 250 patents.
On Jul 21, 2016, as they commercialize their first seed products, Indigo Ag closed a $100 million Series C round.
In 2017, the company begins a longer term pivot towards being a standalone agriculture company. Rather than just selling seeds, it is buying the crop back from the farmer. This assumes more risk, but it also brings the company higher up the value chain if they can pull it off. This is also a capital intensive model. For this, they raise a $203 million Series D round.
In 2018, the company completes two more parts of this pivot.
First, they acquire a satellite imaging company called TellusLabs. TellusLabs has a forecasting tool that combines satellite images with weather reports and crop data and uses machine learning to forecast crop supply. This is important for knowing commodities pricing.
Second, they developed an online marketplace, called Indigo Market, because if they are buying from farmers, they need a distribution mechanism. This is also necessary to dis-intermediate the role of the global agricultural seed companies. (6, 7) This is where Perry’s experience at founding and running ChemDex becomes valuable.
On September 18, 2018, they close a $250 million Series E investment round, and the company is now valued in excess of $3.5 billion.
What did we learn?
This is an astonishing story. The University of Saskatchewan had a seminal role in creating a valuable new technology. Sadly, it did not lead to a business that could be retained within the country.
There were many elements that enabled Indigo Ag to get where they are today. Admittedly, it is hard to believe that anyone else could have done a better job if this technology was licensed to an underfunded Canadian startup.
- First, there is the role of active venture capital firms that not just invest but execute very fast and with very strong conviction.
- Second, there is experienced, smart proven talent at the executive level, who are able to develop bold and ambitious business models. I can see more mediocre choices such as a tech licensing model or a seed product sales model, both of which would end up floundering or being acquired sooner and for much less value.
- Third, there is the business thinking to consciously change the business model and move to a higher value position in the value chain and to do this in a strategic way that addresses powerful global competitors.
- Fourth, there is management talent at the operational level to succeed in all the steps.
In our case, the first step is to acknowledge that the nature of venture investing is changing. The speed and intense competition with which technologies are developed today requires much larger amounts of early stage investment.
Also, the product or service needs to control distribution as downstream as possible, to get as close to the customer as possible, to compete effectively against intermediaries and competitors. This also requires a lot of capital.
In this global context, small funds that provide small amounts of funding are taking on more risk than a larger investor with deep conviction, because the startup company will never be able to make the bold and necessary moves as we have seen with Flagship Pioneers and Indigo Ag.
(4) AgFunder News.
(5) Wired Magazine story.
(6) AgFunder News.
(7) TechCrunch story.