Investing in digital agriculture – Insights from the AgriTech’s panel discussion at MWC Kigali

Introduction

Digital agriculture solutions have the potential to transform the lives of millions of smallholder farmers by increasing their yield and revenues and reducing inefficiencies along value chains. The number of such solutions is growing rapidly, from just 152 in 2013 to around 1,400 in 2023. However, most of these solutions remain small-scale, with only a few reaching more than 1 million users.

Access to funding is critical for agritechs to fine-tune their product-market fit, fund geographic diversification, and secure the expertise and infrastructure they need to scale. Yet many agritech companies struggle to raise funding. Beyond the venture capital slowdown of 2023 in Africa, agritech companies face unique sector challenges that pertain to the attractiveness of the agriculture sector, a key one being the longer return on investment which requires more patient capital.

On October 17th at MWC Kigali, the GSMA AgriTech programme convened an expert panel of investors and agritechs companies to share experiences and exchange perspectives on the investment landscape. They discussed challenges faced on both sides and offered guidance to improve agritechs’ access to capital. This blog summarises key insights from the discussion to help demystify funding opportunities for agritech companies.

Figure 1: Expert panel of investors and agritechs


There is a noticeable shift towards increased funding in the sector.

Despite the vast potential of agritech to transform African agriculture, venture capital investments in the sector have been disproportionately low compared to other sectors. While broader venture capital in Africa has reached over $22 billion since 2011, only 4% of it, or $900 million, was invested in the agritech sector.

According to our panel, this gap stems from the seasonality of rain-fed agriculture that implies more patient capital and longer return timelines than most investors are accustomed to. This seasonality means that learning cycles in agriculture typically occur two to three times a year, compared to every three weeks in other sectors. As investors mainly operate with five to six-year exit strategies, they are often ill-suited for the extended timelines of agricultural transformation. African agricultural value chains are also complex and fragmented. Although significant streamlining is required to create scalable opportunities, there has been limited interest among investors to fix entire value chains. Rather, as agricultural supply chain platform iProcure’s CEO Niraj Varia noted, investors typically have impact mandates that restrict funding to direct interventions with smallholder farmers, overlooking the necessary infrastructure underpinning agricultural transformation.

As a result of this constrained investment landscape, a large share of agritech start-ups rely on bootstrapping and reinvested revenues to manage their growth, as illustrated by Adaeze Ruth Akpagbula, co-founder of Nigerian smart farming agritech FarmSpeak Technology.

Yet, signs of a shift are emerging, with record-high investments of $238 million in 2022 across 80+ agritech deals, representing a 127% increase from 2020. Technology adoption, climate change, and a growing concern for food security all contribute to making agritech an appealing prospect for future investments. More than half of this funding has gone to early-stage ventures, indicating a growing risk appetite among investors.


Figure 2: The AgriTech panel discussion at MWC Kigali 2023

The question now lies in how agritechs can harness this substantial opportunity.

1.Think carefully about the type of investors and the type of capital you’re bringing in.

Agriculture’s extended timelines demand long-term oriented allies; that is why securing the right investor is a task of great importance, one that demands intentional and thoughtful consideration. It can be tempting to accept any investor offer when you’re hungry for money, but as Niraj Varia of iProcure shared, “not everyone would be right for you”, and founders need to think carefully about who they want to bring in, rather than desperately grasping at any lifeline. As Loraine Achar-Ogada, Senior Investment Associate at Founders Factory Africa (FFA), a venture capital firm based in Africa, puts it, “the quest for the right investor mirrors the quest for a life partner. The key lies in identifying patient investors who understand the sector, to mitigate the risk of misalignment down the road.”

Beyond mere investment partner selection, the type of capital, or combination thereof, also needs to be carefully selected based on the stage of the business. Diverse financing instruments exist to suit different needs. For instance, grant funding is useful to experiment and try out new things, especially when funding is constrained, as we have seen in 2023. However, they can also be overly impact focused, driving agritech companies away from their core product. Similarly, debt financing allows agritechs to explore and innovate without having to dilute the company’ capital. However, debt is highly cashflow dependent and difficult to secure, so it might be ill-suited for early-stage start-ups. Equity, on the other hand, unlocks large sums of capital against a company’s equity, but venture capital investors typically look at a five to seven-year window before exiting, which doesn’t give much time to build value in the agritech space.

2.Simplify your story, but don’t change your narrative

When pitching to investors, founders naturally want to impress and close the deal. But our panellists emphasised the need for thoughtful storytelling versus telling investors what they want to hear.

As a rule of thumb, agritechs need to simplify their story. Our panel pointed out that investors often lack familiarity with the agritech sector, making them less receptive to complex stories. As a first step, agritech founders should endeavour to educate investors about the sector. Ahmed Ben Achballah, Founder and CEO of MooMe, a dairy agritech in Tunisia, pointed out that “the problem is not that investors don’t want to invest or that you are a bad presenter, they simply don’t understand us. We must educate them and keep reminding them of the opportunity.” He hints that collectively supporting investors in their understanding of agriculture could have, with time, a snowballing effect for all agritech start-ups.

Moreover, founders should aim to develop a clear-cut story focusing on a few compelling KPIs that speak for their worth, vision and impact. Niraj Varia explained that “investors are very smart generalists but they’re not particularly smart specialists, so you’ve got to speak in a simple language they can benchmark against other companies they’re assessing”. One important aspect of this story is your target customer, and you need to demonstrate you know them inside out.  As investor Loraine Achar-Ogada noted, “a great founder is one that is always iterating, always speaking to customers, and running customer discovery. If I ask you what your customers thought of this feature, and you don’t know, that is a red flag for me”.

But keeping it simple doesn’t mean fitting in a mould that isn’t yours.  Loraine advised staying true to yourself and your ideas: “If you have to change your story, your narrative to fit an investor, I think you got it wrong. Investors are likely to notice this eventually, causing the relationship to stumble.”

3.Be persistent and build rapport with investors.

Securing an investor can take a long time, years in some cases. Niraj Varia shared that “it took [iProcure] a very long time to raise the USD 17 million we secured from investors. You will get a ‘no’ 100 times before you get a yes and that can dent your confidence”. Hence, being patient and persistent is key to making a difference in the long run.

Raising investments is so daunting that it often feels like a full-time job to our founders. And that is because fundraising really is a constant activity – investors and founders are regularly talking to one another to build relationships, and this takes time and effort. Loraine shared that ‘building the rapport, the relationship, sending constant updates, is very important with investors.” She recommends that agritechs put investors on their mailing list and send them monthly or quarterly newsletters to show progress and to stay top of mind.


Conclusion

The panel discussion emphasised the importance of supporting agritech companies to be more investment ready. Our experts discussed how agritech start-ups need to work on identifying and engaging the right investors and sources of finance. They also stressed the importance of fostering simplicity and authenticity in how to pitch one’s business.

However, our panel also pointed out that investment readiness is just a piece of the puzzle not a goal in itself. Consultants and other sector stakeholders need to go beyond simple capacity building– they need to open their network and establish strategic partnerships. This, combined with investment readiness, can take fundraising to the next level.

The GSMA AgriTech programme is currently working with a cohort of 10 agritech companies, helping them address some of the insights from this panel discussion, such as user-centric design, impact assessments and investment readiness through the GSMA AgriTech Accelerator.

The GSMA AgriTech Accelerator is funded by the German Federal Ministry for Economic Cooperation and Development (BMZ) and supported by the GSMA and its members.


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