The long wait for India’s first agritech unicorn

Market linkage startups aggregate produce from the farm and sell to institutional buyers (food and exporting companies, hotels and restaurants), retailers and consumers.

Ranjan’s words, in a way, were an early warning. Agritech startups, particularly ones which were in the farm-to-fork supply chain, were on a roll. The reigning belief was: These startups will reduce the number of intermediaries, infuse technology, and clean up the farm supply chain, which will benefit both farmers and consumers.

“There is no turning back...Indian agriculture is ripe for disruption," consultancy firm Bain and Company said in a report mirroring the mood, also in June 2021. It added that by 2025, $30 billion–$35 billion of value pool will be created in the agritech sector, with e-sale of produce and inputs and digitally-enabled logistics emerging as key segments.

These estimates did not look impossible back then. India’s agriculture sector—generating close to $500 billion annually with over 140 million farmers waiting to be serviced—seemed ripe for technology infusion and disruption. But the party did not last long.

The agritech sector witnessed an investment boom in 2021-22 with venture capital funding at a record $1.28 billion, as per a September 2023 report by FSG, a consulting firm. The surge in funding drove valuations higher. A year later, investments fell by a staggering 45% to $706 million in 2022-23.

Global factors such as interest rate hikes and investor caution have led to a more prudent investment climate, the same report, titled India’s unfolding agritech story, noted.

Another brief by venture capital firms AgFunder and Omnivore, published last year, observed that 2023 was a stress test for startups, offering “ideal vintage for venture capitalists who can enter promising deals at cheap valuations".

Going by their last fundraises, prominent startups in the farm input and output linkage space—DeHaat, WayCool, and Ninjacart—were valued between $650 million and $800 million. By when can one of these turn into a unicorn or a startup valued at over $1 billion? There is no clear answer.

It’s been cold for a while but the climate is thawing, said Mark Kahn, managing partner at Omnivore, which has more than 30 investments in its portfolio. “Probably the first unicorn will be born in 2024...But why do we care? A decacorn (a startup with a valuation exceeding $10 billion) in edtech just imploded so spectacularly," Kahn said, referring to the ongoing crisis at Byju’s. The edtech company aggressively expanded between 2020 and 2021 but its prized acquisitions bombed. Last week, the American arm of Byju’s filed for bankruptcy after defaulting on debt of $1.2 billion.

According to Kahn, a more relevant question is: When will the first initial public offering (IPO) hit the markets? That may happen as soon as next year. “I would rather have five or seven Indian agritech companies listing in the next three years at sub billion-dollar valuation. That is healthier for the ecosystem. One of the great sins that was committed in the last cycle was this tendency of staying private for too long and then going public at a crazy high valuation you cannot support," he said.

Easy money

After the covid pandemic hit, venture capital money was flowing liberally across sectors, including in agriculture, said Hemendra Mathur, co-founder of ThinkAg, a not-for-profit that helps startups connect with corporates and investors.

With increased internet penetration in rural India, an army of entrepreneurs with tech but non-agri specialization got into the sector. “Unfortunately, during the pandemic, the valuation for market linkage startups were 2.5 to 4 times the gross merchandise value (GMV), which is hard to digest. Globally, for publicly listed companies, if you are a trading player with a margin of 2–5%, your valuation is 20% of GMV. That’s the thumb rule." GMV is another term for sales revenue.

Now, said Mathur, the realization has dawned that one has to create value and scale is not everything. One cannot digitize a mandi (wholesale market) and seek high valuations. Those who are into market linkage have realized the need for farm level processing and storage. Startups are trying to build direct farmer linkages.

“Where startups can be valuable is when they can build an end-to-end traceable food supply chain, control the quality of produce, build tools to go deep into the supply chain and connect with the farmer," Mathur added.

The pivots

That is the route some of the prominent market linkage startups are taking—moving away from trading of farm produce which is a low margin business, focusing on consumer facing brands as a path to profitability.

For instance, WayCool, a leading supply chain startup, which once focused on connecting farmers with retailers and institutional buyers, has reinvented itself as a product company with its own brands of staples and fresh produce. The startup has raised over $180 million so far and it was valued at $675 million during the last fundraise in June 2022.

WayCool began its journey in 2015 with the hypothesis that there is an opportunity to organize the supply chain into an efficient and demand-responsive one. It means aggregating produce from small-holder farms and deliver to retailers and institutional buyers like modern retail, reducing the number of intermediaries or middlemen.

It experimented with multiple models—including running its own retail outlets till 2017 and supplying to hotels and restaurants—but is now focused on supplying to kirana stores. Currently, WayCool supplies to 67,000 retailers across five states in southern India.

Later in its journey, WayCool also launched its own brand of staples under three different consumer brands plus a separate dairy brand. Annual revenue for all its businesses total ₹1,800 crore.

“With the launch of each brand, the margin profile improved for us," said Karthik Jayaraman, co-founder and managing director at WayCool.

