6 - Ag is for People - Hearing Aids🦻& Carbon Markets
How policy & timing impact startup building and investing.
This post is slightly different from my usual writing. It’s both more theoretical and more personal. I recently answered a few questions for the organizers of World Agritech about the past 10 years in agtech. One question in particular stuck with me and kept me thinking - “How does the trajectory of agtech compare to other industries that have been through a similar wild ride at the beginning?”
The industry that immediately came to mind for me was the hearing aid (HA) industry, a space that is important to me because I’m partially deaf. The US HA industry isn’t serving people. I’m telling you about my personal experience rather than giving you the data that demonstrates these failings but know as you read this that my story is far from unique, and I’m relatively lucky to have access to an HA at all.
Education/Awareness: I was born with unilateral hearing loss. As a kid, I failed every hearing test at my public elementary school, was “spacey/clumsy/awkward/loud/weird,” couldn’t speak properly until ~3rd grade, and didn’t get my first HA until I was 17. I had access to medical care and highly educated, wealthy parents, and I still didn’t get proper HA access.
Access/Cost: Today, I pay $3-5k out of pocket every time I need a new HA. That’s material to me, especially as an emerging fund manager. I do everything I can to make my HAs last as long as possible. But, I’m a human, and I’ve lost HAs to washing machines and various cases of put-it-down-somewhere-and-now-it’s-gone/damaged. Insurance never covers it - there are a few add-on plans on the market, but I’ve yet to find one that covers higher end models. I’m not the kind of person who buys top-line or brand-name tech for the sake of it - I’ve actually been booted from many a blue-bubble text group for my insistence upon using used old Pixels instead of overpriced Phones. But the difference between a high-quality HA and a low-quality HA, for me, has been the difference between the miraculous ability to understand speech relatively easily and a staticky, sharp, brain fog inducing experience. To put it in an analogy for hearing folks - it’s the difference between clean glasses that are the perfect prescription, and scratched, dirty glasses that are a few factors off of the right prescription.
Consolidation: This relates directly to cost and access, but as someone who tries to use capitalism to make the world a little bit better, I think that it’s worth labeling this problem separately. There used to be 6 global HA companies, then there was a merger, and now there are 5. HA companies charge unreasonable margins relative to costs of goods, and they’re incredibly slow to innovate.
Sales channels: There are notable advantages to distributing HAs through regulated, trained channels - it’s really important that HAs fit and are customized to an individual’s needs. And, selling HAs through certified retailers results in further increases in consumer costs. Furthermore, as I learned the hard way with my first HA, which was, in hindsight, a pretty bad fit for me, retailers are incentivized by brands to push specific models and brands. Pros and cons in this category.
Stigma: What do you think immediately of when you think about someone who wears a HA? Is it this guy?
You’re not alone. I spent at least the first 25 years of my life ashamed of and hiding the gross, weird, ugly, grandpa-y thing sticking out of my ear. I’ve interviewed ~50 people (I tinkered with starting something in this space at one point) and the stigma is a unanimous concern. This leads to people waiting to get HAs until they’ve already experienced the negative side effects (unmanaged hearing loss is correlated with depression, social isolation, dementia in older folks, and poor academic/social outcomes in children.) HA brands today brag about how small and discrete they are, which I think further contributes to this problem and, in limiting form factors, limits the technical progress within HA design.
The (Partial) Fix:
In 2017, Congress passed bipartisan legislation to create standards and allowances for Over-The-Counter (OTC) Hearing Aids (HAs.) Congress being Congress, it took another 5 years to actually implement it. In October 2022, OTC standards were finally implemented by the FDA. OTC HAs are meant for adults (18+) with mild to moderate bilateral hearing loss. This doesn’t help me directly, because I’m too deaf, but it will probably help you, assuming that you both continue to age (beats the alternative!) and get exposed to sounds louder than a lawnmower with some regularity.
HA access is far from “fixed” - I’ve got a whole string of complaints about the fine print in (and the missing print) within the FDA’s OTC standards. But, it’s better now than it was before the standards were enacted. It’s less confusing to navigate the OTC/hearable/HA market as a consumer. Increased HA sales have the potential to contribute to reduced stigma. These sales are possible as D2C channels open up, and companies like Soundly or Auticus or Jabra Enhance f/k/a Lively (acquired by one of the Big 5) - all vying to be “Warby Parker for HAs” - can bypass brick & mortar distribution to compete with the Big 5. All of this is driving competition, which is improving HA technology for folks who need hearing aids and, increasingly, for folks with already good hearing. I’m sparing you from my comprehensive assessment of the hearable and HA patent space, because I really do want to get back to ag soon, but every major tech co has and is investing heavily in the hearable category, some more successfully than others. I am optimistic that enhanced hearing technology is going to improve quality of life for so many people.
On to Ag Carbon Markets*:
*Ugh, carbon markets. I know, I’m sick of them too. I’m talking about carbon markets here because they’re more widely understood, but I think that you can plug almost any externality (biodiversity, soil health, water, nitrous oxide, methane) in for “carbon” and make a pretty similar argument.
