Pangaea invests in early stage cleantech companies with world-class advanced materials innovation.
Can you name a cleantech subsector that has generated five or more grand slam VC exits (>10x, >100% IRR) in the past 2 years? Tough, isn't it? But there is an answer: Biopesticides. Biopesticides are pesticides derived from natural organisms, although the EPA definition also allows for substances derived from natural minerals.
Biopesticide M&A activity is red hot these days. Just in the last two months: Bayer bought AgraQuest for half a billion (a 10x grand slam for its most recent VC investors), Syngenta bought Pasteuria for $100 million (another 10x grand slam for its VCs), and then in the same week, BASF bought private equity-backed Becker Underwood for a whopping $1 billion. This is just latest in a trend that included Bayer's $420 million acquisition of Athenix (also a grand slam) and Monsanto's 2011 acquisitions of Divergence for $75 million (more than a 100% IRR for investors) and Beeologics for $125 million.
So, what is driving this feeding frenzy of acquisitions? Regulatory changes. In 2011, the EU implemented the Plant Protection Products Regulation, requiring that any crop protection product demonstrate not only that it is effective, but also that it represents risk to neither human health nor to the environment (excepting the target bugs of course). This made 74% of all commercial pesticides illegal, as only 26% of substances passed the new stringent tests, biopesticides among them.
While it may not always be true that where Europe leads, the world follows (GMO, for example), in this case the trend is spreading world-wide. In fact, North America now accounts for 40% of the world-wide biopesticide market, and the majority of those sales are going to mainstream crops, not "organic" labeled produce. The industry even has its own trade association, the BioPesticide Industry Alliance, which has seen its paid membership double over the past four years, and the US EPA has set up its own division, the BioPesticide and Pollution Prevention Division (BPPD). The biopesticide market is expected to triple from $1 to $3 billion over the next five years.
Biopesticides are nothing new. Nature evolved these wonderful compounds over hundreds of millions, or even billions, of years. Bacillus thuringiensis (Bt), the market leader, was first introduced commercially as a pesticide almost a century ago, although widespread adoption has only occurred since the 1980s, with the introduction of crops genetically modified to express the Bt toxin. Recently, however, insect populations have been demonstrating resistance to Bt and its single mode of action; all it takes is a single lucky mutation for insects to evolve resistance. With farmers looking for a way to "reset the clock" on evolutionary adaptation, new biopesticides with novel or multiple modes of action are in demand.
The benefits go beyond just preserving the high yields enabled by toxic synthetic pesticides. Imagine the benefit to farmers if they could spray pesticides at any time, and not worry about waiting for the toxicity levels to come down enough to harvest. Right now, farmers have to wait as much as four weeks from last spray to harvest. If their crop peaks in that time, all they can do is watch their crops die while they wait, reducing their yields for every lost day. Another benefit of biopesticides is they allow for use in or near heavily populated areas, such as California's produce generating regions.
I've been saying for years that agriculture represents one of the most exciting sectors for cleantech investment, and this recent feeding frenzy of biopesticide acquisitions is proving me right. Pangaea has also bet on this strong trend, with our investment in Vestaron Corporation, a biopesticide company with crop protection products derived from spider venom. Not only do Vestaron's products have multiple field trial data showing that, as far as killing crop-eating bugs, they are statistically equivalent to leading synthetic pesticides, but these compounds can be cost-effectively manufactured. All while demonstrating no measurable toxic effects to mammals, birds, fish, or even bees! Oh, and did I mention the company is run by a veteran ex-Monsanto serial entrepreneur? Or that the board includes the former President of Syngenta Biotechnology, and a Former Regional Administrator for the EPA? Exciting company. Plus, it's spider venom, which is just plain cool. Maybe we have another grand slam in the making here.
Biopesticides represent an outstanding opportunity for cleantech investment. Although the same has been said by VCs about a lot of different cleantech sectors, in this case, the major multinational acquirers happen to be agreeing, and proving us right. Plus, it's just a better, healthier, less environmentally costly solution. And that's what cleantech investing is supposed to be about, isn't it: Making money while making the world a better place.