Beats | June 12, 2012

$1.5 million for mobile app to boost African farm incomes

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Virtual City, a mobile-technology company based in Nairobi, is redesigning its agricultural supply-chain system to help small farmers raise their incomes, through $1.5 million in convertible debt financing from Acumen Fund.

The deal, announced last week, is an example of how financing from impact investors can help ventures in the developing world re-focus their existing products for low-income producers and consumers through lower prices and simplified systems that are available via low-cost phones. Virtual City has previously targeted its mobile products to up-market customers able to pay higher prices for its systems.

John Waibochi, Virtual City’s CEO, said Acumen’s investment will help Virtual City serve more than 3 million farmers in the next five years, up from 300,000 to date. Virtual City’s Agrimanagr is used by agricultural cooperatives and processors to track crop and dairy purchases from farmer to processors and coordinate mobile payments to farmers.

“This redesign represents a game-changing innovation that will connect farmers to markets, allowing them to increase their income, build records of farm production and payment and receive the appropriate reward for increased attributed yields,” said Maurice Nduranu, Acumen’s East Africa portfolio manager.

In a follow-up email, Nduranu said Acumen did a convertible note to provide a measure of security in the first two years of the investment as the product is developed and rolled out, after which the debt would be converted to equity. He said Acumen would take a board seat and hold the company to certain “impact” covenants, including information and other rights around processes and decisions.

The redesigned system will make it easier for smaller farmers to participate in networks of agricultural processors and aggregators and bypass so-called “gate brokers.” Such networks have been shown to help smallholder farmers increase their earnings between 40 and 100 percent. The Virtual City “app” is expected to boost those earnings an additional 10%, or more than $100/year.

(Note: this post was updated with additional information on June 14.)