John Deere Leads InnerPlant’s $16M Series A: The Beginning of the Internet of Plants

Co-authored by Matt Coutts of Coutts Agro and Shane Thomas of Upstream Ag Insights

This week an article in TechCrunch announced John Deere leading the Series A investment in InnerPlant.

*InnerPlant is developing genetically-engineered varieties of plants that elicit unique signals when they’re experiencing specific stressors. When crops experience fungal pressure, are attacked by insects, lack nutrients, or are thirsty, the leaves fluoresce in different colours, serving as an early warning system for growers. InnerPlant’s trait technology platform allows remote sensors, such as satellites, to see and understand what a plant is feeling and when, delivering the ability to more proactively and precisely take action and achieve better environmental and profit outcomes (view the InnerPlant patent application here).

Source: InnerPlant. Images of InnerPlant trait through different filters.

In fact, InnerPlant will have sensor enabled satellites launched in 2023:

The new investment gives InnerPlant $22 million in total funding to date as it prepares to launch its first soybean product, in 2024. In addition, the company will start launching satellites to speak to its sensors in 2023.

But what happens if you wire all hardware going over the field to accurately sense what a crop is experiencing? Or connect machines to the data coming in from satellites? John Deere has already begun to do this with their See and Spray technology for weed management and their broader category of Sense and Act equipped on combines to manage harvest losses along with planter capabilities. 

John Deere has a vision for plant level management.

Source: John Deere Annual Report

InnerPlant trait technology holds the keys to move Deere even closer to this vision. The connection between John Deere and InnerPlant has been apparent to Upstream since first discovering InnerPlant and given the fact Deere is leading the Series A, it appears both organizations see it as well; Deere wants to see InnerPlant technology be viable in the market because it rewires the agricultural ecosystem with the most important data layer to enable their vision of plant level management and make their equipment even “smarter” - a win for farmers. 

It seems apparent that Deere recognizes the challenge in delivering plant level precision to farmers alone. 

In the world of technology today, part of delivering new products and technology to the market takes ecosystem management - knowing what other innovations are necessary to allow yours to have the greatest chance of success. Deere has stated they aren’t stopping at precision management with weeds, but have intentions to go to disease and nutrition before the end of the decade. This requires having the full view of an ecosystem, and the skills to manage across the ecosystem.

Ron Adner, author and Professor of Strategy at Tuck School of Business, highlights what he calls interdependence risks when deploying new innovations, emphasized as:

If an innovation is a component of a larger solution that is itself under development, the innovation’s success depends not only on its own successful completion but on the successful development and deployment of all other components of the system.

John Deere depends on others technology development so they can deliver on promises they’ve made to farmers, dealerships and investors surrounding plant level management. One of the keys here is seemingly InnerPlant trait technology and the industry platform it provides.

Platform Economics

The businesses of the 21st century that have generated the most value for all stakeholders have been those in the platform/aggregator categories, companies like Microsoft, Amazon and Apple’s app store, among many others we work with daily. 

It is difficult to identify any legitimate platform in agriculture, John Deere’s Operations Center comes the closest, but we would argue it still falls short due to the reliance of their legacy equipment business.  

We refer to the Modern Monopolies description of a platform which is:

“a holistic description of the way a company creates, delivers and captures value, not just a piece of technology.” 

The key element of the business model is later described in the book as “many make, many sell”.

InnerPlant has the potential to be the first platform in the agricultural industry by unlocking the most important crop level information and making it easy for individuals to access. By having captive technology that communicates a plants current state, it empowers the industry to build new products and services on top of a structured data flow from InnerPlant to optimize for a farmer's crop, in season and out. 

With Innerplant, we expect the model to grow into “many plants and many developers”. The developers in this instance will be a mix of chemists, biologists, agronomists and software designers from startups and incumbent companies that will need to meet the farmers demands in the InnerPlant era of plant by plant information flows and decision making.

InnerPlant, Sense and Act and the 7 Powers 

In past Upstream editions, there have been references to the 7 Powers by Helmer Hamilton surrounding the entirety of the Deere business and how they stack up. We thought it would be important to consider where John Deere Sense and Act technology stands today and then where it could stand if InnerPlant technology traits were readily available and Deere equipment and Operations Centre were connected in.

As it stands today:

Essentially, today Deere’s Sense and Act technology has weak “counter positioning” with their integrated approach to sense and act, a semi-strong “cornered resource” in that they acquired Blue River and the tech talent in 2017 and strong branding in that they have done an exceptional job elevating what’s possible with sense and act technology:

However, when we combine Sense and Act with the InnerPlant platform we can see that they gain other powers:

Network economics (+++) - Network economies, also referred to as Network Effects, is a phenomenon whereby a product or service improves because of an increased number of users. With Network Effects increased supply begets increased demand and so on. Helmer defines Network Economies as:

A business in which the value realized by a customer increases as the installed base increases.

Theoretically, the value of sense and act technology increases as more of it is used in conjunction with increased data layers. Taking into account the fact that Deere has significant market share in the equipment market and therefore built in distribution, this can be very powerful and also allows for faster learning and faster reaction to the data, compounding better outcomes to users of the technology.

Switching costs (+++) - These are defined as the value loss expected by a customer that would be incurred from switching to an alternate supplier for additional purchases. Once a farmer gets used to the data access and insight available through the John Deere Sense and Act Systems along with the InnerPlant trait we would begin to see increased switching costs - it would be like working with a bank that offered online banking (Deere + InnerPlant) and then switching to a bricks and mortar only bank (other equipment co + non traited seed), the pain in switching would be too great, both in moving away from Deere hardware and the InnerPlant trait. 

