Welcome to Issue 3
Welcome, Welcome, Welcome to the new subscribers! I really am fascinated that other people are interested in this topic.
In this issue, I focus on a market mapping exercise. I wanted to gather intelligence on the Agri Fintech landscape and find out a little more about the companies I follow, so I can pass this on to you - the reader. It turns out, I follow a lot of companies, definitely too many for one issue alone.
In order to accommodate the volume, I have decided to split the overall mapping exercise into 3 parts series:
1️⃣ This issue - the Agri Fintech 50 - these are well funded scaling companies globally. These are the focus of this issue.
2️⃣ The next issue - My top innovators globally who are really pushing boundaries - you definitely won't be familiar with most of these but they hold a lot of potential;
3️⃣ Next but one issue - Blockchain - yip. This category deserved a separate discussion in my opinion and will discuss the current landscape. More importantly, I will ponder some use cases that we could see in the next 5 years. This will be some old fashioned blue sky thinking coupled with some practical examples.
Lets jump right in to my Agri Fintech 50!
The Agri Fintech 50
The Agri Fintech 50 are fifty of the the most exciting companies at the nexus of Agriculture and Finance today. I have decided to make it a global list and cover numerous segments rather than just pick the 50 biggest or largest funding rounds.
Who made my list?? 👇
Half joke / Half serious: Could we add these all up and build out the biggest agri finance bank in the world? I actually think we could.
In order to talk through them, I will firstly divide them into clusters which are:
👉 Marketplaces/ Trade Data
👉 Integrated Value Chains
👉 Farm Management / Accounting
This is deliberately broad. For example, I could almost do 50 companies in Commodity Warehouse Receipting in India alone (a sector I 💚 BTW!) or 50 Data Analytics companies in the US! The objective is to demonstrate breadth and hopefully allow you to expand your fintech horizons as it is certainly not all about apps or interfaces.
13 of the 50 companies are innovating in the credit segment. Credit is notoriously difficult to get right and any lenders risk losing their capital for various reasons, often outside their control. To innovate in the credit space, each company needs to run a pilot in order to refine their risk models and, from experience, this is educated trial and error.
Agriculture adds the complexity of an annual cycle - so you only get one chance per year to refine a model and then wait to iterate the following season. That can be exhausting when you compare to consumer finance, where 1 month loans can be issued and models refined perpetually.
This all combines to makes innovation in agricultural credit quite unique, but since 2019 this space has perked up and the companies below offer some unique models.
Here are 3 things I find interesting:
1️⃣ Latin America - this is definitely a nascent but active scene. There is a healthy ecosystem of companies such as Agrolend, Nagro, TrAIve and Terra Magna all of whom have raised seed rounds in 2020 and 2021.
Nagro in particular is linking borrowers to existing lenders (raised $0.7m in Seed in 2020) whereas Agrolend ($1.6m seed in 2021), Traive ($2.5m Pre Series A in 2020) and Terra Magna ($2m seed in 2020) all appear to offer credit products and make extensive use of data.
This is one market to watch given the current stress Brazilian banks are experiencing and I expect to see more innovation in Credit in Latin America. (hit me up with any other companies in this space!)
2️⃣ There is only a glimmer of innovation in the US so far.
FarmOp Capital are interesting as it is currently one of few major lending innovators in this market which is a well served market from Agri banks and the Farm Credit system. They use an interesting utilisation of technology and data to advance 100% of input needs by looking at past performance on the same property.
If you don't know FarmOp Capital, they provide credit to farm operators who do not own the underlying land assets and therefore need to secure working capital for rented farms. FarmOp have not disclosed any funding but did announce in 2019 an equity investment from Finance of America, a NYSE listed business. (I trawled their SEC disclosures and couldn't find anything there either 😞). Finance of America are also a lending partner for FarmOp i.e. they provide debt to FarmOp for on-lending to FarmOp clients.
3️⃣ With the exception of Samunatti (India), which has raised a $56m Series C, most of the other companies in this segment are in the early stages having raised either Seed or Series A rounds. Most of the fundraising has taken place since 2019.
This segment overall is very early in its lifecycle which means the early companies have only maybe 3-4 credit cycles complete. Generally, the lending innovation happening in 'mainstream' B2B Fintech is also only really starting so this makes sense. (Consumer Fintech has seen more innovation).
Marketplaces and Trade Data
15 of the 50 companies are Marketplace / Trade hubs.
This is a giant of a category and the largest for fundraising - no surprise when you see the names involved. These are companies that offer marketplaces or actively capture trade data and process that for users.
To discuss this category I am going to split the companies into 2.
👉 There are a bunch of companies on here such as Grainbridge, Agrofy, Ag.Supply, Agriconomie and AgriMarketplace who may not yet consider themselves in the Fintech category. At least not openly that I am aware of and I have no intention of trying to trick them into making any admission. 😇
But when I look at their activities, their management and their investors I see 'Fintech adjacent'. I see it and I can't unsee it! 😁
👉 The rest are clear Fintech companies who openly want to offer direct financial services such as Pinduoduo, Bushel, FBN, Silo & co.
