Investor interest in agritech startups set to gather pace amid promise of scale, experts say

Agritech startups in India have started to evince strong interest from the investor community. Investors say the agriculture sector, which is witnessing the early signs of technology led disruption, has the potential to build scalable businesses that can impact India’s large farming population.

Until recently, Indian agritech startups did not enjoy the kind of media attention or investor interest as did their counterparts in the ecommerce or foodtech sectors. But that’s set to change, say industry experts.

Agritech startups, which have started to leverage technology to disrupt the sector, have seen an increase in investor interest in recent months, and this will only gain pace, given the potential to scale these businesses and impact India’s large agri-based population, experts say.

In fact, around half of India’s population depend on the agriculture sector for their livelihood. With 157.35 million hectares of agricultural land, India also has the second-largest area of arable land in the world. It is this scalability factor that has evinced strong interest in agritech startups from venture capitalists (VCs) and private equity firms.

According to YourStory Research, at least 13 agritech startups raised total funding (disclosed amounts) of around $65.6 million in 2018, up over 21 percent from total investments of around $54 million in 18 agritech startups in 2017.

While the size of the funds raised by agritech startups is small when compared with the overall size of investments raised by startups in the country, it is still an improvement from the investments seen in the space in the prior years.

Mark Kahn, founding partner, Omnivore, an early-stage fund founded in 2011 focused on investing in agritech startups, says,

“We believe agricultural sector in India is transforming at a much faster rate than anybody wants to believe, and we started looking at how can we take platform technologies like big data, IoT, sensors and apply that to agriculture so that things change in favour of the farmer.”

With a reported gross value added (GVA) of the agriculture and allied sectors at Rs 17.67 trillion ($274.23 billion) in FY 2018 and growing at a compound annual growth rate of 2.75 percent over FY2012-18, the sector has a strong opportunity to be disrupted through technology – something agritech startups have just started doing.

Scope for big impact

India’s agriculture sector contributes around 18 per cent of the country’s GDP, and as such, its impact on the farming population as well as on the Indian economy is significant.

As the Economic Survey for 2017-18 noted, “Poor agricultural performance can lead to inflation, farmer distress and unrest and larger political and social disaffection—all of which can hold back the economy.”

Pranav Pai, founding partner, 3one4 Capital, an early-stage VC firm, says,

“The problems of agriculture sector are well documented, and we believe technology can be deployed in a relatively short period of time so that value can be grown for everyone.”

Today, agritech startups in India are looking to scale, leveraging technology to positively disrupt the sector. This is almost similar to the technology-led disruption seen in segments like e-commerce, transport, food delivery, logistics that have enabled them to achieve scale.

Pranav further says, “We see a broad theme impacting the Indian industry which includes agriculture, where we are not well known to adopt technology for the last 25 years. “

Early movers

Examples of the early success of this technology-led disruption can be seen in agritech startups such as Stellapps, CropIn Technology, Skymet, and Ninjacart, among others. These startups, which are engaged with different aspects of the agriculture sector, have one thing in common: they are all technology driven.

Ritu Verma, co-founder of Ankur Capital, an early-stage fund with a focus on agritech, says,

“It (agriculture) is a very large market and has got the potential for technology impact. There are product and solutions from agritech startups which are valid for a global play.”

She adds, for example, that production process in agriculture is so fragmented that technology solution can make it scalable. Indeed, agriculture sector is one sector that can accommodate multiple players, with limited prospect of any one player becoming a monopoly.

Omnivore’s Mark lists four elements as critical for the future of Indian agriculture: disintermediation, value addition, processing and exports. “All these four factors are going to be driven through the assistance of technology,” he says.

Already, agritech startups have started to see early success with the use of technology in certain areas such as dairy farming, backend supply of farmers’ produce, price discovery, and inputs to farming.

According to 3one4’s Pranav, agritech startups are seeing success in three areas: using technology that can help farmers directly increase their yield; in segments where is there surplus production with potential to diversify like the dairy industry; and lastly, in streamlining backend of procurement of agriculture produce.

Interest in agritech startups on the rise

Given this background, the stage appears to have been set for the VC and PE community to foray into or make further investments in agritech startups.

Vaibhav Tidke, founder of food preservation agritech startup S4S Technologies, says,

“Agriculture is a vast market which also gives the opportunity to get into allied sectors. Earlier, VCs raised questions on the scalability but that point has been proven by a couple of players, so there has been dramatic shift towards this segment.”

However, this does not mean agritech startups will be able to reach out to and impact all the farmers or cultivators in the country. According to industry estimates, of the 10 crore cultivators in India, India’s agritech startups are potentially touching about 3 crore of them.

Ritu says,

“Compared to the last three to four years, there is higher degree of interest among mainstream VC funds and PEs. They are still forming their thesis and as the comfort level goes up there will be investments.”

There are also other building blocks that are falling in place, which is certainly a booster not just to agritech startups but also to the entire ecosystem of farmers. For example, Indian companies focused on the agriculture sector have become important global players, such as Mahindra & Mahindra, which is the world’s largest tractor manufacturer.

Industry observers also believe other sectoral giants in India, such as Jain Irrigation, which is a major supplier of agricultural products, United Phosphorus and TAFE, have the potential to turn into significant global players.

Pranav says, “Over the last five years there has been a consistent number of agritech startups which has attempted to scale up. Now mainstream funds are paying attention to these companies and I would say there is a renewed interest.”

He also added that other building blocks such as government-led initiatives like India Stack, Aadhar and Jan Dhan are putting the infrastructure in place to boost the growth of these startups, which aim to solve problems in India’s farming community.

The goal of these agritech startups are largely threefold: making farming more profitable, sustainable and stable, which in turn reduces the risks of lower participation in the agriculture space.

Success stories needed

However, goals aside, for investor activity in agritech startups to pick up pace, more success stories are needed, say industry watchers.

S4S Technologies’ Vaibhav makes the case for the need for a greater number of success stories for agritech startups in India to cross the seed stage of funding and attract the attention of global players.

The big clincher for the agritech startups will be the participation of large Indian industrial houses like Mahindra & Mahindra, Tafe, and UPL, which are focused on agri-based products.

Mark says,

“If the large agri companies start working with startups or buying them, then the virtuous cycle begins. They will provide half the exits for these companies.”

And there is strong promise of more success stories in the space, say experts, given the number of agritech startups is expected to rise amidst greater interest from the investor community.

As Mark puts it, “When we started Omnivore, there used to be one deal a week, now I see 6-7. These entrepreneurs are passionate, educated and are aware about this sector. So we see a lot of promise in this space.”