Soros-backed start-up Lawrencedale looks for second round of funding
Chennai: Lawrencedale Agro Processing Pvt. Ltd, an Ooty-based startup backed by the investment arm of Soros Economic Development Fund expects to tap the second round of funding of $10 million in a couple months.
The start-up procures fresh vegetables and fruits from close to 1,000 small farmers and supplies the produce to 70 outlets in Bengaluru and Hyderabad with plans to expand to Chennai.
Soros Economic Development Fund is a non-profit foundation created by investor and philanthropist George Soros. The fund invests in sustainable business or initiatives that strive to alleviate poverty by creating jobs and revitalizing deteriorating communities.
Larencedale, a five-year-old company, which cleans, packs and brands farm produce as LEAF besides supplying retailers plans to use the money to build agro-processing units closer to its market procure farms.
Its buyers include such as Nilgiris super market, Kovai Pazhmudhir Nilayam and Reliance Fresh.
“We have plans to procure vegetables closer Bengaluru and Hyderabad. Therefore we will require to set up cleaning and packaging units in around the farms we intend to procure,” said P. Vijayaraghavan, CEO of the Lawrencedale Agro. He declined to mention the number of farms as they are still in discussions.
Over the next two months, the company expects to boost its capacity of supplying vegetables to 100 tonnes a day from 15 tonnes a day currently. It is in the process of setting up three agro processing units—two at Mettupalayam and one at Kotagiri.
In April 2013, Soros Economic Development Fund’s investment arm, Aspada Investments, picked up a 40% stake in the company for $ 2million. Lawrencedale Estate and Farms Pvt. Ltd is the holding company of Lawrencedale Agro, the only other shareholder in the company. The promoters have invested Rs.10 crore in the start-up.
There is a gap in the market in clean and packaged vegetables and fruits. A company cleaning and packaging vegetable and fruits can help everyone in the value chain from the farmer to the end customer, said Venkat Subramanyam, founder and director of Chennai-based Veda Corporate Advisors, an investment bank.
“Earlier to know the price at which we will sell our produce will depend on that day’s supply at Mettupalayam mandi (vegetable market),” said C. Muthu, a farmer from Kulisolai village in Nilgiris district, Tamil Nadu, who has been supplying to the start-up for the last three years.
“Time and logistical cost is saved,” he said—Muthu doesn’t have to make trips to Mettupalayam which is 60km from his farm and where it will take a week to a month to get the cash for his produce. At Lawrencedale, payment by cheque or cash is made on the day the vegetables are delivered, he said.
The opportunity as well as challenge for the start-up will be how quickly it can scale the business from local to regional and perhaps a national brand, said the investment banker.
Success will depend upon factors such as sourcing; being able to establish strong linkages with farming communities across regions; the ability to invest in cold chain infrastructure; and providing sustainable value to the end consumers, said Subramanyam.
Vijayaraghavan said the raising capital was not the toughest part of the business—rather it was convincing farmers to sell their farm produce, which took almost a year. Farmers were uncertain if the price Lawrencedale (new firm) were willing to pay for their produce was competitive than the prices prevailing at Mettupalayam mandi.
The challenges in branding of vegetables are manifold. The product quality changes with variety, region and growing conditions, said Suman Dabas, principal consultant, Food Services and Agriculture at Technopak Advisors, management consulting firm.
However, the space is open for companies who can establish their brand by identifying and implementing standard protocols in terms of quality parameters and match price points of the unorganized market by eliminating inefficiencies in the value chain, said Dabas.
Only impact funds and funds keen on agriculture will invest in such start-ups. Only when they develop and grow to a certain scale will mainstream private equity investors actively look at them, said Subramanyam.