Mumbai / Bangalore: Pankaj Khandelwal, Vigyan Gadodia and Venkata Subramanian, all graduates of the prestigious Indian Institutes of Technology (IITs), are surprisingly bullish on a sector whose contribution to the economy has been declining over the years: agriculture. All three have launched agriculture start-ups in the past two years.
However, since funding is often hard to come by due to the risks associated with the business model, such as scalability, erratic weather patterns and natural calamities, such start-ups are now turning to venture capital (VC) firms for funding.
Financing growth: INI Farms’ founder Pankaj Khandelwal with pomegranates grown on his farm. The start-up company is in advanced stages of negotiations with a venture capital firm for raising funds. Abhijit Bhatlekar / Mint
“Yes, many of them (agriculture start-ups) are looking for funding for the same reasons that capital is never adequate, bank financing is not very forthcoming, in any case, you can’t leverage it beyond a point. So, I think VC funding definitely becomes very handy,” said Rajesh Srivastava, chairman and managing director, Rabo Equity Advisors Pvt. Ltd, which in July 2008 launched Indian Agri Business Fund. “In many cases, it is more of an innovation funding or seed funding.”
Data from Venture Intelligence shows that private equity and VC investments in agriculture have increased from two deals worth $22 million (around Rs103 crore) during January-October 2008 to seven deals worth $77 million for the same period this year.
Bank loans, on the other hand, typically, are only in proportion to capital in hand. “These days nobody funds a promoter for more than 1.5 times or maximum two times of the capital,” said Srivastava.
Until May this year, Khandelwal was chief executive at Desai Fruits and Vegetables (DFV), a major Indian exporter of fruits. In September, he launched Mumbai-based INI Farms Pvt. Ltd to grow and export pomegranates, and is now in advanced stages of negotiations with a venture capital firm for funding.
Pomegranate, gaining ground as a health enhancer, is a premium fruit locally and overseas: typically, a pomegranate in India costs between Rs50 and Rs100. At the upper end of that range, each fruit costs the same as the Union government contribution to the daily wage of a farm worker under its National Rural Employment Guarantee Scheme.
“After three years with DFV, I clearly saw the opportunity. Price points are high and the fruit is strong. That is why we thought of starting with pomegranates, and over a period of time, more commodities will be added,” said Khandelwal, an IIT Kanpur graduate.
But he concedes that it is not always easy. “Funding is a difficult issue. If you have one success story, people are willing to back you up,” he said.
A major hurdle is also that agriculture start-ups often have long lead times before they can grow anything. For example, it takes three years for the first pomegranate to be produced.
Gadodia, a graduate from IIT Delhi and the Indian Institute of Management (IIM), Calcutta, was inspired to enter agriculture by visits to his grandparents’ Rajasthan home. Gadodia is the promoter of Jaipur-based Sahaj Agrofarm India Pvt. Ltd which focuses on organic farming and was founded in 2006.
After testing the waters for two years and enduring failures, Gadodia clearly identified the verticals he wanted to engage in—organic food, rural tourism and rural education—and is now seeking VC funding.
“We are now in a position to ask (for) funds to put some money into us. Now we know where we want to deploy the funds,” he said.
Subramanian, who graduated from of IIT Kharagpur and worked for at least 12 years experience in the information technology (IT) sector, quit his job at India’s largest exporter of IT services, Wipro Ltd, to start MatchBox Solutions Pvt. Ltd, in Chennai in 2007.
“Children of farmers are also moving to cities. What will we eat if there is no one to produce it,” said Subramanian of his motivation for going into agriculture.
EFarm, which is Matchbox’s supply chain platform, ties in farmers, intermediaries, logistics providers, distributors, small-time retailers and local roadside vendors to deliver farm produce. Currently, at least 95% of agricultural produce reaches the end consumer through unorganized marketing channels.
But funding remains a concern. MatchBox has failed to find any so far.
“A to Z, we have talked to everyone. Their (investors’) common strategy is pat us on the back, but nothing more,” said Subramanian. “They tip this as a poor sector, saying it has slow turnaround and is too risky.”
Ironically, he has received suggestions to convert eFarm into an IT-driven portal for selling produce directly to the consumer.
Srivastava of Rabo Equity Advisors, however, remains optimistic and predicts more start-ups cropping up in the agricultural space.
“It doesn’t take rocket science to know that the demand for food is growing; rocket science is your planning—how do you grow and who do you sell it to. It (agriculture) is the right space,” Srivastava said.