Omnivore Partners' Managing Partner Shares Why Agri and Food Startups are the Next Big Thing According to an Accenture report, the agriculture ecosystem has started to invest in digital technologies and these services market is expected to grow at CAGR of 12 per cent between 2014 and 2020 to reach USD 4.5 billion

India has traditionally been an agriculture-led economy. Yet, the lack of innovation is one of the major reasons why the sector has lost its texture in this world of digitization.

Having said that things are now changing and thanks to our BIZ Experiencess who are looking to change the face of the country's food and agriculture industry.

But globally the process has already begun. According to an Accenture report, the agriculture ecosystem has started to invest in digital technologies and these services market is expected to grow at CAGR of 12 per cent between 2014 and 2020 to reach USD 4.5 billion. But more importantly, this would just improve the farm output and make lives easier for our farmers, but also solve the food problems among the growing population.

So, where is India headed on this road?

In a conversation with BIZ Experiences India, Mark Kahn, Managing Partner, Omnivore shares his outlook on food and agriculture startups in India.

The Focus

Omnivore backs early stage (ideally between seed to series B) startups that are developing solutions for sectors like agriculture, food and rural economy. By far, Omnivore has invested in startups like Stellapps, Doodhwala, Ecozen and Eruvaka Technologies.

In early 2018, Omnivore closed the first round of its second fund at USD 46 million with investors like SIDBI, RBL Bank, Sorenson Impact Foundation, among others on board. The final round of the second fund is expected to be announced sometime this month or early February.

Discussing where is the capital getting invested in agriculture and food space, Kahn tells us that it is moving in completely two different directions. In the agri space, he says it is moving into market spaces (both input and output market spaces) that are able to build aggregation platforms such as Agrisol or Jumbotail. In other words, capital is moving in businesses that are of models of scale.

While in the food space, the situation is quite interesting. About 8-10 per cent of the food in the country is processed.

He says if you talking about launching a food startup, you are likely to pick a niche or an area of differentiation that can be around convenience or taste that get you in the mind of consumers that have the ability to buy your product.

Giving an example of Patanjali Beverages, ID Fresh and Bira, he added, "An average consumer in India eats dal and rice. But launching a new dal or rice brand is like entering into a commodity trading game with no value addition."

The Risk Factor

As against the popular notion the capital is not chasing startups in these spaces, Kahn opines money is not an eliminating factor in the sector.

On asking him between food and agri where he places his highest bets, Kahn promptly replied, "I think agriculture could be bigger but higher risk. I think food might have a higher return, you might just make 3-5x but the risk is lower. I would put money in both. For us, it is about balancing our own portfolio. We don't want an entirely upstream or downstream."

Exits

The ecosystem believes exits in this sector will come through corporate acquisition and that's how food businesses are built. And Kahn couldn't agree less.

"If we compare India to any other geography, the scale of food company is generally much smaller. Yes, we have the Dabur, Nestle and Lever, but they are relatively small compared to the size of the economy," he said while adding that, "I think you are going to see a new generation of food businesses in the next few years. I also believe, food businesses are always built via acquisition."

Quoting the industry's poorly kept secret that Tatas were keen to acquire Hector Beverages (Paper Boat), he asserted that, "I think that willingness is there. I think Epigamia will probably get bought by a very large dairy company that wants an INR 100 crore brand that's got crazy levels of customer addiction/ engagements."

(Interview by Ritu Marya and Writing by Vanita D'souza)