Emerging and Growth Markets | January 25, 2021

Digitization of smallholder farming draws investors to Indian agtech startups

Jessica Pothering
ImpactAlpha Editor

Jessica Pothering

ImpactAlpha, January 25 – Among the world’s largest producers of food, India stands out for its 130 million independent smallholder farmers who till, on average, less than four hectares of land each.

It’s not new that these smallholder farmer generally get a raw deal from the agrifood value chain from which they source seeds, fertilizer, equipment and loans, and into which they sell their harvest. Government extension services are spotty, crop prices are under-valued by intermediaries, and affordable insurance and financing options to purchase inputs and equipment remain limited. 

What is new is investor interest in a growing crop of tech entrepreneurs who are taking aim at that fragmented, opaque and underdeveloped value chain to streamline India’s $280 billion agriculture industry. Many share a strategy: boosting farmers’ incomes and improving their livelihoods through access to information, technologies and markets.

“These digital solutions are throwing up information in what, in the past, was a black box,” says Ritu Verma of Mumbai-based Ankur Capital. Ankur backed a $20 million Series C round this month for Bangalore-based CropIn, which provides data analysis on crop yields and risks with satellites, sensors and weather data.

CropIn’s financing was among more than half-dozen agtech deals in the past 60 days that signals the investor traction the digitization of Indian agriculture has gained despite – or because of – COVID-related disruptions. Digital agtech platforms today reach perhaps 10% of India’s smallholders, Verma says. “We’re just at the tip of the iceberg, so that’s what is attracting investors.”

Indian agtech startups raised more than $360 million in 2020, up from about $300 million in 2019, and $118 million in 2018.

The mix of engaged investors includes Ankur, an early-stage impact tech investor increasingly focused on agtech opportunities, dedicated agtech VC firms Omnivore and Nabventures, first-time agtech investor Quona Capital, and generalist VC firms Sequoia, Beenext and Accel. 

“Indian entrepreneurs are solving for the low-hanging fruit in the sector, which is in turn helping farmers reach slightly better income levels and expand into horticulture and commercial farming,” Omnivore’s Jinesh Shah tells ImpactAlpha. “That will, in turn, help them make more money and also bring more investment into the sector.” Startups that have recently raised capital include:

  • DeHaat, which runs an online marketplace that connects India’s farmers with financial services and buyers for their products. 
  • Arya, which offers hyper-local warehousing services and financing. 
  • Intello Labs, which has developed an artificial intelligence-powered imaging system to track food quality as products move from farm to consumer. 
  • Unnati, which collects data at the individual farm level to help farmers get access to financial services. 
  • Krishify, which has built a social media platform to correct information asymmetry around crop pricing by connecting farmers to each other. 

Demonstrable traction and scalability has sped up follow-on rounds. When Cropin raised its seed round in 2013, Ankur was among the only early-stage tech investors looking at the agriculture sector. Cropin raised a Series A financing in 2016 and Series B in 2018 before this month’s series C. In contrast, DeHaat’s Series A and B rounds were only nine months apart, as were Arya’s second A and B rounds.

“These businesses are getting de-risked and larger investors are getting comfortable with the sector,” says Verma. “We also had a pandemic.”

COVID effect

Disruptions to food logistics and vulnerabilities in supply chains drove more investors to the sector. A mid-year agrifood tech investing report from AgFunder showed 2020 investment trends were on par with and projected to surpass 2019.

Investors have shown a clear preference for companies with solid track records and scalable solutions. Early-stage startups have had a comparatively rougher time. Nabventures estimates that of the 42 ventures that raised about $360 million last year, only 15 startups were first-time fundraisers. That’s fewer first-timers than in 2019, despite a modest  increase in total fundings.

“Startups that had already raised got further support from existing investors and also from some new investors,” says Nabventures Rajesh Ranjan. The support helped tide proven entities over through the cash shortage and liquidity squeeze caused by the pandemic. “That happened at the expense of smaller deals. A number of startups didn’t receive funding.” 

Attractive valuations

If the pandemic demonstrated the utility of agtech solutions, the pause in dealmaking and subsequent reassessment had a “corrective effect,” deflating the valuations of many companies and making them more attractive to investors, says Ranjan. 

“COVID actually gave us the opportunity to deploy capital at reasonable valuations,” he says. Nabventures reached a first close on its first fund in 2019, but waited until 2020 to cut its first checks because it felt that many companies were overvalued. It made its first deal in fintech company Jai Kisan in June and backed three more companies by year-end. 

Investors in the sector are poised to ramp up investing in 2021. Omnivore closed its $97 million second fund in 2019, while Ankur reached a first close on its second fund in January 2020. 

Much of the focus will be on the expansion of digitization platforms like CropIn and DeHaat. Watch for the rise of integrated platforms that leverage different platforms’ strengths in technical assistance, farm inputs or financing and market access. Another key area to watch: digital monitoring of food quality standards and transparency across the agrifood value chain. “Currently, we don’t know what farmers are getting paid, because of the difference in the perception of product quality,” Shah explains.

AgNext, an Omnivore portfolio company, is trying to improve product quality, with a network of sensors that monitor crop growing conditions and analyze crop quality.

Adds Shah, “If you’re able to crack solutions to the quality problem, that will bring increased transparency on prices for farmers, which will create more value for the sector as a whole.”