This past year was not kind to seed and ag start-ups. The March failure of First Republic Bank threatened to wipe out the checking accounts of hundreds of businesses. When total catastrophe was avoided, rising interest rates and inflation started chopping weeks, months and even years off the funding runways of dozens of companies.
Start-ups are used to living on the clock, but the pace that the minutes were ticking off in 2023 means that 2024 is a make-or-break year for many.
The days of cheap money are gone, and new financing is much harder to find. Investors are scrutinizing every current investment much harder and reevaluating their holdings. A common question is: “without new money, can this business get to positive cash flow before folding?”
Suddenly, raise timing became the most important strategic maneuver. If a business raised a big round in 2021 or 2022, it may be great shape. If a business was waiting for the right deal or just didn’t need the capital until 2023 or 2024, it could now be in trouble.
While it’s a terrible situation for companies caught in the middle, the current financial reality will create better discipline for the future. A popular model had developed where a start-up could raise a small (sometimes large) fortune with the goal of buying access to farmers and acres. They’d offer amazing terms or performance guarantees that they planned to fund with a future raise…after they hit the sales-based metrics without regard to sustainable margins. This process could go on for several rounds with a tweak to the strategy here and a new product line launch there.
That ended in 2023. Private equity and venture capital groups now demand more meat on the bone. They’re sitting out the early rounds to focus on more mature companies that are closer to generating positive cash flow.
This could create what I call the Great Sorting Out of 2024.
Start-ups that have over-built their internal organization, invested in inefficient capital, and need several more rounds of investment are in trouble. Those that operate with low overhead, have strong supply chain partners and are focused on sustainable margins may have the capital markets all to themselves.
Gro Alliance is providing solutions to start-ups looking to succeed in this new environment. Our farmer network spans eight Midwest states across multiple crops. We’ve expanded our nursery business in the US and Chile to include more services and more locations. Our core seed production business is more closely integrated with our clients through our industry-leading transparency and customized solutions.