Scale economies (++) - If Deere were to have the ability to better inform decisions for farmers and monetize accordingly, it would meaningfully increase their total addressable market giving them enhanced scale, the number that Deere currently puts on this is $150 billion annually and we believe that with InnerPlant they can materially tap into a higher percentage of this market.

Strengthened cornered resources and counter positioning (++)- If we qualify a Cornered Resource, an asset must be:

1. Idiosyncratic – it must be an identifiable unique asset not available to others;

2. Non-arbitraged – if a company gains access to a resource but pays a price so high that it arbitrages out the benefits, then it hasn’t gained any value;

3. Transferable – a resource that creates value at one company but not another is not a Cornered Resource, as something else must be driving the value behind the asset;

4. Ongoing – benefits from the resource must be lasting;

5. Sufficient – the resource in question must by itself (assuming adequate execution) be responsible for outsized economic results.

It’s likely that InnerPlant could have relationships with other companies, however, it seems like this multimillion dollar investment will lead InnerPlant to have the strongest relationship with Deere and therefore potentially the best API of their equipment with the InnerPlant trait, cornering the resource or at least giving a substantial head start. This also reinforces the counter positioning as now the selling feature behind a piece of equipment changes rapidly from just horse-power and tank sizes to how it enables better outcomes for the farmer - the same can be said for InnerPlant within germplasm, significantly differentiating the seed. And because of the ability to go through the integration process with InnerPlant, they would be able to develop “process power” through an established relationship and partnership with InnerPlant. 

These dynamics make Deere not only increasingly dominant with their legacy competitors like AGCO and CNHI, but also begins to transition that “power” into non-traditional realms like crop protection and managing start-up threats.

Today, the see and spray capability is limited to herbicides in sprayers, but the InnerPlant trait begins to tighten the feedback loop and unlock the ability to understand disease risk, insect risk, abiotic stress dynamics and HOW these ultimately relate to yield, quality and profit outcomes at high resolution levels. Information is power and that power could fill gaps in capability and deliver better outcomes to farmers plus margin and a deeper moat to Deere. 

This is a further illustration that reinforces what was highlighted last month in the Upstream article John Deere to Crop Input Companies: “Your Margin is My Opportunity”.

Strategic Investing NOT Venture Investing

What is notable with this investment as well is how Deere invested: directly through the company and not through a corporate venture capital unit of the business. 

In the publicly released articles, we typically see someone who is leading strategy or the managing director of the corporate VC business unit comment and be placed on the board of the company being invested in, but in Deere’s instance here it is the “Director of Corn and Soybean Production Systems” that is commenting and has been placed on the board. Someone with direct responsibility for executing within the core business on a day to day basis and understands the business and farmer needs. 

This is extremely intelligent by Deere and very beneficial for InnerPlant as now Deere can directly glean insights for the core business and not have the key individual(s) be those that are a step removed from the operating business, something that we think can often hold back CVC as a strategic lever within incumbents. 

It is also notable that investing in companies has not been typical for Deere, let alone leading an early stage round, leading a round just twice before and investing in just four companies directly (vs. outright acquisition):

Source: Crunchbase

This reinforces to us that this is a uniquely strategic investment for Deere centred on enabling the long term success of their Sense and Act capabilities and creating intelligent equipment that delivers better outcomes to farmers.

Data Traits vs. Resistance Traits

Seed traits are what made Monsanto into an agricultural powerhouse. Specifically, resistance traits - in-seed resistance to glyphosate and corn borer (Bt) for example. 

The foundation of the Innerplant platform is trait technology as well. What CEO Shely Aronov has emphasized time and again is that InnerPlant offers a data trait. 

If we think about resistance traits like Roundup resistance or Bt, their effectiveness erodes over time; organisms adapt to these traits, decreasing total value delivered to farmers (though still necessary).

A data trait improves over time - through more use, more partnerships and a tighter feedback loop surrounding actions and conditions to tangible implications.This allows the farmer to stay ahead of what is thrown at them and for the trait to gain more value over time. 

Monsanto changed farming through how the industry values seed, manages pests and delivers new technology to the farm gate and at a pace never before witnessed in technology deployment. 

In fact, we often talk about farmers not adopting technology, but herbicide tolerant seed trait technology is one of the most rapidly adopted technologies ever. 

Check out this data from the USDA:

From launch to 80% adoption in ~7 years on soybeans.

In comparison, here are timelines for consumer technology penetration rates:

No influential technology listed hit 80% in under 10 years. In fact, the fastest technology after soybean HT technology is smart phone usage and we all know how influential that has been around the world.

Final Thoughts

Given the many dynamics listed above surrounding seed trait adoption and impact, the Innerplant platform has the potential to rewire the entire agricultural landscape. When you unearth the most important information for a farmer to influence decisions and make it universally accessible, the industry will be forced to reassess the entire approach to crop protection, managing plant stress, nutrient management, quality management and so much more. This could consist of incremental changes at the input manufacturer  level, such as crop protection labels based on being informed by the InnerPlant trait and performing effectively in a unique window of application, how fertilization is planned and executed on and more broad revolutionary startup products whether that be in physical sciences or software. 

Deere is out in front on this in (what we expect) to make their equipment the preeminent enabler for these new products and technologies, ultimately delivering better outcomes to farmers through their products.

There are numerous hurdles to overcome for an organization like InnerPlant, from technical risk, to ecosystem risk, to regulatory and market adoption. However, with the now extended runway and the support of one of the most influential organizations in global agriculture it is hard not to be optimistic about the impact they could have on agriculture.

*Disclosure: We are both investors in InnerPlant