What’s going on in the highly valued market linkage agritech startups in India?

Earlier in 2021, in the book Shifting Orbits, in the chapter on agtech, I wrote the following: “There is general optimism both globally and nationally regarding the prospects for agtech that has resulted in valuations outperforming fundamentals. commercial. Large peripheral emerging companies with very low margins remain vulnerable in the medium term, both from a valuation and exit point of view, if global interest rates start to creep up in the medium term or if there is a large future global liquidity shock.” fringe startups, I mean agtech startups that use new-age technology in a limited way and rely on digital interfaces.

It seems that no one paid attention to our prescient call on inflation and its adverse impact on valuations and exits. Now, we have a situation where top-rated agtech startups are facing funding delays, layoffs, or point questions about revenue model and the like. What’s going on here?

In simple words, there were and continue to be concerns regarding profitability and the ability to remain economically viable. Among other things, the relatively high valuations of peripheral startups are fueled by a greater involvement of generalist venture capitalists with access to cheap global liquidity on the back of the near-zero interest rate environment that prevails in the developed world. More of the later-stage fringe agritech startups have received funding from mainstream venture capitalists.

Smaller generalist venture capitalists and agriculture-focused venture capitalists, which are much smaller in size, initially chose to focus on seed to Series A stages in core agtech startups but, lately, also they have begun to focus more on peripheral agricultural technology and some instances of mainstream, asset-heavy start-ups. In the age of cheap global liquidity and big deals by big generalist venture capitalists, smaller venture capital funds (including specialist agriculture-focused venture capitalists) have been able to show high comparative valuations (but no exits) in agtech start-ups. Bain & Co. published a report in June 2021 forecasting the size of the digital agricultural market (3 components: market linkage, agricultural inputs, and logistics) to reach around USD 30-35 billion by 2025 (another 3 years and 5 years). months to go). Will these numbers be achieved?

At present, the current situation is as follows: the 3-5 highly valued agtech start-ups are losing money and have pursued business models with more emphasis on the market linkage proposition to lose or eat money. In many cases, to show revenue growth, quite a few startups are buying revenue from traditional adhatiyas or smaller startups: a win-win situation and this ensures peaceful coexistence. Do these exchanges really have farmers as sellers or are the adhatiyas once again buying from the farmers and selling to the new market linkage companies?

This raises questions like: Can India trust the leading market-linking agritech startups to deliver high gross value added (GVA) of digital agriculture by 2025? Will new market linkage companies (digital adhatiyas) coexist with traditional adhatiyas? Is there comprehensive data showing that farmers are benefiting from new market linkage ventures? Is ‘impact washing’ rampant in the sector?

This is where the need for alternative solutions and players arises. There is a compelling need to develop and strengthen the market linkage skills of primary agricultural credit societies (PACS), farmer and producer organizations (FPOs), etc. Basic market linkage infrastructure with basic processing facilities can be established in various panchayats under the PPP model. In addition, the same PPP model can be used to create a new set of new market linkage companies (for example, an agricultural version of ONDC) or integrated PPP-funded platforms that actually provide services and improve farmers’ incomes sooner. of increasing their own revenues and focusing less on raising capital from venture capital or impact funds at an ever-higher valuation while losing sight of the sustainability of the core business. In my opinion, we cannot rely on loss-making venture capital backed start-ups to solve the Indian agriculture market linkage problem.

India has a large number of people employed in the agricultural sector and given the high importance of the sector it may be prudent to monitor actual developments in the sector as it is sometimes “the invisible hand of free markets” and its high claims . lead to the creation of problem children that do not grow up instead of sound, viable, scalable business models. Indian farmers are ‘waiting for Godot’ to deliver them!

(Rajesh Ranjan is the CEO of NABVENTURES Fund. views are personal)

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