Who knew betting on the weather could make a billion dollars?
It just did for The Climate Corporation, which underwrites weather insurance for farmers. Monsanto, broke the news this morning that it was buying Climate for approximately $930 million. The idea is to sell more data and services to the farmers who already buy Monsanto's seed and chemicals. Climate (formerly known as Weatherbill) has raised $107 million from a plethora of backers since it began fund raising in 2007. Its biggest investors include Khosla Ventures, New Enterprise Associates, Google Ventures, Index Ventures and Founders Fund.
Climate's cofounders were early Google employees who saw a self-service approach to weather insurance, which had previously been sold in custom, over-the-counter negotiations. Clients go to its site and outline what range of temperatures and/or rainfall they want protection from, for a set period of time. In 100 milliseconds Weatherbill crunches forecasts and 30 years of National Weather Service and geological survey data for the user's location. After adjusting-minutely-for climate change, Weatherbill names a price and acts as the underwriter. Policy holders get their checks automatically if the weather doesn't go their way. Originally Climate pitched its insurance to any weather-dependent businesses (farmers, housepainters, golf ranges), but it soon realized its biggest market was in agriculture. "It had the most significant opportunity, the most significant product, and had the greatest impact," cofounder David Friedberg told Forbes in a 2011 post.
Climate was a strategic pickup for Monsanto's planned move into services and data. In its release this morning, Monsanto says data science could be a $20 billion revenue opportunity beyond its core business of seeds and chemicals. In the announcement today the company estimated that "the majority of farmers have an untapped yield opportunity of up to 30 bushels to 50 bushels in their corn fields. advancements in data science can help further unlock that additional value for the farm." Monsanto grossed $13.5 billion in revenue in the year ending August 2012. It earned $3.50 a share last year and is expected to report earnings per share of $4.58 when it reports after the close today. The stock's up 11 percent this year, short of the Dow's performance.
Climate brings to Monsanto some impressive data expertise. "Climate Corp developed expertise in agronomy in order to understand how climate variability affects different crops," Index Ventures partner Neil Rimer gushed about the deal this morning in a blog post. "To price its insurance products, Climate Corp's platform ingests weather measurements from 2.5 million locations and forecasts from major climate models, and processes this data along with 150 billion soil observations to generate 10 trillion weather simulation data points, requiring it to manage 50 terabytes of live data at any given time. Needless to say, this company has built daunting barriers to entry."