Is agriculture PE worth getting into?
I am an undergrad interested in getting into agricultural PE and Growth Equity. What are this forum's thoughts on the future of the space and how does comp., openings, and career progression compare to traditional PE sectors (Tech, Industrials, Consumer), etc? Thanks in advance!
Hey Prospect in ER, I'm the WSO Monkey Bot and I am sad to say, but this thread is lonely, so thought I'd post in here to try and help out. Some potential topics that might help:
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Fingers crossed that one of those helps you.
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Not in Ag right now but have done a couple short-term projects for Ag or Ag-related businesses. Couple thoughts as someone who has dipped their toes in:
1) Growth equity is very different from private equity. The lifestyle, type of work, comp, industry focus - it's all quite different. As an undergrad you likely don't have a clear enough picture of what you like yet to make a decision on which you prefer, which is okay. That said, it does impact the information you're trying to get from this post.
2) On the growth equity side of Ag, it's REALLY thin. While Ag VC investment as a whole has something like 7x'd in the past decade, it's still a drop in the bucket compared to traditional VC/GE categories like app software, infra software, biotech, fintech, hardtech and healthcare. Talk to any VC partner right now and most of them will tell you that there's just not enough startups in the space to seriously allocate capital there. That said, there are a few funds that invest directly in agtech and adjacent companies (think a climate fund that does agtech in addition to more energy-focused deals). If you go down this route, a natural exit would be to another growth equity / VC firm in an adjacent space, or to work at one of your funds portfolio companies in a biz dev, CoS or finance role.
3) On the PE side, it's a smaller sector than say, industrials or consumer, because A) on average (not all), ag businesses are worse and B) because it's not as fragmented as those other industries. Lots of random, small profitable widget makers in the Midwest; not a lot of random, small profitable growers in the Midwest.
4) That said, PE is PE and the skills transfer decently well. Going from Ag PE to software PE for example would be hard, but transitioning to a consumer or energy group is much more likely because the underlying business models that you analyze as an analyst/associate may be similar. All depends on what type of asset the fund invests in.
5) Overall, without knowing basically anything about you, I'd say it only makes sense to dive into Ag if you have a strong reason to be in it besides the money. Don't get me wrong - Ag PE pays well. And the industry does have some tailwinds that could pay off financially (regenerative agriculture, vertical growing, etc.). But it's a smaller PE industry that's smaller for a reason: there's less financial opportunity as of now.
It's definitely specialist from an industry perspective which is great if you can built specialist knowledge but also means that you're pigeonholing yourself if you stay in it for a long time. Doing deals is the same skillset no matter what but the more senior you get, the more people would see you as "the ag person".
Comp should be about the same as anywhere else in PE/GE though returns for ag specialists have generally felt a little lower overall (though good on a risk-adjusted basis) which means that your carry could end up being worth less than if you were at, say, a tech-oriented fund. Probably less volatility in the expected return though.
I'm curious what funds you're looking at? Solum is an interesting name and is a little more real assets focused. Paine Schwartz has been doing this for a while but their returns are not very good.
Worked in Ag PE before moving to a more traditional PE firm (industrials, consumer, tech, etc.). It was a good experience and have a few thoughts:
1- Ag is growing faster than most other asset classes due to the recent influx of private capital into the marketplace (Bezos and Gates). If you are truly interested in Ag, you should be able to find a job b/c a lot of funds / institutions prioritize true interest in Ag over PE / IB experience. Especially as the decarbonization, climate change and ESG sectors continues to evolve there is more focus and capital being placed behind these initiatives, which often times are Ag adjacent.
2- Ag PE pays on par with other traditional PE. Obviously, MF PE will be higher, but on an apples to apples basis, you likely won't take much of a haircut on pay.
3- Ag PE skillsets do transition to other PE, however (i) many recruiters won't view it that way and you may be pigeonholed in the long term, (ii) the underwriting process can be different if you are looking to acquirer farms with a crop yield. Target IRRs are ~10% over 7-10+ years, A few hundred bps for land appreciation and the rest from annual crop yield (annual dividends). So that underwriting process is almost like RE, b/c the cap rate is important. However, underwriting a regional fruit / nut distributor is very similar to underwriting a distributor of anything else in traditional PE.
Overall, I would say if you can see yourself doing Ag PE for the rest of your career, I would dive in. Growing asset class, PE pay and the people tend to be less finance hardo types in Ag. However, as I mentioned, if you stay in Ag for several years and want to pivot to tech, that may be more difficult to sell.
Interesting insights! Do you have any readups re/ market dynamics of AG (particularly as investor)?
Really difficult to get some insights into the industry dynamics and what makes growers succesfull.
Few interesting reads -
Committed Capital | Private Equity Investments in Food and Agriculture (dechert.com)
Private Equity's Role in Transforming Agriculture - Vision Magazine (visionmagazineus.com)
Agri Investor | Forestry and agriculture private equity
Can find several interesting data sources via Google
Thanks for the detailed writeup. If you don't mind sharing, why did you leave agriculture PE?
Left Ag PE b/c I couldn't see myself in that seat for the long term. Also, joined a firm closer to family.
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