Episode 60 / April 12, 2020
Omnivore Ventures: Understanding Agritech From Mark Kahn’s Lens
Mark started Omnivore, an impact Venture Fund focused around Agritech back in 2010. Omnivore has so far invested in over 57 startups which are based on multiple verticals such as – B2B, B2C, Fresh-to-home & Rural Fintech.
Some of his Portfolio Companies are – Bijak, Stellapps, and DeHaat. In this podcast, Mark shares his experiences & learnings of investing in Agritech Startups in India over the last decade.
00:40 – Omnivore’s Background
03:06 – Why was Agritech chosen at the focus at Omnivore?
05:50 – Investing in Stellapps full-stack dairy digitization
08:18 – Portfolio Company – Intello Labs building fresh produce quality system using AI & ML
09:47 – Impacting Indian farmers – Lowering cost, increasing profitability, insurance, better techniques
13:55 – Co-investing with other Indian Venture Capital firms
17:13 – Various verticals in Agritech – B2B, B2C, Rural Fintech, Fresh-to-home
21:12 – Challenges while investing in Agritech – Incubation period of the investment, Connecting with farmers, Finding the right opportunities
24:40 – How is Omnivore creating a difference in Agritech in India?
31:28 – Impact of Covid-19 on Agritech
Read the full transcript here:
Today we have with us Mark Kahn, founder of Omnivore. Mark, we love to listen to you on how Omnivore got founded. And how is it different from other VC funds?
Sure, it’s an honor and a privilege to be on the podcast. I’m a big fan. Omnivore has been around since 2011. We are India’s first Agritech focused venture fund. The story behind Omnivore is, it’s kind of related to my story and the story of my co-founder, the other Managing Partner Jinesh Shah. So I come from the agribusiness industry, I’ve worked in it my whole career. I don’t come from a traditional VC or investing background. And in 2000 when I got into grad school, I worked for Syngenta, one of the largest Agri inputs companies in the world. In 2007, I moved to India to be the Executive Vice President for strategy and business development at Godrej Agrovet, the agribusiness arm of the Godrej group. And I was at Agrovet from 2007 until 2013. While I was at Agrovet, I started getting interested in Agritech startups. In India, there were not many at the time, but I started seeing an interesting pipeline developing. This is in 2010 and so in 2011, I got together with Jinesh Shah. Jinesh was the CFO at Nexus venture partners, and we launched Omnivore as India’s first Agritech focused venture fund, went out and raised money from LPs, raised a 260 crore fund across 2012 and 2013 and proceeded to invest that fund in 13 startups, came back to raise our second fund in 2017 and raised a 675 crore fund across 2017 and 18. So that’s what we’re investing out of now when we’ve made 10 investments in that fund so far.
Great Mark. On the background of Omnivore, you could have done agriculture with some other verticals also, why only agriculture?
So to be clear, we like to use the term Agritech, because, we’re definitely not investing in farms or in sort of traditional enterprises. When we see agriculture in India, we see core agriculture, allied related financing, the risk management, the insurances, all of the food processing and when you add that all up, it winds up being about 25% of the Indian economy. So we always like to say it, I’ll move forward investing in about 25% of the Indian economy. And we’re investing about 50% of the Indian population that lives on the farm. So in practice, it is huge I don’t need to do Agri plus something else because we’re talking about huge numbers of people and a massive part of what is India and startups and new technologies and solutions for all of that. So, we look at Farm to Fork, we look at everything that surrounds agriculture, innovative food, and the rural economy. In practice, we have never struggled with the deal flow or pipeline. We’ve always seen great entrepreneurs and we’ve always been deluged with opportunities to look at. So, I am very happy with our focus. I think the other thing that’s probably worth saying is that I think generalist funds are wonderful, we co-invest with many generalist funds, I think as a sectoral fund, what we are able to build is serious subject matter expertise, and we have built a team of people that come from this sector that is able to add disproportionate value to startups that we’re working with. So for example, one of our Venture Partners in Bangalore is S Nagarajan. Naga used to run Mother Dairy. So if you look at the Omnivore team, what we have curated the people that we’ve pulled together, are all experts in agriculture, agribusiness, rural development, I think we choose really great startups and I think we’re able to really help the startups that we work with.
