How a niche VC brought agritech into the sunlight5 min read . Updated: 21 Jun 2020, 07:11 PM IST
- Mark Kahn set up Omnivore, a fund for agritech startups, in India at a time when the sector was not on investors’ radars
- IT and biotech grew after the 1991 reforms in India, but agriculture is still tightly controlled and agritech pioneers are struggling
“How can I get an Israeli cow?" That was not a question Texan, Indophile, and Harvard-educated agribusiness manager Mark Kahn was expecting while trying to introduce new dairy feed to a group of farmers. That was 12 years ago and Kahn was in a village near Saharanpur in Uttar Pradesh.
It turned out that the dhoti-clad dairy farmer had been spending hours at the local internet cafe to research ways to increase his yield. The conversation moved from genetics to nutrition and farm management. What impressed Kahn was how a small farmer with two acres of land and five animals in such a remote village knew all about theIsraeli Holstein cow being the world’s top milk yielder.
“I’ve seen this over the years," says Kahn, who is now a founding partner of agritech venture capital fund Omnivore, which has invested in more than 20 startups engaging with farmers. “People seem to think Indian farmers are frozen in time; they just aren’t. These are people struggling with issues everyday, but they do their research, they go to kisan melas, they read whatever is available. They are far more forward-thinking than people give them credit for."
It’s this conviction that led him to raise a VC fund for agritech startups in India 10 years ago, along with Jinesh Shah, who was earlier the CFO of Nexus Venture Partners.
Bucking the trend
It seemed like a crazy idea. VCs were chasing e-commerce and consumer internet startups targeting urban India, not farming. Startups making software for global markets were hot, not agritech.
“People listened to our pitch and laughed," recalls Kahn. “But thankfully, there were enough people who saw that agriculture had 20% of the economy and half the country’s workforce, and no one was supporting startups for that space."
They raised $40 million for Omnivore’s first fund, almost entirely from investors in India. Last year, it raised a second fund of $97 million from a clutch of European and Japanese investors. Since then, Omnivore has been co-investing with global VCs like Sequoia and Accel in larger follow-on rounds, such as the recent $12 million series A deals of DeHaat and Bijak.
As fintech and B2B marketplaces like Udaan drew VC attention to the very large SME space in tier-2+ India, the so-called Bharat, farming came into the radar. “Agritech was discovered in that context by generalist VCs and it is becoming more and more mainstream," says Kahn.
The flow of risk capital has brought a new crop of entrepreneurs. “When we started in 2011, finding 50 startups in the agritech space was a challenge. Now there are 400-500 startups in this space and more are cropping up every day," says Jinesh Shah. “In the initial days, they were trying to solve a few problems; now we have startups taking an integrated approach, trying to disrupt whole supply chains with digitization."
The advent of Reliance Jio gave a big impetus to rural digitization, with a spike in mobile data consumption as rates fell. This created new possibilities for startups.
Shah hopes the government’s promise to unshackle farmers from anachronistic laws like the Essential Commodities Act and the Agricultural Produce Marketing Committee (APMC) Act will give another boost to the sector.
“Today, when India is no longer a food scarce country, it doesn’t help to control supply of farmers, inputs, amount of storage—this is one sector where the government regulates everything," says Shah.
Industries like IT and biotech grew after reforms in 1991. The agriculture industry still awaits its moment in the sun. Meanwhile, agritech pioneers are hacking through the undergrowth.
Omnivore’s first fund focused on product companies like Skymet, which provides weather forecasting and analysis, and Mitra, a maker of automatic sprayers that was acquired by Mahindra in 2018. As confidence grew that agritech startups could raise follow-on funding, full-stack business models with more cash burn became investible. Omnivore invested last year in DeHaat, which provides farmers in eastern India everything from farm inputs and advice to storing and marketing produce.
An ecosystem has emerged for entrepreneurship in this space. “A large proportion of students in engineering colleges have their roots in agriculture. When they come to know funding is available for agritech, it creates momentum," says Abhilash Sethi, principal at Omnivore. “We invested in Ecozen (cold storage rooms and solar water pump controllers) when the founders were still students at IIT Kharagpur."
Apart from funding, there’s a new calibre of mentorship available to these startups. Take Nagarajan Sivaramakrishnan from Dairy Science College at Anand and IIM, Ahmedabad, who was MD of Mother Dairy, before joining Omnivore as a venture partner a few years ago. He brings understanding of the Indian dairy industry spanning three decades to dairy tech startups such as Stellapps in the Omnivore portfolio.
“While there’s nothing wrong with failing," says Sivaramakrishnan, “the opportunity window is short when money is limited." Success comes down to making the right choices at the right time. He believes “quality of food will go up multiple notches as standards, labelling and traceability evolve in the post-covid scenario. New brands will come in and existing brands will broaden their range. So, I anticipate a lot more entrepreneurial stuff happening".
Omnivore’s agribusiness expertise came initially from Kahn, who was a strategy manager for Swiss agriculture company Syngenta before moving to Mumbai in 2007 and leading a turnaround team for Godrej Agrovet. “My world was bisected between South Bombay and the countryside. It was fascinating to see how rural markets work, what farmers are like, what dealers and distributors are like, and just how large the opportunity was to transform the system," says Kahn.
He initially thought of Omnivore as a corporate venture capital arm of Godrej Agrovet, but then paired up with Shah. It took over two years to raise the first fund, and time as a pioneer to figure out the companies to back.
“The difference between a fast-growing SME and an agritech startup was blurrier in 2012-13. Sometimes the companies we invested in didn’t truly have the soul of a startup," says Kahn.
As for the soul of this Indian agritech VC, it goes further back than Godrej Agrovet. Kahn was an Indophile in his formative years, growing up adjacent to a large neighbourhood of migrant Indians in Houston. “Think of a gora kid in Jackson Heights, Queens, New York… I was good in maths, and so a lot of my friends were Indians. I saw my first MGR movie when I was 11."
Many startups and VCs in India have a connection with the Indian diaspora. This one is a little different.
Malavika Velayanikal is a Consulting Editor with Mint. She tweets @vmalu