Over the last 20+ years, AVAC Group has invested in over 120 companies, and in 10 venture capital funds. In the process, we’ve evaluated thousands of technologies and companies. Being on the venture capital side of the table, we know what we’re looking for and which red flags steer us away from otherwise promising opportunities.
We’ve also learned there are consistent problem areas that hinder start-ups from achieving meaningful commercial success.
The most common of these challenges include:
- Value propositions that don’t address substantive market problems
- CEOs and management teams lacking in areas important to investors
- Corporate and capital structures that scare investors away
- Inexperience with raising capital
- A lack of governance and oversight
Any one of these challenges makes it difficult to raise capital. In combination, it becomes nearly impossible to attract investors and commercialize otherwise viable innovations.
What’s the Solution?
In response to these challenges, AVAC Group launched Carrot Ventures. The goal is to eliminate the most predictable and troublesome barriers to investment and future success.
The solution is the Carrot Company Formation Model, which assembles the pieces necessary for success.
The premise is that you stack the deck in favour of a successful outcome if you:
- Start with sound technologies that address real market problems
- Recruit qualified CEOs to lead each company
- Set up clean corporate and capital structures
- Invest enough in the seed round, and
- Install appropriate governance
Ideally, other investors will take notice and want in.
What About the IP Owners?
Intellectual property owners participate through an equity stake in the new company Carrot forms. IP owners become significant shareholders in the new venture, while letting someone else commercialize their innovation.
This model will not appeal to those who aspire to be entrepreneurs. However, for those who would rather someone with a proven track record commercialize their innovation, the model makes sense. Inventors participate in the equity growth, the same as everyone else. They reap the benefits of their innovation, without being the one who has to deliver on product, marketing, sales, financing, and everything else that’s involved in running a company. As we say, it’s better to have a small slice of a big pie, than a big slice of a small pie.
What About the Recruited CEOs?
The recruited CEOs take on the role of Founder. They prepare the business plan, raise the capital, and commercialize the technology. The “carrot” for them is also equity growth. The beauty of the company formation model is the alignment of interests between Inventors / IP Owners, CEOs, and Investors. It also means that everyone involved contributes to the areas they know best.
What About the Technologies?
The starting point is attracting and vetting promising agricultural technologies.
Carrot defines AgTech very broadly. It’s anything from “Farm to Fork”. This includes technologies related to animal health, crop production, digital agriculture, food safety and logistics, food tech, and value add products.
The current focus is on Canadian AgTech innovation, but we’ll entertain great opportunities from anywhere, as long as they have some relevance to the Canadian agricultural sector.
The technologies must solve real market problems, have compelling value propositions, and as a rough guide be able to generate market traction within about 2 years.
Who is Carrot Best Suited to Work With?
There are four types of AgTech IP owners that fit the model well. These are:
- Researchers and Inventors
- Technology Transfer Offices
- Early-Stage Companies
Researchers and Inventors
This could be a researcher at an institution, an intrapreneur, or an individual inventor. The common thread is they generally want to pursue other interests, or don’t want to be a founder/CEO. Whatever the motivation, this means being willing to exchange their invention for shares in a new company, and trust that Carrot Ventures will recruit leadership who have a better chance of converting the technology’s promise into real commercial success.
Technology Transfer Offices
Carrot represents an ideal partner for institutions engaged in agricultural research. Carrot vets promising IP for commercial potential and provides a de-risked avenue to commercialization.
The opportunity for an incorporated company is to break free of the barriers to raising capital. By vending their IP into a new “CarrotCo”, the technology gets the attention and support it deserves. This lets the company continue to put its human and capital resources onto its core business, or to potentially receive value from past R&D investments.
The owners step back into the roles of inventor and major shareholder, and benefit from equity growth.
The goal is to create value, which means that shareholdings are worth more over time, which will more than compensate for shareholder dilution which comes from raising capital.
For corporations, the rationale is to profit from non-core or under-utilized assets by letting Carrot build a team to commercialize the innovation. The opportunity is to get a return on the investment already made into R&D, especially if the intellectual property is stranded or otherwise under-utilized.
What About Investors?
Capital is the lifeblood of any business, and Carrot Ventures “puts its money where its mouth is”. Since Carrot is an investor, and we form these companies, Carrot issues a financing term sheet for a significant portion of the seed round. This gives the companies yet another leg up, as having a lead investor is very important. Carrot offers the best technology with the best founder/CEO, something our co-investors rarely find elsewhere.
When is Carrot Not a Fit?
Since Carrot is The Third Option for venture scale agricultural technologies without a clear path to market, it is not a fit for:
- Existing companies in need of financing
- Innovations with no connection to the Canadian agriculture and food value chain
- Solutions that do not scale
- Technologies facing a long regulatory approvals process
- Founders who feel a need to maintain a controlling interest or leadership role
- People seeking grants or venture capital financing
What’s the Catch?
There is no catch. The only major hurdle for people to get over is conceptual. You have to want someone else to commercialize the IP.
The model is not all that different from licensing. But if the dream is to become the next super star founder with all the romance and emotion connected to entrepreneurship, Carrot is not a good fit.
Some people simply can not understand why they would work with someone else to expedite the investment and commercialization process.
This is why we’ve positioned Carrot as The Third Option; the first two options being entrepreneurship or launching an innovation from within an existing corporation. Carrot is the option you choose if the first two are not a fit for you.
The Carrot approach is about reducing risk and expediting the commercialization process for everyone involved in the venture.
The Final Analysis
The Carrot Company Formation Model results in a new company, with vetted technology, a compelling value proposition, a professional CEO, a governance board, and a financing term sheet from an institutional investor.
We believe the Carrot model offers a compelling combination of success factors, and an alignment of interests for all involved.
If you’re interested in learning more, explore our website, watch our video, download our eBook or Express Interest in participating. We’re happy to discuss your AgTech innovation and explore the mutual fit.