Agriculture:Carbon Market:Farmers = Healthcare:Hearing Aid Market:Consumers in this analogy.
Carbon markets are like HA markets in that they represent an opportunity to grow a new market that drives increased consumption without directly taking bites out of legacy companies’ pies.
Carbon markets are also like HA markets in that they don’t work well without clear government guidance.
We’ve got some problems that run parallel to HA markets with ag carbon markets in the US:
Education/Awareness: 93% of farmers know about carbon markets, but 97% of them aren’t ready to participate in them. Word is getting out, but incentives, as they are being understood by farmers, aren’t compelling enough to take action. Private companies are trying to leverage marketing-based education, but it’s going to be slow and confusing without clearly defined and agreed upon standards.
Access: Verifying soil carbon levels is prohibitively expensive to happen at scale right now. The accrediting bodies require human-intensive verification protocols, and access to markets for carbon credits, whether as insets or offsets, is extremely confusing to navigate. Similar to HAs prior to OTC regs, there are far too many claims being made by dishonest players, and this is bad for building farmer trust in carbon markets as a future business opportunity.
Consolidation: Ag seed+chem inputs essentially come from 3 companies, and farmers can sell to effectively 4 companies. This consolidation is limiting (to be generous) for producers. And, even in this context, some positive outcome can be achieved for farmers if these existing players expanding their businesses to facilitate carbon market verification or practices that result in improved carbon sequestration or reduced emissions.
Channels: Current verification protocols rely upon trained third party service providers to verify credits. These providers are humans who are imperfect and subject to manipulation by perverse incentives. We’re going to keep seeing project development partners like South Pole get sued, and we’re going to keep seeing fraudulent projects until policy sets clear standards.
Stigma: When I first visited my family’s farmland, managed by Barry-the-farmer, he was scared to tell me that he cared about soil health and regenerative practices. He thought I’d think he was a hippy without a focus on profitability. Ironically, I typically come into farms mindful to keep my sustainability views on mute, lest I come off as some crunchy city chick. I’m still tiptoeing around the “climate change” thing in producer-heavy rooms.
If somehow carbon accounting (which is related to and at the same time distinct from carbon markets) becomes part of, say, applying for crop insurance, then it will just become normal. Everyone will care about soil carbon levels and carbon markets just like they care about fertilizer prices and basis points.
The (Partial) Fix:
We need clearly defined expectations and standards, ideally tied to monetary incentives (maybe taxes, maybe federal insurance/subsidies) if we seriously want carbon accounting to work. I’m hopeful, based on the Federal Strategy to Advance Greenhouse Gas Emissions Measurement and Monitoring for the Agriculture and Forest Sectors released July 2023 by the USDA that we might actually move away from soil testing or practice informed modeled outputs to monitoring actual emissions via atmospheric flux, but anything could happen. I’m going to have serious critiques of whatever government guidance around ag carbon markets comes out, but I also appreciate that it’s an impossible task to solve perfectly. Whatever policy is enacted won’t be good enough. Still, something that moves us in the right direction is better than nothing.
What Does It All Mean For Startups?:
As an investor trying to manage risks, I can’t help but to think about the startups in the carbon market and other regulatory-dependent spaces in a very similar way to those in the HA space. Auticus launched in 2011, has raised $11.7M and is still cooking. Lively spun out of parent co Rethink Health in 2018 and got acquired by one of the Big 5 in 2021 for ~$94M. Auticus got going early, and they’ve been capital efficient, and they’re still going. Lively timed it perfectly, spinning up after the initial HA OTC legislation passed and building a partnership with one of the corporate partners (I spy a🐄 company) who went on to acquire them.
I can absolutely see a future in ag carbon markets wherein capital efficient companies formed well in advance of legislative clarity go on to both influence that policy and to be successful. I think that there are also opportunities for companies to strategically time their formation to align with policy-supported opportunities. There’s a difference between companies who opportunistically launch on the front end of hype cycles (think alt protein, vertical farming) and those who tie themselves to more regulated markets (SAFs are a good example, with clarity having been produced by the IRA.) These policy changes lead to existing companies investing, often via M&A, to ensure that they can capture some of the upside of these now derisked markets.
It’s very difficult to predict policy timing, especially in very niche areas. I don’t know everything, nor will I ever, so I try to partner with founders like those at New West Genetics, the leading hemp seed genetics company, who’ve been capital efficient as policy headwinds have turned into tailwinds over the past decade. If you’re a founder with an insanely deep understanding of the dynamics in some subset of the future of work in agriculture, I’d love to get in touch.
Have a great weekend,
Connie
Where’s Connie?
Please say hello if you’ll be in Kansas City Feb 5-7 for Top Producer/Trust in Food - I’ll be speaking on a panel during lunchtime on Wed 2/6 moderated by Margy Eckelkamp, Brand Lead at Top Producer and The Scoop and Amy Skoczlas Cole, President at Trust in Food and alongside Megan Fallon, Marketing Lead at Mineral, an Alphabet Company; Jake Joraanstad, CEO at Bushel; and Steve Cubbage, Founder at Longitude 94