Can you elaborate more on the investment you have made in all the companies and maybe the thesis behind a few of your companies?
Sure. So, one of our better-known investments is Stellapps. That was an investment we made in 2013. It was a really strong team, five senior folks at Wipro had come together and had decided to build the first very focused startup in India, dairy technology-focused startup and their logic were very simple. Dairy is 4% of India’s GDP. Right? It’s a huge part of the economy. India is the world’s largest producer. There was very little technology adoption in the dairy industry. And so Stellapps went at the process of building an application layer across dairy using IoT and It’s been a great journey, the company now has billions of dollars of milk flowing through the network of digitized collection centers that they’ve built. They’ve been able to provide financial services and market linkages to those farmers, they’re able to drive transparency and quality and food safety and traceability. That’s just one portfolio company of ours, but it’s emblematic of where we saw an incredible opportunity to deploy technology in a space that had never seen the application of technology before. And that’s a lot of what we see in Agritech because these startups are leveraging AI, machine learning, leveraging IoT leveraging big data, leveraging awesome synthetic biology and applying them to parts of the agriculture and food.
The end customer in most of the Agritech startup is the farmer or the consumer, in some cases, the distributors or the retailer. Am I right?
I mean, it really depends. You see many startups that we would characterize as Agritech startups that are B2B. Right. So a terrific example of that is one of our portfolio companies, Intello Labs. Intello Labs is building the world’s largest fresh produce quality system. They’re essentially using AI and ML to develop a digital quality standard in fruits and vegetables. Most of their customers are large retailers or food processing companies or food service companies, and so on. So Agritech is about farmers but it’s about much more than farmers. It’s about the entire food system that we see all around us. You definitely have many startups that are focused on farmers. You know, one of our better-known ones is DeHaat. DeHaat has more than three lakh farmers on a platform in eastern India, in Bihar UP, Jharkhand and Odisha and they are engaging with those farmers and helping them to access better inputs and sell at higher prices and secure lower-cost finance all coupled with foreign advisory. But I think it varies. You see B2B, you see BtoF, you see business to Farmer you see b2b to F. Some startups that reach huge numbers of farmers but do so by selling to other businesses that benefit them to access to those farmers. So the business models vary dramatically.
What has changed in the life of the farmers since Omnivore has debuted in 2011?
So I think the farmers that have worked with our portfolio companies have been able to really transform the profitability of their farms. At Omnivore, we have a theory of change that governs what we invest in, we always look for one of three things and every startup that we invest in, they should be either improving farm profitability, which is very different from farm productivity or farm yield. We’re always looking at the bottom line of the farmer as if they have an income statement for their farm. So you can improve their profitability by increasing the price that they sell out by lowering their costs, by lowering their costs to finance. Many different ways by raising their yields. We look at startups that are increasing agricultural sustainability. And finally, we look at startups that are boosting the resilience of farmers whether it’s stronger market linkages that take the risk out of farming or insurance or FinTech, we look across all of these spaces and when we see what’s happened to farmers that have engaged with our portfolio companies, we’re able to see this improvement in profitability, resilience, and sustainability. A typical farmer that works with DeHaat, of the three lakh farmers they have on their network right now. They are buying their inputs substantially cheaper than if they were buying them from a local RPF and a local dealer. They are able to access low-cost finance that allows them to move away from a village moneylender. And they are selling their farm produce at higher prices than if they were selling in their local Mandi. And also they’re increasing the profitability of the farmers on the network anywhere from 50 to 100%. So that’s a good example of an Omnivore portfolio company that is driving farmers’ profitability in a huge way. I can give you other examples but that’s a good one that helps clarify.
Do you also work with the Indian government because a lot of agriculture initiatives are taken by the government?
We do frequently work with the government. We certainly stay in close touch with them. We’ve done work with Niti Aayog in the past. We’re very active in FICCI and CII which engages from a policy perspective with the government or we’re in touch with many state governments. So, yes, we do have to stay kind of close in tune with what the government is doing an agriculture arm, but you also have to appreciate that the Indian government is not active in all aspects of agriculture they are primarily active in grains much more so than horticulture. They are active in fertilizer and sugar and then when you move away from that and you move towards, horticulture, livestock, aquaculture there are many spaces that I don’t want to say they ignore but they are much less actively engaged.