Some of these companies offer direct credit to customers on top of the trade/ market facilitation or other products such as payments and wallets. But these products arrived later in their roadmap after solving their initial problems.
Here are some interesting things to note and think about:
1️⃣ These companies are more mature with most raising funds at Series C and beyond. And the rounds are big. For example Pinduoduo raised a $1.1bn post IPO round (as you do!).
Indigo and FBN raised $535m and $250m respectively in 2020 taking advantage of liquid markets and two major Series C's were announced by Bushel and Produce Pay in 2021 to further their own Fintech ambitions. AcreTrader and Bijak raised sizeable Series A with $12m each.
I have a strong suspicion that Fintech product roadmaps will increase valuation. At a basic minimum, they capture more economic value by leveraging the existing distribution and strengths of each company. How much value? It is estimated that SaaS businesses can increase revenue per customer by 2-5X by adding Fintech products according to A16Z.
2️⃣ The later stage companies give a glimpse to where the earlier stage companies will go - they will move towards financial services offerings. Yes - this will happen in Agritech companies and as evidenced, it already does.
This is part of my reasoning for not being able to 'unsee' the potential Fintech propositions above - it is jus the done thing for similar marketplaces in other sectors.
❓ Do any of these platforms intend to become open❓
Marketplaces can be trade platforms or innovation platforms, which are open and allow third party apps to be built on top. Imagine being able to build an app for Pinduoduo or on top of FBN, Indigo or Bushel!
Will they pursue an innovation platform strategy or stay like closed transactional ecosystems?
Personally, I love open platforms as they allow genuine innovation and generally tech and finance are moving that way - open data, open finance, open banking - maybe Open Ag?
I would propose that Agri Fintech firms should pursue an open strategy based on the fact the market is large and the only thing they have in common at present are problems not clients. I am sure exceptions will exist.
There are 10 companies (only!) included in this category . As above, I could do a whole segment on these alone, but wanted to share some love to the other categories too 😅.
Let me delve a little deeper into some of these:
✅ Growers Edge offers product guarantees to buyers. These are performance guarantees that the new agritech product someone is buying will perform and not expose the user to any additional risk by trying out a new product. The logic is simple, if you have 40 chances (or seasons) to grow a crop in your life, do you really want to risk one on new technology. Growers Edge has accumulated $40m in 2020 to build out its product offering and also announced a further $5m facility from Silicon Valley Bank in the past 2 months.
✅ Agrograph are using big data to build forecast production models for financial services providers and insurance. I really need to get to know this company better as I have built more forecast models for agriculture than I can remember. Localising these seems like an absolute no brainer does it not? They have done projects in the US in addition to South Africa and Kazakhstan according to AgFunderNews. I love their drive to develop a farm level credit score (AgRiskScore) as it is something I have pondered for some time - will all productive or biological assets eventually have a credit risk score? Agrograph have done exactly this for farm assets.
Naturally, there are also Insurtech companies in this category as they are early adopters of just about any data. GramCover is one such company which specialises in rural insurance for the Indian market. Their core competency lies with their digitised distribution and on-boarding process which allows them to offer products to protect crops and livestock in addition to others such as life, health and motor insurance. CropIn and Pula Advisors are also in the Insurtech category, with CropIn in particular a little more established across India and Africa and recently announcing some partnerships in Europe.
✅ Decision making - this cluster provide clean analytics to support decision making and forecasting. Decision Next and Stable are two service providers in this category, which cater to agribusiness clients. Gro Intelligence is a large data platform which aggregates numerous data sources and compiles numerous forecasting models from these. They have recently focused a lot more on climate data
Leaf is a data infrastructure provider which provides APIs from numerous platforms and allows users to connect these across platforms. This is a unique project in the agri space and although does not focus on financial APIs yet, it heralds a move towards open APIs and Open Ag. I like this one a lot.
🤔 This category is admittedly a broad tent and has been the hardest to summarise. But the companies I have selected are notable due to their respective positions along the data value chain - some collect and clean data (e.g. Leaf), most process it and utilise data science tools and then there are the downstream commercial and financial applications such as GrowersEdge guarantee products and AgRiskScore from Agrograph.
🤔 Looking at the business life cycles also evidences an eclectic mix. Leaf and Agrograph have raised seed rounds for their products, the pricing analytics offerings such as Decision Next and Stable are also still relatively young (Series A & Seed) with the others being Series A - C. Interestingly, GroIntelligence has raised the largest round for its Series B, but it is weighted more towards Climate data and sustainability. Which brings me nicely to....
