Investor warns agtech startups: avoid endless pilots and exclusivity deals with corporates

George Bilkis, managing director at Aleph Eins Capital, a German family-backed investment firm, is warning agriculture and food technology startups that a deal with a large corporate can turn into a trap. In an interview with the industry outlet AgFunderNews, he explained how young companies can avoid endless pilots, exclusivity demands and unfavourable term-sheet clauses. The advice matters in a sector where raising capital has become harder.

Bilkis previously spent six years at German seed company KWS, where he ran all global M&A activity, including joint ventures and the transaction side of its venture capital operations. Aleph Eins Capital operates within a family business whose core activity is agriculture in the United Kingdom: the family is the country's biggest grower of vegetables and cereals, its biggest agricultural chemicals distributor, and is building the largest water reservoir in the UK.

Advice for dealing with corporates

Bilkis stresses that a pilot must be tied to a concrete purchase. Otherwise a startup may burn resources and time on pilots that lead nowhere. Founders should reach the real decision makers and make buying the product automatic if it performs as promised. They should also insist that the corporate can give feedback to prospective investors.

He says startups should refuse exclusivity requests. Exclusivity would mean the corporate should be ready to buy the company outright; otherwise the startup becomes dependent on a single customer and loses appeal for investors. He calls right of first refusal one of the worst possible conditions.

Changing market picture

Bilkis expects further consolidation in the sector, with some companies selling for 30 to 50 cents on the dollar of invested capital. In his view, valuations for new companies have become more realistic, and what matters most is how close a company is to commercialization and sales growth.