It seems nobody paid attention to our prescient call on inflation and its adverse impact on valuations and exits. Now, we have a situation at hand where the most highly valued startups in agritech are facing either funding delays, layoffs or pointed questions around revenue model and the like. What’s going on here?
In simple words, there were and there remain concerns regarding profitability and ability to remain economically viable. Among other things, the relatively high valuations of peripheral start-ups is driven by increased participation from generalist VCs with access to cheap global liquidity on the back of prevailing close to zero interest rate environment in the developed world. More of the peripheral agritech start-ups in later stages have received funding from generalist VCs.
The small generalist VCs and the agri focused specialist VCs being much smaller in size, initially chose to focus on seed to Series A stages in core agritech start-ups but, of late, they have also started to focus more on peripheral agritech and in some instances conventional asset-heavy start-ups. In the era of cheap global liquidity and large size deal making by the large generalist VCs, the smaller VC funds (including the agri focused specialist VCs) have been able to display high benchmarked valuations (but not exits) in agritech start-ups. Bain & Co. came out with a report in June 2021 forecasting the size of digital agri market (3 components – market linkage, agri inputs and logistics) to reach around USD 30-35 bn by 2025 (another 3 years and 5 months to go). Will these numbers be achieved?
Presently, the situation at hand is as follows: The top 3 or 5 highly valued agritech startups are bleeding money and have pursued business models with higher emphasis on the money-losing or money- guzzling proposition of market linkage. In many instances in order to show revenue growth, quite a few startups are buying revenues from traditional adhatiyas or smaller startups: a win-win for both and this ensures a peaceful co-existence. Do these trades actually have farmers as sellers or it is the adhatiyas once again who are buying from farmers and selling to market linkage startups?
This raises questions like: Can India rely on the leading market linkage agritech startups to deliver high digital agriculture Gross Value Added (GVA) by 2025? Are market linkage startups (the digital adhatiyas) going to co-exist with traditional adhatiyas? Is there comprehensive data to prove that farmers are benefitting from the market linkage startups? Is ‘impact washing’ rampant in the sector?
This is where the need for alternate solutions and players crops up. There is a dire need to develop and strengthen the market linkage skills of primary agricultural credit societies (PACS), farmer producer organisations (FPOs) etc. Basic market linkage infrastructure with basic processing facilities can be set up in various panchayats under PPP model. Further, the same PPP model can be used to create a new set of market linkage startups (say agri version of ONDC) or PPP funded integrate platforms which actually provide services and enhance farmers’ income before they increase their own incomes and are less focussed on raising capital from venture capital or impact funds at highe and higher valuation while losing sight of the sustainability of the core business. In my view, we cannot rely on the loss-making VC backed startups to solve the market linkage problem of Indian agriculture.
India has a large number of people employed in the agri sector and given the high importance of the sector, it may be prudent to monitor the actual goings-on in the sector as sometimes ‘the invisible hand of the free markets’ and its tall claims lead to creation of non-growing problem children rather than scalable, viable and robust business models. Indian farmers are ‘waiting for Godot’ to deliver!
(Rajesh Ranjan is the CEO of NABVENTURES Fund. Views are personal)
