New bacteria and a new business model.
Charlestown is the historically blue-collar Boston neighborhood best known as a setting for such films as The Town and Good Will Hunting. Not exactly the sort of place you’d expect to find the city’s next hotshot startup, let alone one promising to significantly increase the crop yields of agricultural staples like wheat and cotton.
And yet, there is Indigo Agriculture, which has converted part of an old Charlestown milk bottling plant into a headquarters that melds open office decor with top-end lab equipment and “grow rooms” whose LED lights are so bright that visitors must wear sunglasses.
On Thursday, the company is announcing that it has raised $100 million in new venture capital funding led by the Alaska Permanent Fund, and that its initial product has been planted on more than 50,000 acres of cotton crop in five states.
Indigo is led by president and CEO David Perry, a serial entrepreneur who previously co-founded and led Anacor Pharmaceuticals (acquired earlier this year by Pfizer for $5.2 billion). After leaving Anacor in March 2014, Perry began to turn his attention to food. It was something he’d given a lot of attention to in his personal life, due to a family history of heart disease, and he determined that there were three big food issues facing the world:
1. How to produce more food.
2. How to make that food healthier and more sustainable.
3. How to change eating behaviors.
At around the same time, venture capital firm Flagship Ventures was incubating Indigo based on the research of partner and Seres Therapeutics MCRB founder Geoff Von Maltzahn (who serves as Indigo’s chief technology officer), who was looking at agricultural bacteria from a different perspective.
“There has been a lot of microbial research in terms of increasing crop production, but most of it has focused on what’s in the soil,” says Perry, who believes Indigo addresses the first two of his three big food issues. “But it’s very hard to separate what’s actually helping the plant, and what’s just there. If you want to know what microbials are important to plants, look inside the plants.”
That’s what Indigo has done. It has examined ancestral seeds and modern crops that have outperformed in difficult environments, such as drought. And it has sequenced tens of thousands of microbials, learning which ones can be used to improve crop yields from both abiotic (e.g., water, salinity, heat) and biotic (e.g., fungi, insets, weeds) perspectives.
Indigo’s first product is aimed at improving water use efficiency of cotton crops, with the company arguing that its application can increase yields by between 5% and 20%. What’s particularly important about that claim is that Indigo, unlike other microbial providers, doesn’t charge farmers up-front. Instead, the company itself pays to have a farmer’s seed coated, and then only receives payment once yield increases are realized in the fields (by using a small untreated crop as a control group).
“We’re trying to change the business model, particularly because farmers already have very tight margins,” Perry explains. “We will send out people and use drones to look at the crops, but mostly it’s in our interest to trust the farmers, and I’ve found them to generally be very trustworthy people.”
Tyler McClendon of Oxbow Agriculture, who has put Indigo’s product on over 1,000 acres of his land in Arkansas, adds that if the product proves effective come September harvest, the business model will encourage other farmers to sign on. “There’s no risk to us, and that sort of innovation in business model is just as important as its technical innovation,” McClendon says. “Usually we have to pay whether it works or not.”
Indigo aims to eventually take major market share from incumbent agricultural giants like Monsanto MON and Bayer, which Perry argues are trying to use M&A to grow instead of R&D. Such a goal is a tall order, which is why the new funding from Alaska Permanent Fund, a very deep pocket with $54 billion, is so vital.
“We need long-term investors because this isn’t for most traditional venture capitalists,” he says.
To date, Indigo has raised over $156 million. Flagship Ventures re-upped for the latest round, and Indigo also received investments from several undisclosed “long-term” investors that Perry suggested were mutual funds and/or family offices.