Monthly Roundup | Mar
A monthly roundup of compact ideas, thoughts, companies, and micro-theses to consider.
Investment Micro-thesis
Micro-thesis on a growing industry to consider.
Agriculture Analytics Industry
Climate change & population growth have induced volatility in conventional agriculture and farming practices, forcing farmers, farming corporations, and agricultural collectives to rely on more statistical approaches to predict weather patterns, identify new conditions for crop-raising, predict natural disasters, and improve crop yields in order to sustain a global population that will double in food demands by 2050.[1] The exigency of climate change and the ubiquity of agricultural sectors across global markets present a significant opportunity to invest in the development of analytics, big data, and machine-learning solutions for agriculture and farming.
Research organizations estimate the current market size as between $0.73-$0.8bn,[2][3] and expect it to grow to around $1.4-$2.3bn by 2025-2027. While this seems like modest growth for a small sector, the reality is that (1) it is an entirely nascent industry, and (2) these research organizations are using a “top-down” approach to determine market size since there is relatively sparse information about exactly how many customers exist in this industry (which would suggest this market sizing is an underestimate). As previously stated, the agricultural analytics industry is derivative of the larger constraints placed on global food supply, agricultural logistics, and shifting weather/environmental constraints; as these dynamic shocks to food production continue to increase in variance and volatility, demand for global agriculture analytics solutions providers will increase. The majority of agricultural analytics companies are currently in the startup arc of their development, which means that an expected 12-17% CAGR in market size, given limited information, is substantial.
Assuming that customer discovery is still on-going, and these macro-level estimates of market growth are incomplete, my hypothesis is that agriculture analytics will grow at a much faster rate than anticipated by the above research organizations. Companies operating in this space seem to be experiencing success in terms of fundraising and customer acquisition; most notably, Gro Intelligence, founded by an African entrepreneur, recently completed its Series B fundraise of $85m.
Research & Articles
Interesting articles in the innovation & growth space.
“Kenya is Becoming a Global Hub of FinTech Innovation”
by Mike Chitavi, Lauren Cohen, Spencer C.N. Hagist
Ignoring pandemic-related consequences, East Africa has experienced a glut of innovation and economic growth, originating in the post-2008 global financial crisis. The Kenyan economy has not only grown substantially in traditional sectors, but has also observed a rise in its burgeoning technology and innovation sector. In this HBR article, Chitavi, et al. analyze what can be learned from the Kenyan FinTech boom and suggest what the primary solutions US FinTech companies will be responsible for addressing over the next few years.
“The 3 Pillars of Product-Led Growth”
by Mackey Craven
Mackey Craven, a partner at OpenView, a venture capital firm that pioneered the concept of “product-led growth,” writes about this concept’s core tenets in this article. Product-led growth seems to be a continuation of the lean launchpad/entrepreneurship school of thought, as it identifies startup success in building products that prioritize end-user feedback/pain-points as the primary value driver. For strict adherents to Steve Blank’s innovation philosophy, OpenView’s formulation of product-led growth is a fairly reasonable view of how startups can maximize their value, with the extended caveat of listening to end-users as much/more than other decision-makers or influencers.
“The Effects of Covid-19 on Latin America’s Economy”
by Joaquín Cottani
Joaquín Cottani, a macroeconomist at the Center for Strategic and International Studies, analyzed and compiled the ongoing impact of the pandemic on Latin American growth. Latin America has, in the past decades, experienced very low growth despite many of their economies being considered as “emerging markets.” Given the various external influences that stunted Latin American growth (e.g. American meddling with regional politics & economies), this recent perennial low-growth has been a crisis of lost opportunity for regional economic development. Cottani’s analysis, however, suggests that depending on regional responses to the pandemic-related downturn, Latin America may either be poised for catalyzing innovation or may experience “economic scarring” from the contemporaneous contractions.
Financial Market Observations
Brief observations on financial markets.
Goldman’s 39 Overpriced Stocks
Back in late January, Goldman Sachs released a list of 39 overpriced stocks traded on American stock exchanges. As March takes off, how have they fared in their predictions? The largest industry-types on their list are software and IT services, which have exploded in value as a result of the pandemic catalyzing 2-5 years’ worth of digital transformation in less than a year. However, valuing software and IT services companies has always been a long-time challenge facing securities and financial markets, and these circumstances are the same. If we consider a subset of the software & IT services stocks Goldman Sachs had identified as over-valued, we can observe that many are facing a reckoning right now. From Feb-March, we can observe:
· Snowflake share price has dropped 22.4% between Feb 4th and March 4th
· C3.ai share price has dropped 43.7% between Feb 4th and March 4th
· Cloudflare share price has dropped 17% between Feb 4th and March 4th
· Datadog share price has dropped 21.5% between Feb 4th and March 4th.
· Palantir share price has dropped 21.4% between Feb 4th and March 4th
These observations, for now, are only local, so it’s hard to extrapolate whether this is an industry-wide decline/correction in valuation, or if these companies are simply outliers within their industry and experiencing a brief correction at this time. This will become clearer by the year’s end.
[1]“Global Demand for Food is Rising: Can we meet it?”[2]“Agriculture Analytics Market by Component…”[3]“Agriculture Analytics Market by Application Area…”