A lot of big names are now investing in Agritech, including Tiger Global and Blume. What is the thesis behind the shift?
I’ve seen this shift in a huge way in the last few years. We’ve done two deals with Blume and we’re doing a third right now, we’ve done deals with Sequoia, Accel, with Nexus, with Kalari. There definitely has been a shift. There’s the joke and then there’s the actual point. I joke that Indian VCs have rediscovered their own country over the last few years and recognize that there is more to startups than just serving the needs of the top 25% of urban Indians. I think more seriously, in 2015 and 16, there was a point of exhaustion that was reached In B2C startup investing. People made multiple overlapping that’s in restaurant platforms, food, delivery, eCommerce, all of these, these spaces began to get a bit saturated. And if you see what happened at that time, all of a sudden, you saw the birth of B2B focused SME startups, players like Udaan, Jumbotail, and others. And I think Indian because of that pivot, forget about the pivot of startups, but the pivot of VCs not just looking at B2C also looking more seriously at B2B and specifically B2B focused on SMEs, opened up the eyes of the venture community to the fact that hey guess what, a quarter of the Indian economy is related to agriculture, right, much more than just the stated number which reflects primary agriculture. There’s a huge amount of agribusiness that happens around that. And, millions of entrepreneurs are part of that system. And I think VCs, from that point onwards, became quite interested in the opportunity in Agri. I think for some, it’s taken longer than others. Accel has been by far the most active in the space but I think other VCs began to catch on and now I won’t say that Agritech is mainstream. But it’s certainly something that almost every venture fund in India is trying to figure out and is looking at deals coming from the sector.
From the outset, it looks very attractive to be an Agritech. So for most of our listeners, tech seems to be most related to farmers. Can you describe in your definition, what actually is Agri tech and the various stake players in Agritech?
Sure. So, it’s gonna sound like the beginning of a long rant but we talk about nine core themes that we see as defining Agritech. And I’m going to kind of summarize them. So there are four of them that have seen the most amount of investment over the course of the last five years. And those are farmer platforms, B2B, Agri marketplaces, Rural, FinTech, and farm to consumer brands. When we say farmer platforms, we’re talking about things like DeHaat or Agrostar, when we’re talking about B2B Agri marketplaces, we’re thinking of things like, like Ninjacart, Farmley. When we’re talking about rural FinTech, we mean things like Gramcover. And when we’re talking about farm to consumer brands, it could be things that are more FMCG oriented, like YCook. So, those are the biggest themes in Agritech in terms of where funding has gone, and you can understand how those themes fit well into generalist VC thesis. Farmer platforms are or what they sound like their platforms, they access farmers directly and they help them buy inputs, support their sale of outputs, provide advisory, provide finance B2B Agri marketplaces right? Our marketplaces just like any other and that’s a theme that generalist VCs have done in a major way in the last few years farm to consumer brands, obviously a farmer is producing, but ultimately they are consumer brands, Licious is consumer brand, FreshToHome is a consumer brand, Country Delight is a consumer brand, YCook is a consumer brand. So all of those are more like consumer startups. They just have that strong Agri back end. And rural FinTech is probably the hottest theme of the last two years. So those are the four biggest themes that we’ve invested and the others have invested behind. Then there’s a sort of a deep tech theme that cuts across the agribusiness, SaaS that cuts across post-harvest, technologies that cut across precision agriculture and there you see investments like TartanSense that was a deal that was done by Omnivore, Blume, and BeeNext and they’re making very low-cost farm robots to do automatic spraying for weed control in cotton. You see startups like Fasal that are all in farm sensors that help horticulture farmers manage their farms, you see platforms like Intel labs and AgNext that are focused on post-harvest digital quality, Stellapps would fall into that bucket. So there’s a big deep tech theme that cuts across a couple of different areas. And I think the final area is around biotech and innovative foods, and that’s probably the least explored part of this ecosystem. It’s the most nascent but it’s one that we hope to see a lot of pipeline coming from in the next few years.
