When it comes to attracting venture capital from the Silicon Valley, the Sacramento region has had limited success over the decades. But that may be changing as investors increasingly focus on food.
Millions of dollars have flowed east in the past year into food technology startups working in the Sacramento region and the Central Valley, said people involved in the effort to establish Sacramento as a hub for food research and policy. At the same time, UC Davis is pursuing plans to build a World Food Center in Sacramento, perhaps in the downtown railyard. That center is envisioned as a place where food science, policy and innovation will come together.
“We’re seeing new interest in agriculture technology and food biotechnology from venture capitalists who have previously specialized in IT or clean technology,” UC Davis Chancellor Linda P.B. Katehi said in an email interview. “The next step is to bridge the gap from interest to actual investment, and the World Food Center is working to accomplish just that.”
On Wednesday, the man brought from Phoenix to head a new regional business recruitment organization founded by area CEOs singled out food technology as one sector in which Sacramento could stake its claim. “We can build a brand around that,” said Barry Broome, chief executive of the Greater Sacramento Area Technology Council.
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The Sacramento region has long struggled to nurture tech startups and keep them here. Fledgling companies frequently move to the Bay Area, citing the need to be close to funders. The region currently ranks 50th out 160 metropolitan areas in venture capital investment, according to the National Venture Capital Association.
“We’re clearly punching well below our weight class,” said John Selep, managing partner with the Davis-based AgTech Innovation Fund. “We can do far, far better.”
AgTech is in the process of raising $50 million in capital, with the focus on innovation in agriculture.
There are some promising signs. Selep said that he believes venture capital investment in the region increased in 2014 over the prior two years, based on anecdotal information. One example: A $15 million venture capital investment in the Davis-based startup BioConsortia, by Silicon Valley investment firms Khosla Ventures and Otter Capital. BioConsortia’s website says it is using microbes to increase agricultural yields.
“This uptick in venture capital funding is a good sign for the region, but we have far more to go to create the thriving entrepreneurial ecosystem our region has the potential for,” Selep said. “After all, Sacramento is the 35th largest city in the U.S. by population.”
Food technology is still a relatively modest component of the local economy. About 18 agriculture and food technology startups are based in the Sacramento region, according to the Sacramento Regional Technology Alliance, or SARTA. Although the medical technology sector has the most startup activity, the agricultural sector is growing the fastest, said Kirk Uhler, CEO of SARTA.
“The sector that has the most excitement and growth potential now is the ag and food space,” Uhler said.
Agriculture is big business in the Central Valley, and the presence of high-value crops such as almonds make the Sacramento region ripe for companies offering innovations, Selep said. High-value crops like almonds typically produce revenues of more than $5,000 per acre. Growers making this kind of money can afford the cost of innovating, and small gains in efficiency can produce substantial payoffs.
“If they can get a 5 percent yield improvement per acre – that’s worth $700 per acre to them,” Selep said.
Regional leaders also hope to see UC Davis spin off more commercial startups from its research, an area in which it has lagged. Katehi has made doing so one of her priorities.
“Growing the innovation economy in food and agriculture technology was one of the primary reasons we started the World Food Center at UC Davis in 2013,” Katehi said.
The university is deepening its relationship with the food industry to achieve its goals. One example is its close and growing relationship with Mars Inc., the maker of Snickers and M&Ms.
The candy manufacturer, which has worked with UC Davis for decades, announced earlier this year that it would commit at least $40 million to food-related research at the school in a deal that will create the Innovation Institute for Food and Health, planned as part of the World Food Center. Mars Inc. is also creating a venture capital fund of its own to fund innovation.
“The Innovation Institute for Food and Health will act as a hub to bring together the expertise needed to enable innovation,” said Harold Schmitz, chief science officer with Mars Inc. “Venture capital can be an important element in achieving this objective.”
Some of the agricultural technology startups working in the Sacramento area and the Central Valley are actually based in the Bay Area. One Silicon Valley company, Agralogics, recently opened a sales office with five employees in Davis. The company provides data on satellite imagery, weather, and soil moisture for over 1 million acres of farmland, most of in the Central Valley, said CEO and founder Sumer Johal.
Johal said innovation in agriculture is closely linked to the rise of big data – where faster computing and new application platforms offer volumes of data for all business sectors. Many farmers have been increasingly eager to use big data to make decisions on their farms.
“We feel there are hundreds of small companies that will start to build data-centric products in the Central Valley over the next five years,” Johal said.
Another Silicon Valley company, Blue River Technology, has raised $13 million from venture capital funds for robotic technology it’s developing for use in the Salinas and Central valleys, said Jorge Heraud, the company’s CEO and co-founder. One such effort, called Lettuce Bot, thins out rows of lettuce plants robotically. It’s being used in the Salinas Valley now, and Heraud said he plans to expand it into the Central Valley.
The University of California system also has its eye on agriculture. It recently established a Global Food Initiative that spans all of its campuses.
Last fall, the University of California announced its intention to create a fund called UC Ventures as an independent fund to pursue investment opportunities that arise from the research at 10 UC campuses, five medical centers and three affiliated national labs. The fund, initially capitalized by $250 million, will launch by the end of this year.
“I think what’s happening in agriculture is a trend worth watching,” said Jagdeep Bachher Bachher, UC’s chief investment officer.
Bachher manages a portfolio of investments totaling approximately $91 billion, which includes retirement funds and the endowment. Bachher said the university system does not invest in startups directly but does invest in funds that do.
Bachher said he believes the Sacramento region is poised to leverage the innovation and intellectual property being created by UC Davis, resulting in more startups. “This is a good time. There are clearly many opportunities,” Bachher said.
He said he believes the region’s geographic proximity to major investment firms along Silicon Valley’s Sand Hill Road will be a boon for startup funding.
“Silicon Valley is not far from Sacramento or UC Davis. You can just get in your car and go pitch there,” Bachher said. “Good ideas will get funded by venture capitalists.”
Call The Bee’s Edward Ortiz, (916) 321-1071. Follow him on Twitter @edwardortiz.