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We have now witnessed a surge in VC investments within the agritech area over the past couple of years – Arya Collateral Warehousing Providers Pvt. Ltd., Bijak, Clover, DeHaat, Jai Kisan, VeGrow amongst many others.
In my Accel days, agritech was a nascent sector. The market alternative was big however the pool of high-quality startups and founding groups within the nation was small. My first publicity to the sector occurred by Agrostar. I used to be very lucky to co-lead (alongside a companion) the fund’s Collection B spherical of funding within the firm. Following the funding, the corporate went on to lift a $27 Mn Collection C spherical in 2018. It was an immense pleasure to work with the founders (Shardul and Sitanshu) and play a small position in Agrostar’s journey.
Whereas I’ve solely scratched the floor and by no measure contemplate myself an agritech knowledgeable, that is my humble try at placing collectively my ideas and learnings acquired over the previous few years monitoring the agritech sector in India.
Agriculture Macro Outlook
India has the second-largest agricultural land on the earth (>150 Mn. Ha) and contributes about 10% to international agricultural manufacturing. Agriculture and allied sectors contribute roughly 14% ($276 Bn in FY20) to the nation’s GDP. The sector continues to be the first supply of livelihood for practically 58% of the nation’s inhabitants, making it an essential one not solely from an financial but additionally from a social standpoint. But we’ve got until date not witnessed a tech unicorn emerge from the sector.
There are numerous challenges within the sector which have traditionally brought about impediments to its progress. Land holdings in India are very fragmented resulting in poor unit economics for farmers. Greater than 70% of the farmland is rain-fed (and never irrigated) resulting in low crop yield. The majority of farming exercise, each pre and post-harvest, are achieved manually thereby including additional to the poor yield and inefficient economics. The agri provide chain could be very fragmented and damaged making procurement of inputs (at proper value factors) an enormous problem for farmers. The dearth of value transparency/ discovery and existence of middlemen makes it very tough for farmers to promote their produce at an optimum value level.
The inherent structural challenges made agriculture an unattractive sector for the new-age entrepreneurs to enterprise into. On the investing aspect, whereas most VCs appreciated the sheer measurement of the market alternative, there was at all times lack of conviction on scalability, monetisation and distribution within the sector. Additional, there weren’t many educated founding groups that had a great on-ground understanding of constructing an agri-business in India. Nonetheless, issues have began to vary.
Over the course of previous couple of years, the sector has loved some sturdy tailwinds which have led to an increase in VC curiosity within the area. The declining knowledge price and the arrival of Jio has led to a rise in web and smartphone penetration among the many farmers. With the introduction of UPI, farmers are slowly getting comfy with transacting on-line. Additional, there have been many beneficial authorities insurance policies and initiatives like PM-KISAN, PM-AASHA, PMSKY, PM-KMY amongst others which can be uplifting farmers and benefitting stakeholders throughout the worth chain. Evidently agritech is now uniquely poised for disruption through expertise.
Agritech Market Alternative
There are round 118M farmers in India working 145M+ land holdings. Of those 145M+ land holdings, greater than 85% are marginal and small holdings (ie. <2 ha measurement) and solely 0.5% are massive holdings (ie. >10 ha measurement) :
Whereas the broad sector challenges exist throughout farmer segments, there are particular unmet wants for every phase that supply the chance to construct massive enterprise capital-backed companies.
As I see it, the agritech alternatives in India can broadly be segmented into the next 4 segments:
Market Linkages
These are startups constructing a market/platform for procuring farming inputs (farmer on demand-side) and for promoting output (farmer on supply-side) on the again of a robust agronomy content material play. Farmers in India have little data of which crop to develop to achieve most financial profit. A big a part of ‘what to grow’ choice relies on output gross sales within the earlier rising season. Additionally, info on pre and post-harvesting strategies/processes is proscribed.
There isn’t a transparency on product pricing and SKU unfold out there. Additional, the agri provide chain could be very fragmented & damaged with retail entry restricted to Taluka stage. Final-mile supply is sort of non-existent baring just a few massive villages within the prime three agriculture states.
This provides an incredible alternative for enter/output marketplaces and agronomy platforms to disrupt. A few of the funded startups within the agro-inputs area are Agrostar, BigHaat, DeHaat and Gramophone and in output promoting area are Agrowave, Bijak, Crofarm, Kisan Community, Ninjacart and There are just a few standalone agronomy content material platforms like Reuters Market Mild that had preliminary success in scaling however struggled to determine the proper monetisation mannequin.
The geek in me did a small market sizing train and located that the Complete Addressable Market (TAM) for an agro-inputs on-line market in India stands at round $1.eight Bn (general agri-inputs market = 7B+).
