PE_VC_Investments_Outlook_Across_Indian_Agtech

The preference for PE/VC investment in India has been entirely different compared to the high asset-intensive western markets and specific Asian markets such as China that have attracted huge VC/PE investments in deploying productivity-enhancing technologies or climate change adaptation technologies over the last decade.

While global AgTech investments have witnessed dominant deployment in science-driven agri input products, value-added, sustainability-focused processed foods, and big data-driven discovery companies, these segments have attracted almost negligible investment from PE/VC investors or large corporations in India. Only two investments in high technology seed trait enterprises have been made during the last three years by PE/VC investors. The investment in new molecules or biotechnology-derived applications has been shunned due to the PE/VC industry not being adequately conversant with the complex regulatory framework and the inability to assess the technology risk in such ventures. The exception has been a single investment made in a bio-peptide entity in 2020. BIRAC, a government-led non-dilutive grant body, primarily supports these investments in early incubation. However, the valley of death has been profound for such enterprises due to the challenge of finding follow-on funding. Therefore, we classify the investment in AgTech in India broadly in the following segments.

Predominant investment in AgTech by PE/VC has been in farm management solutions and input/ output trading, primarily focused on bridging improvements to supply chain deficiencies.

Pre-farm services

Most pre-farm players prefer B2B offerings, where they collaborate with agri input companies to leverage their customer base and market their products indirectly to farmers. The model allows the start-ups to test their offering in the market and gain market entry before expanding into a capital-intensive B2C business channel. On a farmer subscription model, there are comparatively fewer companies that provide their services directly to farmers. To date, these companies mostly target farmers involved in high-value crops production. To avoid internet connectivity glitches, companies are now using holographic e-cards. Very few of them follow a subscription-based model where farmers purchase the device in the first year and pay monthly charges. The number of key players under the pre-farm category is 80-100. We have considered 6 key AgTech players who actively offer pre-farm services for our study.

Input aggregators

Input Aggregators aim to solve the gap in accessibility of agri input products for farmers in remote areas through e-commerce platforms. One of the most basic business models followed by the players under this category involves offering assortment of agri inputs in a single platform with a doorstep delivery facility. Some offer rudimentary agronomy guidance to the members seeking them.

There are few players with a different business proposition that also provide credit facilities such as farm loans, tractor loans, and gold loan services in partnership with microfinance companies and NBFCs.

Few of them provide agri input and machinery doorstep delivery, and agronomy practices. Enterprises have set up rudimentary data-led back-end and front-end activities to engage in advisory and product dissemination services. While there are more than 60 small players in the segment, about 30 of them have presence over the last three years.

We have considered four key players who are actively involved in offering input aggregator services for our study, as others are significantly smaller in size. The number of key players under the post-farm category is 20. We have considered the top three key players actively involved in offering post-farm services for our study. The remaining players are too small to be compared for performance.

Post farm services

The post farm service providers offer an AI-based food quality assessment and monitoring platform to test the compliance of produce with rudimentary parameters. Some of the elements covered relate to quantitative and qualitative parameters such as count, size, appearance, and external and internal produce deformities. Some of the complex elements in quality, such as pesticide residue, have been lacking in output quality assessment. Further, services by a few include a digitized procurement platform for traders and processors. The user can track in-field activities and set customized procurement transaction preferences according to output specifications.

Output Aggregators

The players in this category aim to offer supply chain solutions to eliminate the middlemen and provide produce to front-line business entities. Most players in the output aggregator segment have adopted the B2B Model. They directly engage with large-scale business partners such as Hotels, Restaurants, and Cafés, (HoReCa), exporters, and other bulk buyers. The number of key players under the output aggregator category is large, exceeding 150 across the country, with a dominant presence in Northern and Eastern States. We have considered 11 key players for our study who are actively involved in offering B2B output aggregation services.

Integrators

Integrators aims to offer end-to-end value chain solutions by augmenting services across the agri value chain- on-farm level, agri-input supply, post-harvest assistance, and overall market linkage. Integrators aims to offer end-to-end business solutions for farmers and their target buyers. It begins with providing input to agronomy guidance and overall assistance to farmers for providing a marketplace for buyers to place orders online. Some have attempted rural franchise units. These units provide integrated services to farmers by offering input products, rudimentary farm service, market connectivity for their produce, and logistics management. The number of key players under the integrated services category is about 60. We have considered 7 key players actively involved in offering output aggregation services.

Investment Trend Across the Segments

Commencing in 2013, start-ups in the four segments have attempted to evolve service delivery models with pilots and prototypes in the initial years and enlarged delivery models when they could secure investments for scale-up.

Less than ten percent of the ventures that have commenced during 2013-15 continue to exist, while less than 5% have secured two or three successive funding rounds. We have witnessed the dominance of ventures initially in the Eastern States of Bihar and UP due to market channel imperfections and deeper hiatus in information access by farmers in the two states. The two regions were also positioned as attractive for impact investors.

The two states also have a lesser percentage of farmers with smart devices for data access. Cumulatively in all four segments, early-stage companies have attracted investment of US$ 1.46Bn towards successive doses of investment over the last five years (Figure 6). The year-wise Contribution of PE/VC investments has increased during FY 2020 and FY 2021, skewed by later series subscriptions secured by four entities.

Figure 6 - Cumulative Investment across AgTech categories 2018-22 (US$ Mn)

Source - Sathguru analysis from Venture Intelligence
Note: Investment updated as of Feb’22

Nominal investment has come in from VC funds affiliated with international crop science companies due to their participation in other VCs, but such investment is insignificant. Predominant investment has come from international VC funds and indirect investment of two DFIs in VC funds. However, the quantum contribution is skewed by the large ticket size in later-stage investment by three global PE investors in the aggregation domain. While there has been a spurt in AgTech investment over the last four years, the share of PE/VC investment in agriculture has been declining as a percentage of overall PE/VC investment. No significant investment has arisen in the technology-driven seed sector, crop protection sector, or crop nutrient sector. Investment in innovation-focused ventures in farm mechanization and irrigation have also been negligible.

While AgTech companies in four segments have attracted investments from VC investors, large corporations’ investment in early-stage companies has been negligible even to date, in contrast to significant corporate VC investments in the USA, Northern Europe, China, and Singapore with substantial investment in early series capital as well as acquisition capital.

There has been predominant investment in beverages and ready-to-cook ingredients in the food value addition arena, but global PE majors dominate such investments with a continued thrust on brand building. The interest of Agtech focused PE/VC investors have been limited in this segment. The surge of PE/VC investment in India has been commendable over the last five years, primarily driven by global investment interest in Fintech/ EdTech and e-commerce. In the four segments of AgTech enumerated above, the investment from PE/VC constituted average 1.1% of overall PE/ VC investment in the five years, declining from a peak of 2.3% in 2019. (Figure 7).

Figure 7 - Agtech Share (%) trend in total PE/VC Investment of India -2017-21

Source - Sathguru Analysis based on industry sources

The decline has been due to several of the start-ups failing to secure follow-on rounds of funding over the last four years and the frenzied phase of high growth investment in segments such as Fintech and retail. In addition, lack of economy of scale has also been a constraint for large flow of PE/VC investments in the last 24 months.

PE/VC Investments Outlook Across Indian Agtech Segments