Research-based VC Block Out: Is the Explosion Point of Agricultural Investment Coming?

Shunwei Capital
Jul 28, 2017 · 7 min read

2017–07–05 Shunwei Capital 顺为资本

Hello everyone, today I would like to introduce an overview type of article about rural internet which was written by Zhao Na, a journalist from 21st Century Business Herald. Although it is about agricultural field, the journalist has written to bring about general inspirations for us.

· Why do investment institutions choose agricultural market, which is huge and unpopular?

· How investment institutions research and explore in endless night after they choose agricultural field?

· What on earth are drawing the attention of investment institutions?

· What is the relationship between investor and entrepreneur?

According to Yu Yang, CEO of Farm Friend: “The investor and entrepreneur must support each other. In fact, the investment institutions we have contacted with began to focus on agricultural field only after wide research. “ And in the research report of rural internet , we express deep love for the land.

Zhao Na from 21st Century Business Herald reports in Beijing

June, 2017

·DFS168.COM, a service platform of agricultural supply chain, announced that it had completed the Series-B financing of RMB200 million, which was led by Orchid Asia and China Growth Capital and followed by Matrix Partners.

·Farm Friend, a service provider for agricultural production, announced that it had completed its Series-A financing of RMB50 million, which was led by Gobi Ventures and followed by Yunqi Partners, Shunwei Capital and other old shareholders.

·In April, Gago Group, an agricultural big data company, announced that it had completed the Series-A financing of RMB60 million which was led by DCM and followed by Matrix Partners, Grains Valley Venture Capital and etc.

The journalist of 21st Century Business Herald finds that many investment institutions have invested in the start-up enterprises in large-scale agriculture segmentations including land circulation, agricultural e-commerce, agricultural service, agricultural finance, agricultural big data and etc.

“Some first-tier research-based VC institutions have realized the investment opportunities from this field and have invested in it. After this wave, there may be more VC institutions to follow up.” According to Yu Yang, founder and CEO of Farm Friend, the upgrading of agricultural industry and refining division of labor in rural society shall bring about platform-level opportunity in agricultural field.

Zhang Gong, founder and CEO of Gago Group said, in the interview with the journalist 21st Century Business Herald, “The market will change and produce many opportunities when the Chinese agriculture changes from pursuit of output to pursuit of long-term efficiency balance. In this process, the startup companies shall focus on how to break the limit of original land system and peasant mentality.”

Research-based VC Entering

Since 2014, Shunwei Capital, founded by Lei Jun and Tuck Lye Koh, started from agricultural internet. Each team of 2 or 3 people responsible for a specific direction combed agricultural startups for investment opportunity. As of June 2017, Shunwei Capital has invested in more than 10 agricultural startup projects, such as Meicai.cn, Huitongda, 51dh.com.cn, Shenma Finance, Nong Fen Qi, Kuaishou, Farm Friend and etc., where Kuaishou, Meicai.cn and Huitongda have become unicorns.

◤Shunwei Capital has mainly invested in 5 agricultural fields including agricultural products circulation, store B2B, rural finance, community-related field and agricultural drone operations. Tuck Lye Koh, founding partner and CEO, told the journalist “We have paid sustained attention to the 5 segmentations so as not to miss a good project when it comes.”

Gobi Ventures has deeply researched agricultural field since 2015. It believes there are investment and entrepreneurial opportunities in the 4 fields such as land circulation, plantation management, agricultural data/agricultural finance and brand of agricultural products. It focuses on the investment opportunity from plantation management, agricultural data/agricultural finance.

“We are deeply impressed by the emerging of new agricultural people. Motivating factors include development tendency of intensified land and structural change of Chinese labor force. Rural area has opportunity because it was not extensively influenced by internet and mobile internet.” said by Jiang Tao, managing partner of Gobi Ventures.

After the decision to invest in a big field, investment institutions usually focus on the link which has the possibility to improve the efficiency of production and organization and look for excellent entrepreneurial teams in specific segmentations.

“After trend analysis and opportunity judgment, we enter agricultural market based on rational analysis.” Yu Yang has the R&D and marketing experience of UAV. He founded Farm Friend in March 2016 to enter into agricultural service and started with agricultural drone operations.

He told the journalist that the investor and entrepreneur must support each other and the investment institutions they had contacted with began to focus on agricultural field only after wide research.