This assumes 2 seasons every year, a 25% market take charge and solely farmers with land holdings between 1ha and 10 ha within the prime 12 agri states in India. Giant farmers (>10 ha land holdings) usually have their sourcing relationships in place and marginal farmers (<1 ha land holdings) have low web/smartphone penetration to make on-line purchases. You’ll be able to take a look at the methodology and detailed sizing under:
Farming-As-A-Service
As talked about earlier, the agricultural land holdings in India are very fragmented with ~70Mn. farmers proudly owning lower than 1Ha (refer Desk 1). These marginal farmers have little entry to expertise and farm mechanisation stays very low. This results in decrease yields and inefficient farm economics. Since they arrive from the bottom revenue teams, it’s inconceivable for these farmers to speculate heavy CAPEX in farming tools like tractors, harvesters, and so forth.
Many startups have now began accumulating this demand and offering entry to such equipment and tools to those marginal farmers on a pay per use foundation, thereby changing farmer CAPEX to OPEX. A few of the startups main the cost on this phase are EM3, Goldfarm and farMart.
By extending the identical market sizing strategy, I discovered that the TAM for a market on this phase for the highest 12 agri states in India is round $450M. The general market stands at round $1.7B. Whereas that is additionally a big market, it’s tough to construct and scale a wholly on-line startup on this phase. Most startups on this phase function a tech-enabled offline or an offline plus on-line mannequin.
Huge Information & ERP Startups
As talked about earlier, there’s a lack of knowledge on a part of the farmers on greatest farming practices in addition to easy methods to maximise financial profit. There may be additionally a lack of knowledge on soil high quality, soil moisture content material & rising situations. On the availability aspect, there’s a lack of knowledge on which product to develop and push to the shoppers. The client acquisition for firms (promoting agri inputs to farmers) is essentially achieved through foot troopers working on the grass-root stage leading to a excessive CAC.
So as to add to this, there may be not a lot analytics on farmer necessities out there to those firms which results in lack of product innovation, poor buyer expertise and therefore general inefficient enterprise economics. Huge knowledge and analytics can handle most of those issues. Some startups within the Huge Information and farm analytics area are AgRisk, AgNext, CropIn, Intellolabs, Skymet and These engaged on creating an ERP software program for Agriculture are CropIn & FrontalRain.
Agri — Fintech
The vast majority of working capital financings in India for farmers is met through non-institutional sources. Mix this with the truth that virtually all transactions are achieved in money, there’s a big alternative to construct startups that digitise funds and provide working capital financings. A few of the funded startups on this phase are farMart, Jai Kisan and Samunnati.
Whatever the phase, constructing a startup within the agritech area is a regional play. It’s advisable to have a nicely thought by native technique for various cultural and language clusters within the nation relatively than a unilateral nationwide one. The shopping for choice amongst farmers is essentially pushed by belief and high quality of product/service. Value elasticity is excessive however a willingness to pay a premium for a superior high quality product/service can also be very excessive. Due to this fact, having a robust vernacular content material play that educates and builds belief amongst native farmers can actually set a startup for fulfillment within the area.
Lastly, whereas the agritech alternative is large throughout segments, a number of the enterprise fashions generally is a bit capital intensive and as such will not be nicely suited to VC funding which comes with the expectation of outsized returns.
Agritech Funding Exercise
India is house to greater than 500 Agritech startups, rising at a charge of 25% year-on-year. These startups raised a cumulative ~$250M in enterprise funding in 2019, which is thrice the whole quantity invested within the sector in 2018. It’s forecasted that the sector will appeal to greater than $500M in funding within the subsequent couple of years. Aavishkaar, Accel, Ankur Capital, Beenext and Omnivore had been the early buyers within the sector. Extra just lately, we witnessed funds like Blume, Nexus, Sequoia, Tiger World and RTP additionally spend money on the sector.
In 2020 (12 months until date), greater than 20 agritech startups have raised a cumulative of $125M+ throughout fairness, enterprise debt and traditional debt rounds. A few of the notable fairness rounds are listed within the desk under :
To sum it up, India agritech is a big untapped alternative that’s nonetheless unfolding. One can argue that investments in agritech are following the identical trajectory as investments in MFIs, whereby the preliminary supply of capital within the sector was restricted to influence funds and social grants however later because the sector matured, it began attracting mainstream VC / PE {dollars}. Agritech appears to have reached that inflection level whereby it’s gaining important momentum amongst VCs.
When investing in agritech area, buyers have to be comfy with longer than common exit cycles since scaling an agritech enterprise in early days might be tough because of the varied challenges mentioned above. Nonetheless, with affected person capital and long run alignment in pursuits, the sector provides large alternative to construct profitable enduring companies with worthwhile unit economics.
Disclaimer:
All ideas, views and opinions expressed on this article are my very own and don’t signify the opinions of any entity in any way with which I’ve been, am now or will likely be affiliated sooner or later. Additional, the article is just not directed to any buyers or potential buyers, and don’t represent a suggestion to promote — or a solicitation of a suggestion to purchase — any securities, and will not be used or relied upon in evaluating the deserves of any funding. The content material shouldn’t be construed as or relied upon in any method as an funding, authorized, tax, or different recommendation.
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