iiM Year in Review: 2022

By R. Lee Harris, iiM Managing Member

iiM has a remarkable track record. Industry averages show at least 50% of early-stage companies will go out of business. What makes iiM unique in the venture capital world is attributable to several factors. First, we specialize in only three industry verticals. Many angel investment groups aren’t particular about the type of companies in which they invest and often are infusing amounts that are much less than iiM’s $310,000 average investment per company. Our investor group has significant domain expertise in each of the three verticals – something that few other early-stage investment groups can claim. Because we have such strong domain expertise, we can perform extensive due diligence on the companies in which we consider making an investment. Again, most angel investment groups do not go to the extent iiM does to investigate their portfolio companies.

During 2022, Nicholas Hense (2021) was promoted to Principal and assumed a greater role in identifying companies in which to invest and leading the due diligence process. Lydia Kinkade (2013) is the Managing Director for iiM.

Venture Investing Terminology

There are many terms in the venture capital world that can be confusing. As we look at various companies and meet with their founders, you may hear us use some of this terminology. Here are a few such terms and what they mean.

Customer Acquisition Cost – Customer acquisition cost (CAC) is the average amount of money that it costs for a company to acquire a new customer. CAC is one of the two components that define your basic unit economics – the other being CLTV (see: customer lifetime value). In addition, and assuming your CLTV exceeds your CAC, many investors will be interested in your CAC payback time – how quickly you actually earn the money back that you spend acquiring a customer.

Post-product-market-fit, these are going to be some of the key metrics that investors are interested in. While aggregate benchmarks are quite vain here, the general wisdom goes that your CLTV/CAC ratio should be above 3:1 and your CAC payback should be less than 12 months.

Customer Lifetime Value – Customer Lifetime Value (LTV or CLTV) is the revenue that a company can expect from a customer through the length of their ‘relationship’, i.e. how long the customer uses the company’s product or service. Together with customer acquisition cost (see: CAC), CLTV defines your basic unit economics, and is one of the key metrics investors will be interested in post-product-market-fit.

Tag Along Rights – Tag-along rights also referred to as "co-sale rights," are contractual obligations used to protect a minority shareholder, usually in a venture capital deal. If a majority shareholder sells his stake, it gives the minority shareholder the right to join the transaction and sell their minority stake in the company. Tag-alongs effectively oblige the majority shareholder to include the holdings of the minority holder in the negotiations so that the tag-along right is exercised.

Pro-Rata Rights – A pro rata clause in the term sheet gives an investor the right – but not the obligation – to participate in future funding rounds to an extent that preserves their share of ownership in the company. Investors will almost always push for pro-rata rights. This isn’t a problem as long as founders only take capital from investors that they will want to see involved throughout the journey.

In addition, some investors may demand super pro-rata rights, which give them the automatic right to purchase shares above and beyond the amount that accounts for dilution. Founders should pretty categorically say no to this, since it can be a heavy disincentive to other investors in future rounds.

Find more venture investing terminology here.

Two co-founders for a Richmond-based company offering environmentally friendly indoor farming technologies and techniques have just been named to Forbes’ 30 Under 30 list in the category of Social Impact.

Graham Smith and Alexander Olesen founded Babylon Micro-Farms in 2017 while they were students at the University of Virginia as part of a project to provide low-cost micro-farming for food-insecure refugees. The company makes indoor farming units that can be remotely controlled to grow herbs, vegetables and salad greens.

“I am honored to be included in this year’s Forbes 30 Under 30 list alongside my co-founder,” Olesen said in a statement. “We’ve been building Babylon Micro-Farms together for nearly 6 years. It’s fantastic to see our work recognized among such an esteemed group of people doing their part to build a more sustainable future.”

“None of this would have been possible without a fantastic team working tirelessly to make Babylon Micro-Farms a reality,” Smith said.

The company relocated from Charlottesville to a newly renovated 7,700-square-foot office on Carlton Street in Richmond’s Scott’s Addition in 2021. The building serves as Babylon’s headquarters and as its research and development facility.

The company calls its product the “easiest to use hydroponic micro-farm” that allows for the year-round growth of fresh produce. It couples its clear glass growing cases with a guided growing app that uses the sensors inside the case to monitor conditions and make adjustments. (…continued…)

Read the rest of this story about Babylon Micro-Farms here

WATERLOO, ON, Nov. 7, 2022 /CNW/ - All across the country, businesses are developing innovative technologies to improve productivity and food supply, and P&P Optica Inc. is one example. The company has developed a smart imaging system to inspect meat automatically on the production line.