Everybody talks about, you know, the market size in Agritech, which is larger than eCommerce has ever had. And what are the challenges of investing in Agritech startups? what is the incubation periods? Is it longer than normal tech businesses or eCommerce businesses? And what are the challenges your portfolio companies face on grounds closely working with the various stakeholders?
So, I think it depends whether you’re a B2B oriented or a Business to Farmer oriented or BtoF as we like to say, oriented startup. So if you are BtoF, if you are directly engaging with farmers, right, you have to overcome the challenge of the fact that a lot of farmers are not very wealthy. Obviously, it’s important to understand in Agritech that farmers can be segmented just like any group of consumers and the same way that most urban, B2C startups didn’t focus on the urban poor, right? They focused initially on the top 10%, on the top 20% of them into the middle class. Agritech startups are usually focused on the top 20% of Indian farmers that own about half of the land in the country, and are more progressive and have a surplus in common and can invest. But anytime you’re doing direct to Farmer engagement, you have to figure out you know, how you’re going to do that? Is it purely digital engagement? Are you going to have to have an on-the-ground component, and most people have to have it on the ground component. So figuring out how to scale that in a cost-effective way, is critically important. But it’s also important to figure out how to leverage digital technologies to facilitate that onboarding and lower the cost of it for B2B players. I would say it’s much more Like B2B in any, in any ecosystem, if you’re serving the food processors and food retailers and other players in the value chain, it’s a bit more like what you would see in B2B across sectors. It’s I think, specifically around the issue of farmer engagement, where Agritech is different. And, the models depend on the type of farmer that you’re focused on. If you think about a company like Eruvaka in our portfolio, which focuses on Aquaculture, right, they’re focused on a farmer that is very high income. That that you know, the aquaculture industry is 50,000 farmers producing $5 billion of shrimp exports, those farmers you can have direct interface with those farmers and still make money. When you look at a player like DeHaat, which is engaging with more average farmers in UP, Bihar Odisha and Jharkhand, right? They set up village level centers and have a person on the ground, building out that center. So the farmer could come to them and engage, but they’re using that person to do their engagement. Doing a lot of direct sales from one central point isn’t possible when you’re dealing with so many farmers. So the challenge is really depending on the type of farmer that you want to work with.
One of the points, how is Omnivore helping its portfolio companies to grow and shape the future of agriculture in India. What’s your help besides the capital?
So look, as I’ve mentioned, we’ve built a team of real experts who all have the background in agriculture, agribusiness, food processing, rural development. Examples of that are our venture partners S Nagarajan, Naga as we call him who used to run Mother Dairy, we have Reihem Roy who is our partner in Chennai. He used to be with the UN’s international fund for agricultural development. Abhilash Sethi who joined us recently from Mahindra, where he helped set up their precision farming division. So the omnivore team comes from the space and so when we engage with Agritech startups, first of all, we understand them, we understand their challenges. We understand their business models in a way that generalist VCs take longer to kind of get up that curve. Generalist VCs can add a lot of value to Agritech startups. We think when we work together with them, collectively, we create much more value because we come with that subject matter expertise. We understand who they’re sourcing from, who they’re selling to, and we can help them tremendously with improving their strategies, with a tremendous amount of business development with linking with the right players in the ecosystem, right? I think it’s the same way that many generalist VCs have incredible linkages in the global digital ecosystem. That’s what we bring in the global Agri ecosystem, not just in India, though very strongly in India, but also to the largest Agri companies in the world, the largest food processing companies in the world. And I would say probably, you know, business development is the single largest value that we bring into our portfolio.
So, my wife has spent a few years living in a village and she was born in a village. It’s called Devkali in Shahjahanpur. She has seen farmers suffering heavy losses. So, while we’re doing this podcast she came up with her question to you: Are Agritech farmers or our Agritech startup, basically will make like 300-400% income difference in the lives of Indian farmers or just 10-20% additional increase in their next yield?
