Invest-NL sees the Agrifood sector as a catalyst for the energy transition

Wilco, you have been involved in the Agrifood sector for many years. Why does Invest-NL focus on Agrifood and what would you like to achieve?
"In line with the wishes from the House of Representatives and based on our own research, Invest-NL now considers financing scale-ups and the energy transition as the highest priorities. The Agrifood sector plays an important role within the climate and energy transition. Food production already accounts for about 25% of total greenhouse gas emissions. And with the growing global demand, more food will need to be produced in the coming decades. Meeting energy and climate commitments, combined with the increasing demand for food and other agricultural products and raw materials, means that, in our view, a shift in the food system is necessary."

'A shift in the food system.' Sounds a bit vague. What exactly do you mean by that?
"That shift is very concrete. We have looked at developments with a significant contribution to the energy transition. Let me give a few examples: by working more precisely and intelligently, the efficiency of production factors such as land, feed, water, energy, and labor can be increased. And that in turn leads to fewer emissions per produced unit. But also consider the shift from animal-based to plant-based and new protein sources, which cause much fewer greenhouse gas emissions proportionally. Another important topic is minimizing product waste as much as possible. In the future, it will become increasingly important for us to be able to revalorize residual streams as raw materials for our own or other processes."

How do you arrive at these insights at Invest-NL?
"We do this in various ways. As impact investors, we not only look at the potential impact of investments in terms of reduced greenhouse gases. We also examine the opportunities an investment offers for creating or preserving employment and the extent of R&D involved. And of course, we look at the (financing) market: are there financing bottlenecks that prevent the market from addressing these issues (fully), and what role does Invest-NL play in that? We make extensive use of the research already conducted on the contribution of the Agrifood sector to the energy transition, including work by the World Economic Forum, McKinsey, Wageningen University & Research, the Ellen MacArthur Foundation, the Ministry of LNV, and the RIVM. We analyze these studies, conduct our own research, and validate the findings through numerous discussions with ‘Key Opinion Leaders’ from the sector. Our conclusion is that we as Invest-NL can truly make a difference, which is why we pay special attention to the Agrifood sector."

From the analysis, the picture emerges that there is a lot of support offerings mainly in the early growth phase(s). As an innovative company in the Agrifood sector grows larger (‘early growth’ and ‘late growth’), the support offerings decrease. Based on this market insight, Invest-NL can help entrepreneurs find the right programme and/or assist existing programmes with better coordination. Ultimately, you want innovative companies that can truly make a difference to be able to access the ‘incubator’ and/or ‘accelerator’ programmes that can mean the most for them. And where that support is not yet available or insufficient, we can assist companies through our advisory team, for example in the later (stages of) growth phases. Think about helping companies become ‘investor ready’, market research, and the development of specific financing instruments.

‘Investor ready’ making? Could you explain?
"In practice, it appears that many promising companies are not yet ready for further scaling and therefore do not qualify for financing. They are not ‘investor ready’ yet. And keep in mind, being ‘investor ready’ is not a one-time action. It is an ongoing process towards each new round of financing. As an entrepreneur, you need to keep working on it. It’s not just about the finances, but also about having the right team in place, keeping your information provision in order, organising your network, knowing your (future) customers, and being well aware of what the competition is doing. This often happens in an ad hoc manner now, but you are much more likely to succeed as an entrepreneur if you see it as an integral part of the growth you want to achieve. And that is exactly where we, as Invest-NL, can help: we can introduce innovative entrepreneurs with growth ambitions to our partners in government, knowledge institutes, business community, and financial institutions. Or we can look at how a next round of financing can be better structured to increase the chances of success. Our goal is always to ensure that innovative entrepreneurs find the right financing to scale further."

How serious is that?
"It's serious for two reasons. Firstly, we need innovations with scale to implement the aforementioned changes in the food system(s). Only when we can translate innovations into production at the scale of existing markets can a switch really happen. Secondly, the lack of funds capable of making large tickets (> € 5 million) means that innovative companies in the Netherlands with high growth potential are eventually forced to partner with Anglo-Saxon and/or Asian players. If we're not careful, that knowledge will be lost abroad. And that would be a shame. Invest-NL can increase the availability of venture capital in the Agrifood sector through Fund-in-Fund investments by broadening the liquidity of specialized funds and/or developing new funds. Additionally, we can also provide direct funding to start-ups and scale-ups with relatively large financing needs, helping to resolve this funding bottleneck. We can do this with equity (shares) and debt (loans) and intermediate instruments such as venture debt."

Equity, debt, venture debt? Explain?
"These are different forms of capital. All these forms are in our toolbox, giving us the flexibility to deliver tailored solutions and contribute to financing when the market does not sufficiently provide. I’ll give a few examples. Equity financing involves selling a part of the company in exchange for shares. If the company goes bankrupt, investors usually lose their investment. Debt financing involves raising money through a loan, which the company then repays in installments. The most traditional form of debt financing is a bank loan. If the company faces financial setbacks or goes bankrupt, the loan still needs to be repaid with interest. Typically, a company only qualifies for a loan if it can offer sufficient security or has enough cash to convince the lender of its ability to meet interest and repayment obligations.

Innovative start-ups or scale-ups often cannot meet the requirements for a loan. Venture debt may then be a solution. With a loan, the interest essentially acts as compensation for the risk the financier takes. Whether things go well or badly, the interest remains the same. Venture debt differs. The reward for the financier depends on how the company develops. Just like with equity, you share in the successes if things go well, but you also feel the pain if they go badly. You can agree on this in various ways. For example, by giving the financier the right to buy shares at a set price and date, known as a warrant. If the company performs positively, the financier can realize extra returns by exercising these warrants. This return costs the entrepreneur no ‘out-of-the-pocket money’. Another advantage is that venture debt is often quicker to arrange than equity because there is less negotiation about control and so on. In the Netherlands, venture debt is relatively new, and this market is still developing."

So you’re still busy at Invest-NL?
"The current focus on energy transition is necessary, especially for start-ups. And to stay with agricultural terms, our plate is well filled for the coming years. But from my ‘Agrifood’ perspective, I naturally also look further. Besides contributing significantly to the energy transition, the Agrifood sector offers avenues for solutions to other major challenges. For example, the sector is responsible for 70% of freshwater usage and 50% of available land is used for agriculture. In light of the growing global demand for food, expanding the agricultural arsenal is the biggest driver of deforestation. The future food system, in my view, should pay more attention to health impacts and associated costs."

Isn't it mainly about money and costs?
"No, definitely not. What I also want to work towards is a food system where people can and want to choose foods that positively contribute to their health. This links the transition of the food system directly to the question of how we can keep healthcare both high-quality and affordable."