“We are at the start of an agrifood tech revolution in Africa and many legacy business models will be disrupted over time.”
So says Gerhard Visagie, co-founder of AgVentures, a South African investment company which backs early-stage tech-enabled businesses with the potential to transform Africa’s agriculture and food industry. AgVentures recently raised an anchor investment of R100 million (about $5.4 million) from Acorn Agri & Food and also announced its first investment.
How we made it in Africa interviewed Visagie to find out more about the firm’s investment strategy and the opportunities he sees in the agri-tech industry.
Give us the backstory to the launch of AgVentures.
AgVentures is owned by its management and by South African agrifood corporate Acorn Agri & Food. Acorn Agri & Food was founded by Acorn Private Equity which I joined in 2010. In 2018, my colleague Michael Prinsloo and I surveyed the landscape and realised the agriculture and food industry is going through a transformation. The pace of innovation within the sector was increasing rapidly and many attractive agrifood tech opportunities were coming across our table.
We founded AgVentures later that year and since March this year, we are driving AgVentures on a full time basis.
How is AgVentures structured?
AgVentures is structured as a South African company. We wanted to keep the structure simple to eliminate operational inefficiencies and to keep our overhead costs as low as possible.
We wanted to avoid spending a lot of time initially fundraising, which can take anything from 12 to 36 months before you can start deploying capital. We have so many opportunities on the table that we couldn’t afford to wait that long. Acorn Agri & Food made a R100 million commitment which allowed us to execute our strategy. Once we are about 80% invested we will definitely consider raising additional capital from third parties.
Another benefit of our structure is that we have permanent capital. In general I’m not very fond of the private equity fund model because it forces you to sell great companies within five to seven years, even if their growth prospects are still very attractive. If you look at the best investors in the world, they often had one or two really big winners, which they held for a very long time. Take for instance Warren Buffet with Coca-Cola and Geico or PSG with Capitec. A permanent capital structure also reduces unnecessary pressure on management teams to achieve results in a very short space of time.
In what type of companies are you looking to invest?
We invest in early-stage agri and food technology companies with the ability to transform the sector in Africa. Our definition of early-stage is: the technology has to be developed, proof of concept needs to be established, and the business must already generate revenues because that tells us the technology is addressing a real customer need.
The deal sizes we look at is about R5 million ($269,000) to R40 million ($2.2 million). But as it goes in investing, your deal size often changes as your fund size grows because at some stage you can’t only look at return on investment, you also have to consider your return on effort. On a R5 million transaction you often spend just as much time, if not more, as on a R40 million investment.
We wish to partner with and support entrepreneurs and are therefore comfortable to obtain a minority stake.
In a recent statement, AgVentures said it invests in agrifood technologies in South Africa, Kenya and Israel. Why specifically these three countries?
Africa has tremendous agricultural potential. However, much of this potential remains unlocked. In the same way that mobile money has given millions of Africans access to financial services, we believe technology can open up the agricultural sector. Our strategy is to invest part of our capital on the African continent – in South Africa and Kenya – and then another part of our capital in Israel. The goal is to find the most innovative and disruptive technologies in these regions and then apply them first in our network in South Africa, before assisting these companies to roll out into the rest of Africa.
South Africa has a very strong commercial farming sector and is the gateway to southern Africa. Kenya, on the other hand, is the gateway to East Africa and home to many agri-tech companies. Kenya is a hotspot for technologies aimed at small-scale farmers. South African and Kenya are also two of the safer African countries to invest in from a macro-economic and regulatory perspective.
Israel is an agrifood technology powerhouse. It’s an extremely innovative country. They have developed so many disruptive technologies in various industries, including agriculture and food. Because Israel has such a small domestic economy, companies there are heavily geared towards doing business internationally.
AgVentures has already made its first investment in an Israeli agri-tech company called FruitSpec, which has developed patented technology to provide early crop yield estimates to fruit farmers. Most of the critical business decisions of fruit farmers are based on an estimation of what the size of their harvest is going to be. It impacts everything from the number of labourers they should contract, to the volume of packaging material they should procure and the packhouse capacity required. Ideally farmers also want to give their clients in Europe an indication of how many tonnes of fruit they will have available.
Currently, the methods for estimating the size of the fruit and crop yield are very rudimentary. The first measure is to send labourers into the field to count the number of fruit on a few trees, and to then extrapolate this number over thousands of trees. The second method is for the farm manager to use his gut and experience to make a guesstimate of what he thinks the crop size is going to be.
What FruitSpec does, is they drive through approximately 20% of the orchards with hyperspectral cameras. With the help of machine vision algorithms, the technology can identify and count green fruit when it is only a few centimetres big. Artificial intelligence is then employed to predict the crop size as well as the size distribution of the fruit at time of harvest – usually four to six months into the future. FruitSpec’s accuracy is more than 95% compared to current methods which are anything between 40% and 70% accurate.
Together with our investment, AgVentures also obtained the exclusive distribution rights for the FruitSpec technology in Africa. We are in the process of rolling out FruitSpec in South Africa, and once we have bedded that down, we will take it to Egypt and Morocco, which are also two significant fruit-producing countries.
What types of technologies within the agri-tech space are you most enthusiastic about?
A while ago McKinsey came out with a report that identified agriculture as the least digitised industry in the world. Currently, we are at the start of an agricultural revolution driven by technology.
At the moment our investment focus is fairly broad and includes farm management software, biotechnology such as seed companies, robotics and drones, smart irrigation technology and sustainable packaging, to name a few.
Another area we are particularly enthusiastic about is digital platforms. A platform basically creates value by connecting different participants in a network. They don’t provide a product or service themselves, they just create connectivity. An example is Amazon which connects the supplies of products to consumers. We see a lot of opportunity for these digital platform type companies to disrupt existing business models in agriculture. For instance, a platform could connect suppliers of agricultural inputs to farmers; farmers to finance; farmers to customers; or farmers to each other to exchange information. Currently, there are a lot of intermediaries in agriculture, even though they provide limited value.
What’s also attractive about digital platform business models is the potential for exponential growth. We are used to linear growth – something growing 10% to 15% per annum. But with platform companies, you can go from 1% to 10% to 100% to 1,000% growth rates.
AgVentures is currently evaluating numerous innovative agrifood technologies with exponential growth potential and the ability to transform the African agrifood sector.
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