I think there is a huge difference. And we’ve seen that as I mentioned in DeHaat, the average farmer is seen 50 to 200% increase in the net income of their farm. So I think that Indian Agritech has the potential to be hugely transformative. The thing that we have to understand is just how terrible the status quo really is. Our average Indian farmer buys low-quality inputs on credit. That credit comes at a very, very, very high cost from a village moneylender. They sell into a regulated Mandi where they are constantly ripped off by Baniyas, traders, right? And they’re essentially stuck in a perpetual loop of poverty. And I think whether it’s a startup like DeHaat that is trying to solve all three of those pieces for a few counter advisory or startups that are just targeting the input side or the output side of the financing side. The status quo is quite bad. And so you have the potential to really increase their incomes by 50% or more. And that’s what we’re trying to do. That’s what the startups that we’re investing in are trying to do.
Mark, have you figured out any mass distribution channel for your startups?
You have to build distribution channels and some exist right there. There are some startups that are targeting traditional distribution channels and some startups are building their own. We invested in Mitra which has now been acquired by Mahindra. They built their own distribution system for selling automatic precision sprayers for Indian horticulture. DeHaat has their different centers hundreds of them across UP, Bihar Odisha and Jharkhand . There are dealers and distributors in the traditional trade, but they’re not great at dealing with innovative products. So most Agritech startups that are looking at doing direct farmer sales. And they probably want to build an innovative channel because the traditional channel struggles with innovative products.
But do you see a startup like, you know, which can become Amazon of the model in terms of distribution performance that can help retail to all the innovative solutions?
Well, I’m working on a deal that’s going to do that right now. So it’s a great question to ask me in a few months.
Great. So you know, coming towards the end of the podcast. Today, we are sitting in March 2020. The situation has completely changed what was looking three months ago, everybody was making their goals and plans for 2020 including, you know, every state of the startup with tough times like COVID-19 when out of India when cities are finding ways to cope up all this agriculture, the backbone of the country riding through these tough times?
So, I would say that agriculture is on a slightly stronger footing than many other spaces. It’s certainly been a difficult week on food supplies have been disrupted. You know, the police have been especially overzealous about maintaining curfew. To be clear. I think they just are doing what they thought they were supposed to do. I think the good news is sitting here later in this week, permits are now being given to allow Food Distribution, food processing to continue unimpeded. And I think Agri as Agri and food as space are being disrupted and struggling like everyone is but also these times of COVID-19 are on a slightly stronger footing. I don’t know if you’ve noticed, but pretty much everyone has had to go food shopping. One of the only things that you can fill out and do and still shop for is food. Farmers are going to continue to farm consumers are going to continue to eat and agriculture is going to continue marching on because it has to or everyone starves. So, as a result, I think Agritech startups over the course of the next year are relatively well-positioned, you know, versus many other sectors to continue growing to find solutions to ensure that Agri value chains continue despite all the adversities and helping people get through this very difficult time.
Mark, you have worked with numerous startups in the last 10 years. If I were to ask you the qualities that differentiate the top two, three entrepreneurs in your portfolio or those even outside your portfolio, from the rest of them because everybody is working with a good intention to add value in the ecosystem today to their customers. What is really special about the top two, three people we have worked with? I won’t ask to name companies as you know, all the portfolio companies are like your children.
I would say the most critical trait that a great startup leader needs is resilience. I think that is a trait that is underappreciated in society in general. We always like people who are clever, and we love people who speak well and are charismatic. But resilience is something that we undervalue. I think the best startup CEOs that I’ve seen are the ones that are the most resilient, the ones that don’t track, the ones that can endure the difficult periods. And I think what’s interesting is, we are now in a resilience test. As a result of COVID-19, funding is becoming more scarce. Business models are being tossed up into the air, and now we’re going to see the difference between resilient and nonresilient CEOs And startup teams. And I think, we’ve been big believers in resilience for some time. It’s one of the qualities we pay the most attention to when we invest in a startup. And we think it’s going to make all the difference in the coming year.
Don’t you think the person with the vision or grandeur makes the one who can attract the most amount of funding and thereby gain a large chunk of attention of the VCs?
I think in general, that approach works very well for the hottest and sexiest sectors. Agritech has never been that. So, it’s never been the sector that people wanted to toss huge amounts of money to. A famous boxer once said, “Everyone has a plan until they get punched in the face.” I think vision is important. I think charisma is important. I think resilience is more important.
Thank you so much, Mark, for sharing your experience and the theses you have built during the last 10 years for Indian agriculture and the startups working in the field to a new level.
It’s a pleasure Siddharth. Thank you for having me.