2017 – the inflection year for Indian agtech

28th Dec 2017
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This year has been more promising than for the agricultural sector - which has traditionally been a misunderstood sector among a majority of investors. 

The Series C funding of $ 10 million in Skymet recently announced epitomises the growing interest of investors in Indian agtech space.

In addition to Skymet; two other Indian agtech start-ups - EM3 and Agrostar - were able to attract $10 million cheque in this calendar year in their respective Series B funding rounds.

This year has been more promising than the previous year for the agricultural sector - which has traditionally been less or mis-understood sector among a majority of investors.

Investors have shied away from the sector in the past on account of lack of visibility of scale and higher perceived risk on account of government policies, climate risks, high degree of fragmentation at the farming end, and lack of data and transparency in the supply chain. However, it seems to be changing now.

Total of $30 million raised in 2017 across three deals stated above is approximately one fourth of total aggregate funding which Indian agtech sector has received in last four years (2013-2017) across 60 odd deals. Clearly, the increase in number of deals and larger size of investments in Indian agtech in 2017 marks an inflection point for the sector.

Even US agtech companies witnessed an inflection point with four deals with ticket size of more than $200 million(Plenty - $200 million, Indigo-$203million, Blue River Technologies - $305 million, Ginkgo-$275 million); which is also unprecedent in the US agtech investment history.

Though weight of investor cheques is very different in Indian and US agtech; the agtech investment thesis in both countries have revolved around integration of technology to solve agricultural supply chain problems. Another prominent difference in addition to cheque sizes, between Indian and US Agtech is path-to-scale.

While US agtech start-ups have followed B2F or B2C (business to farmers/business-to-consumer) route for scale, whereas most Indian agtech start-ups, for lack of capital and fragmentation at farming end, have remained B2B (business to business) thus far.

This article talks about some of the key trends in Indian agtech in 2017 and what 2018 holds for the sector.

How Indian agtech got accelerated in 2017

Let me summarise three broad trends which is driving investor interest into the sector:

Unprecedent entrepreneurial activity in the sector

The entrepreneurial activity in Indian agtech in 2017 reached a new peak with more than 300 agtech start-ups working towards solving problems of Indian agriculture. This number was less than 50 about five years back.

It is not just the number of entrepreneurs who have deep dived into the sector but also quality of entrepreneurs is remarkably superior.

Majority of them have tech background with corporate or business experience ranging from five to 20 years. They have global exposure and an eye for detail with strong process orientation. Many of them also have family roots in agriculture, which makes them ideal candidates to spot the opportunity and develop solutions.

Diversity in investment themes 

Agtech investment themes in 2017 have evolved around supply chain linkages (through direct-to-farm as well as farm-to-consumer channels), supply chain efficiency and transparency by building data gathering and analytic tools (aided by hardware devices such as sensors, IoTs, satellite imagery, drones, image processing through mobile, spectrometer, hyper-spectral imagery etc), mechanisation (both equipment and service delivery models), food nutrition (including safety, fortification, alternative proteins) and yield improvement (biotech products).

The global agtech also followed similar themes with few distinctions such as vertical farming, aeroponics, gene editing, animal protein substitution, etc.

The size of each of the India-specific themes as stated above offers market opportunity of billions of dollars.

India’s USD 350 bn food-and- ag-economy (growing to about USD 500 bn in next 5 to 7 years) provides non-linear scale opportunity for agtech start-ups, which very few other markets in the world can provide.

Sustainability of business models

The scale of agtech start-ups (unlike consumer internet / ecommerce) is not driven by discounts, GMV and eyeballs. For example, the value proposition in case of direct-to-farm models is around right quality of agri-inputs at right price at right time. Likewise, for tractor rental models – it is around optimisation of assets, efficiency and timeliness of farm operations in labour-starved market.

Clearly, investor money invested in agtech is not going into discounts for customer acquisition. The investor’s money is typically deployed for building tech, teams and complimentary farm presence necessary to scale the business sustainably. The sustainability is integral to agtech business models and that is the reason most of them have survived without external funding.

Lack of easy access to capital for Indian agtech in a way has helped in driving frugal mindset of agtech entrepreneurs. Many of them have demonstrated survival and growth, working out of their non-airconditioned garage offices with lean-&-mean teams.

