Agritech Funding: Agritech startups trim teams, rework business models in funding winter

Agritech startups have joined the growing list of companies that are downsizing their teams amid business model challenges and a general reduction in funding for private technology companies, executives at industry and investors.

While Temasek-backed farm market DeHaat laid off around 5% of its employees last year, other venture capital-backed companies such as Bijak, Captain Fresh, BharatAgri and Gramophone have also made layoffs recently, the sources told ET.

Indore-based Gramophone laid off around 75 employees between November and December last year to focus on achieving profitability in upcoming financial quarters, co-founder and chief executive officer Tauseef Khan told ET.

The company was previously in an expansion mode after having raised $10 million in October 2021 from investors like Z3Partners and Info Edge. It currently has around 450 employees.

Captain Fresh, the Tiger Global-backed farm-to-retail meat platform, has been trying to shift its business from domestic to international markets since April last year.

This exercise has led to 120 employees losing their jobs, founder and CEO Utham Gowda told ET. The valuation of the company more than doubled to $500 million in March 2022, after having raised $50 million.

BharatAgri, which offers farmers AI-based services on a paid subscription basis, laid off 40 employees in August. The Bangalore-based company, which now has 52 employees, attributed the layoffs to a change in the way it sells products and services.Also read: ETtech Morning Dispatch layoffs spread to Dunzo, ShareChat, Rebel Foods and agtech companies

While DeHaat said the number of employees laid off last year was less than 100 and that all layoffs were based on performance and cultural fit, Bijak, who has also cut jobs, did not respond to a request for comment. ET.

The previously unreported layoffs came after a two-year period of robust funding activity. Some 63% of the total venture capital invested in agritech in India so far has been deployed in the past two years, according to a report by investment banking firm Avendus Capital in December.

Whereas $1.22 billion was invested in 45 agtech startups in 2021, around $796 million went to 30 agtech startups in 2022.

Why these layoffs?

After raising capital from investors, agtech startups have increased hiring activity, but these companies are now streamlining operations.

At BharatAgri, for example, the company had a model where there was a sales team that spoke directly to users to sell subscriptions and products. “Over time, our product has evolved in such a way that users can purchase the services and products without a phone call,” founder and CEO Siddharth Dialani told ET, arguing the layoffs.

based in Bangalore the company last raised funds in September 2021: $6.5 million in a round led by Omnivore, with the participation of India Quotient and 021 Capital, both already with participation.

“We see the current environment as a boon for the agtech sector as this will clear up a lot of the mess in the space and without massive growth pressure many companies will emerge stronger with better unit economics,” Gramophone’s Khan said. .

“Most companies have already taken the right steps in the last two quarters and we expect the results to start showing this year,” he added.

Business model challenges

“In general, we are back to pre-2019 pandemic levels for early rounds, like $2 million to $3 million rounds; there are some exceptions, but few,” Omnivore managing partner Mark Kahn said when asked about the current funding climate in the sector. For other rounds, pre-money valuations are down 33% from 2021 peaks, he added.

Startups in the space are still working out initial business model challenges, and some have succumbed to an investor-led push to aggressively scale gross merchandise value (GMV) without an active focus on gross margin, according to an industry expert.

GMV is the total value of goods sold by a business, and gross margin is the amount that remains after cost of goods sold is subtracted from net sales.

“In terms of business models that are working in agtech, inbound linkages work very well and outbound linkages work well in shelf goods. In perishables and branded fresh products, it is working well only in exports,” Kahn said. “The whole business model of ‘I buy vegetables from the farmer and then I sell them to a kirana’ with nothing else is dead.”

Raising capital has been difficult in the last six to eight months. DeHaat’s $60 million raised in December took a long time to close, people familiar with ET told.

“We can confirm that DeHaat’s current valuation after the Series E funding is between $700 million and $800 million, which is a premium of approximately 80% to the previous funding round that took place less than 13 years ago. months,” a company spokesperson told ET.

DeHaat is among the top agtech startups in terms of revenue, along with Waycool Foods & Products, which claimed to have recorded Rs 1,008 crore of revenue in the fiscal year ending March 2022 (FY22).

Also read: 2022 Annual Roundup: Fund-hungry startups laid off nearly 18,000 employees

Patna and Gurgaon-based DeHaat’s revenue increased 3.6 times to Rs 1,274 crore in FY22, according to the spokesperson.

“We are on track to deliver more than double this number in FY23…we are on an exponential growth trajectory with over 2.5 million farmers and 15,000 DeHaat centers expected by the end of FY23, which which will represent triple growth from fiscal year 22. Being a well-capitalized organization, our goal is to continue this path of growth in fiscal year 24 as well,” added the spokesperson.

DeHaat said it employed 2,000 people as of last year.

“There’s been a lot of growth lately, so companies have gone ahead and hired more people…now everyone hired won’t perform to the same level, so you hire a little more, just like the big guys do companies and you retain the best ones,” said Akanksha Malik, founder of Growth360, which helps start-ups hire mid- to senior-level people.

Bijak, backed by Omidyar Network India and Sequoia Surge, has also been tightening his portfolios in marketing and staff costs in recent years, multiple sources told ET.

Three industry experts confirmed that Bijak laid off many employees. ET was unable to determine the exact number of layoffs.

However, Omnivore’s Kahn, an investor in Bijak, denied these claims, telling ET that Bijak has years of funding left and has no reason to cut its workforce.

The company operates a B2B agricultural commodity trading marketplace for agricultural suppliers and buyers, a slightly busier marketplace within agtech, competing with Lightrock India-backed WayCool Foods and Products, Quona Capital-backed Arya, Vegrow-backed by Prosus and Ninjacart backed by Walmart.

“There is no shortage of capital to invest in the sector… but the question is what price do investors want to pay? That’s where a lot of deals get stuck,” Hemendra Mathur, a venture partner at Bharat Innovation Fund and co-founder of ThinkAg, told ET.

(Graphics and illustrations by Rahul Awasthi)