A report by AgFunder.com reveals that investment in agriculture technology startups reached $3.23 billion in 2016, a 30% year-over-year decline. But it was a tale of two halves as the number of deals closed increased 10% to 580 due to an uptick in seed stage activity.

After a record-breaking 2015, when 526 agtech funding deals raised $4.6 billion, we anticipated a pullback in 2016, particularly against the backdrop of a weakening global venture capital market.

According to KPMG's VenturePulse report, global venture capital deal activity dropped 24% year-over-year, while funding dollars contracted 10%. KPMG attributes the decline to investor caution on the back of a record-breaking 2015 contributing to weighty valuations and a record number of unicorns in 2015; some notable down-rounds; a few poor performing IPOs; and a dead IPO market for the first nine months of the year.

The dynamics of the global markets had an impact on agtech funding, and investor caution was particularly felt at Series A stage: 2016 posted a 43% decline in Series A deals in dollar terms and a 31% decline in the number of Series A deals. It's unclear exactly the reason for this pullback, but it's possible investors struggled with startup valuations getting ahead of revenues and traction, similar to the global VC market where Series A funding also contracted, as well as the drawbacks of having a limited pool of investors available to startups in the sector.

Drones, Delivery and Bioenergy Drove Agtech Funding Down

Food Marketplace/Ecommerce startups raised $1.3 billion in 2016, a 25% year-over-year decline. Robotics, Mechanization & Other Equipment companies raised $109 million, down 89%, and investment in Bioenergy & Biomaterials businesses fell 75% to $123 million.

For the Robotics category, it was the 68% fall in investment to drones technologies that drove the decline. Drones were a hot technology in 2015, with great expectations for their ability to help farmers manage their operations. As they became more widespread, however, it became clear that providing farmers with aerial images of their farms did not automatically save them time or money and the technology has arguably moved into the 'trough of disillusionment' on the Gartner Hype Cycle. There could also be an element of cyclicality to the results, with some startups fully capitalized until this year, and we also saw some drones manufacturers move away from agriculture to focus on other industries. We expect to see a new wave of technologies coming into the category, such as improved drone sensors and better imagery analytics.

However, Agtech funding grew year-over-year in four categories: Ag Biotechnology (150% to $719m), Farm Management Software, Sensing & IoT (3.7% to $363m), Novel Farming Systems (63% to $257m) and Supply Chain Technologies (3% to $180m).

To view the full report, visit AgFunder.com or click here.