Internet Entrepreneurs are Popular

With the wider application of internet, mobile internet, IoT and other technologies in agricultural field, investment institutions begin to seek and nurture potential entrepreneurial unicorns in agricultural field. “Technologies also include mechanical and chemical areas which are the basis of many foreign technology giants.” Zhang Gong added.

Let’s comb the whole agricultural industry chain. The service to the links of planting, breeding, circulation and etc. may improve production efficiency, ensure product quality and create brands of agricultural products. Meanwhile, consumption and entertainment-related pan-rural theme may also be a direct bursting point.

“The key point is to look for rigid demand and analyze how to meet the demand. The specific method may be technology application or innovation of business model.” Jiang Tao said.

Many VC investors prefer the entrepreneurs who are familiar with internet and mobile internet and are also willing to enter into the agricultural field to start up a business. However, according to the present situation, entrepreneurs are far more willing to start up business in urban area than in rural area.

◤”China has a rural population of 600 million. Mobile internet just enters into this market and theoretically there are still many opportunities. But objectively speaking, there are not enough startup projects in agricultural field. Most of internet entrepreneurs will not think of starting up a business in rural market.” Tuck Lye Koh said.

As for the preference of VC, he said: “Most VC companies like the project with imagination space and wish the invested project to become a unicorn. Some VC companies prefer asset-light projects. We are open minded in this respect and will make comprehensive assessment on opportunity and risk.” ◢

Tuck Lye Koh, founding partner and CEO of Shunwei Capital

Jiang Tao told the journalist that he would prefer entrepreneurial team with internet and mobile internet background when choosing projects. “We like the fast-growing project with simple model, and we are easier to reach the consensus with the entrepreneurs with internet background.”

As for how to choose the investor from the view of the entrepreneur, Zhang Gong said: “We mainly consider whether the investor has enough patience. The ideal investor should deeply understand the nature of commerce and grow with us.”

Investment Fever and Cold

More than one year after foundation, Farm Friend has quickly completed angel round, pre-A Series and Series-A financing as well as the acquisition of Beijing Irrigation Network Technology Co., Ltd.(Irrigation Network Technology).

“Besides agricultural drone operations, the fertigation is our next SKU to develop.” Yu Yang told the journalist that the 2 basic standards of the platform to develop new products are relatively high technical content in service scope and promoting the sales of agricultural material products.

//Is the new agricultural investment boom coming?//

A managing director of a VC institution told the journalist that he had been following the agricultural investment, but he would carefully choose the project. He cautioned that based on the characteristics of industrial base and service target of Chinese agriculture, investment institutions should not all rush into this market despite its huge market potential.

◤Tuck Lye Koh believes that in the long-term optimistic agricultural field, the short-term ups and downs of the industry is not important, and the key is to complete the layout of key areas.

“When a company with market value of USD10 billion appears, people will take it as an example of agricultural entrepreneurship. When many internet giants enter into rural market, rural entrepreneurship may be promoted further.” he said. ◢

Yu Yang is optimistic about the prospects for the development of agriculture: “In the future, the land owners and cultivators must be separated. Many urban blue-collar workers will go back to rural area to be the new professional peasants. They have long been using internet and mobile internet in the city, master the expertise, know how to use high-efficiency tools for scientific cultivation.”

But he also pointed out that because of unclear property right, peasants would still prefer the management of light assets, outsourcing and trusteeship, and they were not willing to invest much in the land. Currently, domestic agricultural entrepreneurship are mainly focusing on the innovation of applied technology and model.

Shunwei Capital was founded in 2011 by Mr. Lei Jun and Tuck Lye Koh, managing three US Dollar funds totaling 1.75 billion dollars and two renminbi funds totaling 2 billion yuan. The funders mainly come from sovereign wealth funds, family funds, fund of funds and university foundations and other international top investment institutions.

Shunwei Capital focuses on the Internet, mobile Internet, the high-tech industry and the transformation brought about by the integration of the Internet with other industries. We hope that through investing in companies with dreams, we can make our life better.

Shunwei Capital

Written by

Early stage VC founded by Lei Jun (Xiaomi CEO) and Tuck Lye Koh. Manages $2 billion USD with over 200 portfolio companies invested.

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