Today, on behalf of the Minister of Agriculture and Agri-Food, the Honourable Marie-Claude Bibeau, Member of Parliament Bardish Chagger, announced $2,430,023 for P&P Optica Inc. through the AgriInnovate Program to help build and present its innovative, Canadian-made food inspection technology for meat processors.

The system analyzes the composition of food, evaluating properties like tenderness, freshness and its protein, water and fat content. It can detect imperfections and eliminate foreign bodies like plastic, bones and rubber. These tasks are done right on the production line in real time, generating information for processors to use to help improve their products, manage suppliers and optimize production.

This investment will support P&P Optica Inc. to build demonstration units that allow them to present their technology to potential users. P&P Optica Inc.'s mission is to help processors improve the safety and quality of their products, make the food supply more sustainable and reduce food waste. (…continued…)

Read the rest of this story about P&P Optica here

Last year, our analysis of Crunchbase data shows 797 AgTech startups globally raised $10.66B. This represents a 13% drop in funding, but a 26% increase in deals from 2021. Startups in all industries raised $445B in 2022, which represented a 35% decline from 2021. Investments into AgTech startups held up much better than in most industries. Last year AgTech venture capital investments made up about 2.4% of total startup investments.

There were 33 AgTech exits in 2022, 32 through M&A and one through a public listing. This is a 25% decline in exit activity from 2021. However, the number of exits through M&A was just one shy of the 2021 number at 33, while the number of public listings plummeted from 11 in 2021 to just one last year.

The largest increase in investment dollars by category was in the Controlled Environment Agriculture sector which saw over $700M of additional capital invested in 2022 than was invested in 2021. However, the top eight deals in that category raised over 80% of all its funding, so a few indoor farming projects were responsible for most of the increase. The other large increase by dollars from 2021 was in the climate monitoring and carbon trading category, which grew by over $490M last year.

The two categories with the largest drops in total dollars invested were the alternative proteins and the supply chain sectors, representing over a $1B decline and a $683M decline respectively. (…continued…)

Read the rest of this story here

A Look at a Portfolio Company

We are pleased to have made 32 investments in 22 companies within the iiM portfolio with due diligence underway for additional investments. One of our more recent portfolio companies is Impetus Agriculture, with operations in St. Louis, MO.  

 

Impetus Agriculture has developed a number of patent protected insect control biochemicals that are environmentally friendly and designed to extend or enhance the insect control spectrum of current topical and transgenic commercial products. These enhanced products will further protect crops without damaging the environment or beneficial insects. Impetus has developed a novel approach for designing new biochemicals that enhance the performance of naturally occurring bacterial proteins of Bacillus thuringiensis (Bt) currently used in commercial insect control products. New products will have two modes of activity: Dramatically enhanced activity against insects that Bt products control today and new activity against insects that Bt proteins do not control today. Impetus uniquely targets three markets: Highly effective spray on proteins for specialty crops, sprays to enhance transgenic Bt crop durability, and new transgenic traits. Collaborations are in place for all applications.

 

Impetus’ first biopesticides target fall armyworm control ($5B annual crop damage) in fruits and vegetables. The company has demonstrated that the novel approach effectively controls multiple insects with multiple Bt proteins in laboratory bioassays. The technology enables tailored design of products to target any insect with any toxin. The first product is under co-development with a projected product launch of 2026.

 

The crop protection market is expected to reach $65B by 2050. Insecticides represent a quarter of this market. Biopesticides are anticipated to dominate new growth. Transgenic insect control is a $6B annual market. Drivers of growth are changing consumer sentiments, a favorable regulatory environment, and the need for new, fast acting and highly effective insect control solutions. Impetus has a well-recognized group of business and scientific leaders with demonstrated expertise in commercializing billions of dollars of global insect control technologies. Management has expertise in leading both small and large R&D and commercial programs and for advancing early stage startups to successful exits.

 

CEO, Martha Schlicher, was the former CEO of current iiM portfolio company, Plastomics.

 

iiM made a $500,000 investment in Impetus Agriculture’s convertible note seed round in December 2022.

Company Website