Investors’ Take: Keep the $$ Flowing in AgriTech
“Sometimes first movers win and at other times, they don’t. The Indian Agritech space has many first movers but there is no real Amazon(equivalent) in the space at this point so it is still an open game.” noted Vani Kola, Managing Director of Kalaari Capital, while discussing about the current state of the Indian AgriTech ecosystem with Ritu Verma, Managing Partner of Ankur Capital Fund and Mark Kahn, Founding Partner of Omnivore at Kstart’s recent event, #ThePromiseOfAgriTech.
The session was moderated by Hemendra Mathur, Venture Partner with Bharat Innovation Fund and the focus was on the Investor’s perspectives on the evolution of the industry and the road blocks faced when making an investment.
The panelists all agreed that sometimes it’s advantageous to be the first mover but most promising sectors have 200–300 companies competing fiercely and only one or two end up pulling ahead with a different perspective and are able to innovate and stand out.
The India AgriTech industry is still at a very nascent stage, considering the amount invested in one deal in the consumer internet industry is the cumulative amount of funds invested in all the deals in this industry. But many mainstream VCs and new VCs are entering the space and the AgriTech industry in India is at its inflection point. This proves to be a good enough sign that the industry is evolving in terms of deal flow and the quality of investors’ interest along with the willingness of corporates to engage meaningfully with startups.
Venturing mainstream slowly
Discussing the reasons and factors that have slowed this industry from going mainstream, Mark believes that the lens through which the VC ecosystem has seen the space has been more of a business model perspective and less of a scientific point of view, thus, resulting in less backing for breakthrough innovation and hardcore technology. With almost 70% of their portfolio investments in Agritech, Ritu enumerated the 3 pillars that Ankur Capital is bullish on when evaluating a potential investment.
- Leveraging the technology to capture value,
- The consumption demand of this industry as without the consumption, the drivers of the industry degenerate and
- Technology backed products, irrespective of if the technology is input side, supply chain side, very high IP or through adaptation context is needed in the Indian environment.
While the other panelists focused on what slowed the Agritech ecosystem from going mainstream, Vani described their investment mantra; the focus is on how they, as a Venture Capital firm, work and not how the ecosystem works for them. She noted that most VCs look to invest in a startup only after seeing an early inflection point or the potential to add depth to their portfolio. Expanding further on the need to build influencer relationships with the whole industry, thus creating upscale, she said,
“Building a company of significant scale and of sustainable economics and generating value to customers, employees and shareholders is what needs to be focused on”.
Leveraging affordable technology to scale
Before the advent of affordable technology, investments into opportunities that couldn’t scale were unwelcomed, as major issues encountered revolved around scaling. We’re at a point now where technology elements can create effective solutions, making it opportune for the companies to scale. Ritu explained, “The important question here is what is the change you’re driving against the existing system, if its scalable and does it build efficiency”
Agriculture is an age-old sector where a couple of years ago, the accessibility to technology was constrained. With the dawn of affordable technology, there is constant innovation. The key is to leverage this technology and integrate it into the existing system.
On the limitations of scaling, Ritu said the question revolves around the cost of reaching to and reaching the last mile mobile penetration. The key is to create a community where the entrepreneur understands what the customer wants and is able to price their product effectively.
Technology — not as vital as it seems?
In AgriTech, technology is generally not the vital and missing aspect but it is rather the approach towards achieving the optimal price point. Startups need to figure out the right unit economics and the right convenience and service that can be effectively and consistently delivered. This shifts the focus to service-oriented companies in spite of technology making this core differentiation possible.
The insight into how a person wants to run their business versus how another person runs it wouldn’t be possible without investment into technology. The successful models that have worked in India were where there was clarity on the investment being made on the technology combined with a service experience component.
Policy development or the lack of it
Taking a look at technology, Vani elucidated that the consistency of the regulations, such as water and electricity does not exist in India today. Immense amount of science and policy work with respect to what gets developed, which forms the front-end of the industry, has to go in before these areas become investment opportunities.
The discussion moved on to how innovation in biotechnology, with respect to agriculture, is hindered by the difficulties faced when obtaining product patents and the questionable nature of innovation around seed and plant protection. Hemendra noted that despite the institutional support and tie-ups, a lot of validation and evolution of the product landscape is required. Mark said, “Some of the policy environment hollows out subset where a lot of product innovation could have been seen.”
Pricing for the right customers
Mark’s advice to startups on reaching out to farmers, for B2C sales, is to find and sell the product to the progressive pockets. The key is to sell the innovative consumer-tech products to relatively prosperous early adopter farmers who will pay a lot for it. He said, “As you slice and dice the market, it is important for AgriTech startups to recognise the farmers ability and willingness to pay and the startups have to be targeted as they grow out.”
Doing a comparison of B2B and B2C, the latter is seen at a higher risk so enough runway is required before going ahead with this model. The most successful business model has been the B2B2F. B2C has also been successful but only at a higher price point with more progressive farmers and a relatively less costly input. From hi experience, Hemendra noted, “Value addition is not just aggregation but also the aggregate demand to create commodities in the F2C space.”
The willingness of the farmers increases when they see a direct positive effect. Some of the other models that haven’t been attempted yet are the F2C and C2C. Innovation in a country as complex as ours should be about looking at the unattempted and under-penetrated opportunities.
Exit Strategies
Speaking of exits, deciphering where the exits come from is difficult when the industry keeps evolving and scaling. Vani believes that the kind of capital raised determines the type of exit expected. Citing an example, she spoke about how Flipkart when raising seed capital, already aspired to be a $100 Bn company. At that point of time, there wasn’t a $100 Bn company in India and it was a huge amount of capital investment expectation for a relatively unproven scale model. Scale comes with success and this happens when companies progress from one meaningful milestone to another. She noted,
“Big companies will happen when they have the discipline to have specific milestones for which they have been capital efficient for that milestone.”
According to Ritu, we’re sitting on huge biodiversity, the value of creating something is beyond the product. We should think beyond India and the exits beyond India because the value of things being built is beyond the product. With the realization that the food basket is on this side of the world and also, with rising economies (not just India but Asia) this market is not ignorable anymore.
Acknowledging Nandhita Nandakumar , a contributor to this article. Nandhita is a Kstart Fellow.