The sustainability on the back of margin improvement opportunity through dis-intermediation and efficiency is unique to this sector. Across various business models in Indian agtech, there is visibility of 20 to 60 percent gross margins at a scale of $10 to 30 million revenue level.

However, lack of an enabling ecosystem remains a key bottleneck in attracting capital

Given the high level of entrepreneurial interest, multiple investment themes and sustainability; one would expect agtech to be the preferred sector for the investors. However, it is not.

The biggest missing link to catapult investment into the sector is lack of enabling ecosystem – both public and private.

The lack of seed funding, incubation, mentoring coupled with lack of access to supply chains for prototyping innovations is responsible sub-optimal growth and premature death of worthy startups.

So, what is in it for Indian agtech in 2018? Will the ecosystem change for good?

Both public and private ecosystem necessary for agtech scale is showing green shoots. The government realises that target of doubling farmer income can not be achieved without making innovations accessible to farmers, so they want farmers to adopt innovations. There are several other government programmes which can also give startups enough room to innovate.

For example, the National Nutrition Mission launched recently by the Government of India, with a budget of approximately $1.5 billion can drive innovations around alternative proteins, fortification and healthy foods.

NABARD’s focus in promoting incubation centres in various agricultural universities is another big positive step in boosting the ecosystem.

Many state governments have also taken giant steps to provide agtech start-ups a public platform to scale. Andhra Pradesh government clearly stands out among all state governments who have demonstrated commitment to agtech through their AP Smart Village programme (in collaboration with University of California, Berkeley) as well as organising the agtech event of the year – AP Agtech Summit, (organised in partnership with Bill & Melinda Gates Foundation), which gave many start-ups an opportunity to work closely with the government to scale innovations in the state for the benefit of farmers.

Then there are initiatives from Rajasthan, Madhya Pradesh, and Karnataka governments to build Custom Hiring Centres in partnership with agtech community to provide farming as a service. Karnataka government’s focus on promoting millets as superfoods to get it back on consumer plate is also unique and praiseworthy.

Private sector participation is also on the rise with an intent to collaborate with agtech community to learn more about the sector and how it can impact their tried and tested businesses.

Companies like Mahindra, Mahyco as well as some forward-looking SMEs are deeply engaged with agtech startups. Many insurance companies are working with ag-data startups for determination of risk profile of farmers and farms for determination of risk premium and claim settlement.

Likewise, banks including Yes Bank, Rabobank have also started to work closely with many agtech startups, which can enable banks to lend efficiently to the sector.

Role played by incubators such as CIIE (at IIM, Ahmedabad), ICAR – Naarm, ICRISAT is truly remarkable in incubating and accelerating many agtech start-ups. Syngenta Foundation programme of promoting village level entrepreneurship also deserves a mention as it is one of the few programmes which is trying to create an enabling ecosystem at the grassroot level through training of rural youth.

Another element in the ecosystem build-up that I observed in 2017, is willingness of agtech entrepreneurs to collaborate with each other to de-risk business models and find ways to synergise operations. I am witness to multiple cases where agtech start-ups have joined hands to do business.

All the above is driving the much-needed ecosystem support for the sector. If number of agtech events can be taken as a proxy for ecosystem development, then clearly one can say the ecosystem is changing for good. The number of agtech events that I participated in this year outnumber the ag-events that I have attended in my entire professional career.

Will capital flow to Indian agtech increase in 2018?

It is risky to make predictions in an evolving landscape. Having said that, I can predict with confidence that the agtech funding in 2018 will be more than aggregate funding in the sector in India till date. Investors from outside India are going to take bigger bets and some of prominent Indian VCs will also participate. I also see emergence of Indian corporate VC arms in India for agtech investments on lines of the some of the global peers such as Monsanto, Syngenta.

There is also a good chance that at least four-five- global agtech startups will start operations in India and likewise some of the Indian agtech startups will make their presence felt in overseas market.

There is no question that the number of entrepreneurs taking a deep dive into agtech will increase substantially and count may cross 500 by end of 2018 from the current over 300, including some deep-tech innovators.

To conclude on a high note, the Indian agrarian economy from farmers to consumer will prosper on the back of innovations and so will be entrepreneurs and investors betting on it.

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