“This was our lesson learnt. With all true intent we went on to make the supply chain more efficient. But we were not rewarded for providing that service. So, we had to think like a product company with offerings customized to consumer needs," Jayaraman added. WayCool expects to turn profitable within the next three-four months and is targeting a public listing in less than two years, by 2025-26.

Shashank Kumar, co-founder and CEO at DeHaat, a startup which services farmers and institutional buyers with the tagline “seeds to market" claims its business model has remained unchanged ever since it started off from Bihar in 2012. “Our goal has stayed the same: connecting the last mile, providing farmers every input and service they need," Kumar said.

In the year ending March 2024, DeHaat is expecting gross revenue of ₹2,700 crore, by all measures, the largest for any agritech player.

Kumar added that the startup’s margins are in double digits now, after it diversified into exports, processed and branded products, and sales of crop nutrients. “We are in a high growth phase (50% year-on-year), sufficiently capitalized and we are in no hurry to go public. When we do so in 2–2.5 years’ time, we want it to be the largest agri IPO in the Indian market."

Limited footprint

India is home to over 1,500 agritech startups. According to a December 2022 report by Avendus Capital, more than 250 startups have received funding. However, the revenues captured by these startups was estimated at just $4 billion, less than 1% when compared to the size of the agriculture market in India. A large chunk of this business came from trading of farm produce where gross margins, an indicator of financial performance and profitability, are low.

What explains this limited footprint? One reason is that solutions were developed in isolation from the market and by people (helming startups) with little grassroots experience, said Emmanuel Murray, investment director at Caspian, an impact investment fund.

The other factor, added Murray, is that, when startups hire people from the field (in supply chain roles) they also bring with them a lot of corrupt practices—commissions and cuts are ingrained practices which can bleed a startup.

Further, according to Murray, the most well-funded startups were supposed to eliminate the inefficiencies in the supply chain. But those inefficiencies were overstated to begin with. So, it was a hyped-up story, coupled with lack of field knowledge and investors in a hurry to show great progress that is undoing some of the initial charm.

There is no meat on the bone but one must keep the pot boiling, said an industry insider who did not want to be named. “Sorting, grading, cleaning and packing of farm produce is a low value game. Investors made the mistake of putting their money on wrong models. They are in denial now, flogging a dead horse," the person quoted above added.

A large chunk of funding flowing to supply chain players also meant less investor appetite for deep-tech startups working on themes such as crop genetics, climate science and soil health.

It takes time to understand deep tech players, said Mathur of ThinkAg, quoted earlier. Those models need technical validation and understanding the science behind. Which means a lot of sweat and hard work for investors.

“If you are a true deep tech with scalable, affordable and globally relevant solutions, your valuation could be anything. It is a fantastic opportunity where India can become a country of choice. Like what the IT (information technology) industry did in the 1980s and 1980s."

Some prominent and emerging startups in this space include the likes of CropIn, SatSure, and Krishitantra.

Shedding swag

CropIn, the oldest among this lot, founded way back in 2010, uses remote sensing and artificial intelligence to help companies digitize their farm operations and tackle productivity challenges. Its list of clients includes multinational food giants, seed producers, and input manufacturers. Last January, CropIn raised $14 million from new and existing investors, which include Google and Chiratae Ventures.

“We have deployed predictive intelligence solutions—which provide disease warning and yield prediction—in 200 million acres across 100 countries globally," said Mohit Pande, chief business officer at CropIn.

The challenge in tech deployment in agriculture, added Pande, is that the end consumer, the farmer, is not a rich guy in a country like India. “So, agritech is a game of patient capital."

Very few startups have taken the risk of deploying technology solutions with farmers as its primary customer. Krishitantra, which provides soil testing services to farmers, was set up in 2017 and till date has established a network of 3,500 centres across India. Farmers can get a soil test done for ₹300 and receive the report in their local language. The service is critical: Indian soils are facing a fertility crisis due to improper and imbalanced use of nutrients.

So far, Krishitantra has raised just $1.1 million, mostly as part of a seed round in 2020, from investors Omnivore and Nabventures. “We could have increased our footprint with more funding, but less money made us prudent and careful. But we are cash flow positive without any burn," said Sandeep Kondaji, founder and CEO.

While Krishitantra is trying to fix Indian soils, Bengaluru-based SatSure has positioned itself as an enabler of farm credit. It provides a credit score of farm plots based on satellite and weather data, which banks use while reviewing loan applications.

What once used to take between 15–45 days is now being done in 10 minutes, said Prateep Basu, CEO and chief product officer at SatSure. The startup claims to have enabled 450,000 loans and is monitoring 2.5 million loans.

Several investors Mint spoke with said the funding winter has done some good for the startup ecosystem. To begin with, the ability to raise large funding is no longer seen as a mark of success. Investors are closely monitoring the route to profitability.

Larger startups in the market linkage space can ride through the cycle of gloom by pivoting their business models, said a person who was in a leadership role in an agritech startup and did not want to be named.

“In essence, this is a cleaning up phase which will remove inefficiencies and punish lax corporate governance practices. Startup founders are shedding their swag, coming down to earth. Investors are watching closely. But those who wanted a quick exit and windfall profits will have to wait."