Bundles, Sustainability & Management Info
These entities are certainly more niche in their specific domains but merit a discussion. My objective here is to show the breadth of models within Fintech itself and how they can be applied to the Ag sector.
What do I mean by bundles? These are integrated projects which offer inputs, advisory, credit and market linkages. This category is appealing to investors as they are risk management focused. In addition, bundling complementary services mean that economics and cashflows can be spread across several services and introduces a service network effect i.e. one service is more valuable alongside another.
Apollo Agriculture and Intterra offer two such bundled platforms by integrating third party providers (e.g. Syngenta in the case of Intterra) into the platform.
Stellapps and Resha Mandi take the integrated bundles to another level. They operate in specific value chains and integrate the disparate pieces.
➡️ Stellaps operates in India's gigantic dairy industry and offer a full value chain solution from herd management all the way through to bulk chilling centre software, cold chain monitoring and .... financial services and payments. This is a great example of one service complementing the other, especially in a value chain that needs to move quickly.
➡️ Resha Mandi also offers an integrated platform for the silk value chain in India. This is uber niche but by digitising this value chain, it is likely to generate network effects quite quickly. Similar to the others, this platform oversees inputs, pricing and markets.
Sustainability has moved front and centre in financial circles more recently as investors and regulators focus on environmental sustainability and its link to financial sustainability and risk. This is definitely long term risk but financial institutions in particular are being asked to consider how this impacts their lending portfolios and asset managers are being asked to consider the risk to their investment portfolios.
This segment operate in a niche category which is likely to grow fast as a result of these regulatory nudges. That is not to detract from the social impetus, but the regulation will create a formal drive. They all demonstrate niche businesses within that category and work closely with financial services providers.
➡️ Take AquaOso for example who compile data on water stress in the western states of the US. This data is invaluable to financial institutions who issue debt on farmland. These loans are long term in nature with a typical tenure of 25-30 years, possibly even longer. Water rights and availability is a material factor in land valuation in these areas and can make the difference between economically active land and inactive land, which has little value.
➡️ Similarly, SunCulture in Kenya funds a network of solar powered irrigation pumps for smallholders. This is climate smart agriculture, which uses less fossil fuels for pumping and also more efficient use of water for growing. Like many high value products in developing countries, if you want to sell something, you need to have embedded credit, which SunCulture offer. (Kenya has been the leader in pay-as-you-go financing for products such as lighting, kitchen equipment, TV's and other consumer goods - an interesting read from a few years back in Forbes).
There is an ocean of data in agriculture, but guess what? Financial services providers are mostly interested in financial data - hardly surprising! Hence, I have included a sample of some farm management and accounting tools which provide timely and relevant information.
Aegro operate in Brazil and raised a $2.4m venture round this year to build out their farm management software AND include embedded finance. This is an excellent example of a company grasping an adjacent opportunity and complements what I pointed out above - Brazil is definitely a hot space for this sector at the minute.
Figured are also developing lots of partnerships in New Zealand, their home market, but also the UK, Ireland and the US for their financial farm management software, which includes easy bank integration. For example, in New Zealand they have integrations with Pay Sauce which runs payroll software, a vertical which has seen an explosion of Fintech activity in the past 12 months.
(Just today Bushel announced their acquisition of FarmLogs also 👀)
There is a lot of content here but let me summarise with some insights I have garnered from doing this:
1️⃣ Credit innovation in Latin America looks 🔥 . As noted above, credit is a difficult segment in Agriculture and rewards long term thinking and patience. These companies have assembled several innovative models including embedding finance in farm management systems and aggregation models. I'm going to watch this space closely and look forward to see what else happens.
2️⃣ There are numerous sources of forecast models for agriculture production but I like the idea of AgRiskScore. This makes me wonder who will start to use this on a major scale in the US and when? Currently, only FarmOp Capital are innovating in that space in a big way. I would love to delve deeper on this in particular. What are the barriers to innovation? Regulation can be one, but it is not insurmountable, especially for other Fintech companies.
3️⃣ Trade platforms are in prime position. Do I need to say more on this? 😀
Who works in agriculture and doesn't pick the low hanging fruit?? They are in the wrong sector.
4️⃣ I would love to see Open Ag emanate from here - would you? There are more problems in common than opportunities, which are plentiful.
5️⃣ The Data value chain is maturing and broadening. It would be fantastic to see more financial use cases emerge outside of Insurance.
I expect these use cases will cover not only financial products but also facilitate financial reporting, utilising tools such AquaOso or NatureMetrics, as sustainability risk starts to become reflected in financial risk.
⏹ And finally.... the best thing about this list for me, is that I get to share an even better list of companies in the next issue ... my innovative list. Don't forget.
These are companies that are working with animals, tractors, sensors, IOT, seed .... Blockchain will be an entirely separate discussion.
I hope you have enjoyed this and learned something. Please do share this with your industry contacts and let me know if you have any feedback. I would really appreciate it.