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, a just-released report by consulting firm FSG says.
According to the “India’s Unfolding Agri-Tech Story: Updates and Emerging Themes in India’s Agricultural Technology Sector” report, the total funding raised by agri-tech start-ups in India fell from $1.28 billion in FY22 to $706 million in FY23. However, the number of investment deals rose from 121 in FY22 to 140 in FY23.
Globally, agri-tech investments declined by 10% between calendar years 2022 and 2023, the report says.
According to the report, 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. It also points out the 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.
It also reveals 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.
“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 toward profitability. These moments can be invaluable for building a robust foundation that can withstand market fluctuations”, Rishi Agarwal, managing director, head-Asia, FSG, says.
"With the government facilitating collectivisation, mechanisation, and digitisation 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,” he adds.
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, the report said.