EQUIAM’s proprietary selection model is a systematic and data-driven model that ranks thousands of growth and late-stage private companies using 90+ proprietary investment signals derived from over 60 million data points. Each month, we generate a comprehensive ranking of our private company universe and thus can construct a real-time sector ranking based on the underlying constituents.
Our November analysis showed continuing re-rating of companies and downward price pressure as many high-flying sectors and companies from 2021 come back down to earth with more reasonable valuation levels. There are sectoral pockets of resilience we’d like to highlight such as Agtech. On the flip side, we see high market turbulence for MarketingTech and a deterioration of fundamentals.
The AgTech sector constituents scored well due to:
- High Capital Usage Efficiency, market share capture, and ultimately, value creation
- Strong balance sheets to weather upcoming turbulence and storms
- Attractive valuation metrics (e.g. EV/Rev) and growth-adjusted valuation metrics (e.g., EV/Rev/Growth)
On the other hand, the MarketingTech constituents displayed poor scores in each of the three above signal buckets, which contributed to the sector, in general, ranking as lower.
In the chart, we highlight Agtech sector constituents that scored highest on the metrics laid out above, positively contributing to the sector's overall rank. The opposite holds true for the MarketingTech companies shown.
AgTech:
When agriculture and farming is mentioned most people think of the idyllic farm in the Midwest with the big red tractor with an old farmer in overalls toiling in the fields. The modern farm resembles very little of that. Agriculture is big business with technology and software rivaling modern military bases. Every square inch of a field is mapped via satellite GPS, precision chemical sprayers calibrated to exact soil type, and field leveling/watering down to the inch. And Indoor and Vertical agriculture enable us to grow crops year round in a hyper-controlled environment.
Beyond the “manual labor” of the farming process, Biotechnology and Chemicals companies have come to the forefront. Seed genetics to grow disease and pest-resistant crops with higher yields and more nutritional capacity is currently a high adoption technology among farmers. This portion of the AgTech industry is forecasted to grow at 10%+ CAGR for the foreseeable future. With consumer preferences shifting towards fresh produce coupled with food security issues around the globe, Ag biotech and seed genetics will help modify crops for higher yield, higher nutrition, and higher resistance to climate.
Agriculture is a $1 trillion industry with thin margins and even thinner room for errors and inefficiencies. Technology and Biotechnology firms have stepped in to help the food growing and transportation industry become more efficient and cost-effective. If you are interested in learning more about how AgTech is transforming the modern farm you can dive-in further here: The New Agricultural Revolution
Precision Agriculture alone is forecasted to be a $20+ billion plus industry and Biologics another $70 billion, therefore it is no surprise that Venture Capital has poured into the industry and the sector continues to attract capital and strong valuations. Publicly traded AgTech companies have a wide range of multiples depending on where they sit on the value chain, growth metrics, and hardware vs. software. Indoor farming companies such as AppHarvest and CubicFarm trade at 4.0x - 7.0x EV/TTM Revenue while chemical companies like AgroFresh and Bayer Crop Sciences less than 1.0x TTM EV/Revenue. Precision Ag software companies are valued at 5.0x - 10.0x+ EV/Revenue. Private company EV / Revenue multiples in the EQUIAM universe range from 4.0x - 9.0x depending on level of maturity and growth trajectory with EV/Revenue/Growth at 3.0x - 7.0x for most companies while a select few Biotech companies (Pivot Bio, Manus Bio, and Brightseed) valued at 15.0x - 20.0x+ EV/Revenue but with high forecasted future growth.
Marketing Tech (MarTech):
MarketingTech is a $100 billion global business and growing. Companies are competing for mindshare and eyeballs and need to have an effective tech stack to optimize outbound marketing, catalog inbound leads, and communicate in a timely manner.
MarketingTech attracted over $20 billion of Venture Capital investment in 2022 alone and there are nearly 10,000 companies operating at some part of the MarketingTech value chain according to Pitchbook. Many of the MarketingTech companies in our EQUIAM GENIUS model are seeing degrading fundamentals and valuations have become stretched. With rising interest rates and economic uncertainty, companies are tightening their belts and one of the first areas cut is marketing and advertising budgets and marketing technology in particular. We have seen a large uptick in layoffs and MarketingTech companies and publicly traded companies are trading down 50%+ from the 2021 high water mark. Publicly traded companies in the sector are valued at 1.5 - 2.5x EV/Revenue on average with a few outliers (Hubspot, ZoomInfo) valued at 7.0x - 10.0x EV/Revenue.
Our data shows a bifurcation in multiples in the private sector with a handful of low-growth companies valued at 4.0x - 8.0x EV/Revenue and a majority of companies valued at 10x+ revenue (with some above 20x), based on most recent price marks. Market exuberance in the sector led to companies being valued at high multiples and the companies have not grown into their valuation yet and some may never do so.
If a recession were to materialize in the next few quarters, it would likely spell trouble for some of these MarketingTech companies, particularly those that are unprofitable and have a curtailed runway. This all may lead to a near-term cash crunch for some companies and flat or down rounds may be on the horizon. That is not to say there are no companies outperforming and continuing to grow. The near-term headwinds may lead to some market consolidation and clear market winners.
Disclaimer: This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by EQUIAM LLC (an offering to invest in an EQUIAM LLC fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety). Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.
