Agri – tech startup advice – for founders, from founders

In this episode we deep dive into one of India’s largest industries, which is agriculture, and the associated agri-tech disruption that is underway in India, we discuss the opportunities and the pitfalls in agri-tech, with Thirukumaran Nagarajan, co-founder of Ninjacart, Shashank Kumar, Founder & CEO, DeHaat, Karthik Jayaraman, Co-founder of WayCool and Shobhit, Co-founder of VeGrow. The conversation was moderated by Ankush Goyal, Sanjot Malhi & Taun Davda who look over the investments in the agri-tech sector for Matrix Partners India.

Tarun:

Hello, everyone, and welcome to another episode of Matrix Moments. This is Tarun Davda. And today we plan to do a deep dive into one of India’s largest industries, which is agriculture, and the associated agri-tech disruption that is underway in India. Most of you know we had over $250 million of growth capital that has been invested into agri-tech startups in 2019 alone and most of the recipients of that capital are on this panel. So, thank you so much again to all of you for making it.

Several agri-tech business models have seen a rapid scale up over the last few years in India and this highlights the vast opportunity and further strengthens our thesis on investing in this space.

Joining us for this discussion are founders of some of the top agri-tech startups in India today. I’ll start with Thiru, co-founder and CEO of Ninjacart, which is one of India’s largest tech-driven fresh produce B2B supply chain platforms. Welcome, Thiru.

Karthik, president and co-founder at Waycool, an omni-channel fresh produce distribution platform. Thank you again for joining us, Karthik, we really appreciate it.

Shashank, founder and CEO of Dehat, an online marketplace for farmers. Shashank, thank you once again for making it.

And finally, Shobhit, co-founder of VeGrow, a seed stage agri-tech platform which is focused on aggregating small farmers. Thank you again for joining us, Shobhit. Really, really appreciate all of you taking out the time to do this and for sharing your thoughts with us.

I’ll also introduce my colleagues, Sanjot and Ankush from the Matrix team who oversee our investments in this space. The focus of today’s discussion will be on the opportunities and the pitfalls in agri-tech.

I think I’ve had the opportunity to chat with most of you over the last few weeks and actually learn about how you all are thinking about what’s happening in this space. Some of your comments have really stuck so we’ll try and deep dive into some of those topics as well in this chat today. Look forward to insights from each of you on your journey and your learnings and lastly on the way forward. Obviously there’s been a bunch of regulations in this space, so we look forward to exchanging some thoughts on that as well and how you expect it to play out over the next few years. So with that I’ll hand it over to Sanjot and Ankush, and look forward to taking this panel forward.

Sanjot:

Thanks, Tarun. And welcome again to all the panelists. I’ll quickly go over our outlook on agri-tech in India and honestly it’s not very dissimilar from other folks and what the folks on the panel have.

But it’s very hard to overstate the importance of agriculture as an industry in the Indian economy. It’s been a largely agrarian society for many, many decades and centuries now. Even today it’s one of the few large economies where a large chunk of the GDP actually comes from agriculture, about 15 percent. So almost half a trillion dollars is agricultural GDP and more importantly almost 40 percent or actually more than 40 percent of employment in India comes from agriculture. So not only is it a financially important part of our economy it’s also a very strategically important part of our economy.

Now the issue has been that it’s been largely unchanged and undisrupted for decades and arguably centuries. And what that meant is that India has had an arguably suppressed output, inferior practices to the rest of the world despite being such a strategically important part of our economy. And it’s been riddled with inefficiencies and a broken supply chain which many folks on this panel are actually trying to solve. So then the question is if it hasn’t changed for so many centuries why now? why look at agri-tech as such? And I think the answer is simple, it is the digital India story.

Everyone from the farmer to the distributor to the retailer and the end customer is today connected. So the rails for a digital revolution in agriculture have been set and I think its people like the ones on this panel who are making the most of that and creating business models that are truly unique.

And that’s the other point; I think it’s probably the only large sector where India has had the most innovation even compared to the world. I think the business models that have come out of agri-tech are probably at the forefront of the global economy and they’re unseen anywhere else in the world, there is no Amazon equivalent in the US for agri, there is no Facebook equivalent, they’re actually coming out of India. And that’s why I think we’re very excited in terms of the market opportunity and the exceptional founders and the business model innovation that’s happening in this sector. And speaking of the innovation I’ll hand it over to Ankush.

Ankush:

Great. Thank you, Sanjot. So first of all, Thiru, Karthik, Shashank, Shobhit, it’s great to see all of you together on this platform of Matrix Moments. Really appreciate you guys taking the time out for this. And one of the key things which we wanted to cover today is your journey of building an agri-tech startup and how an upcoming founder could learn from the same.

In my opinion and I know all of you would agree building an agri-tech startup isn’t easy. And I can say this from my own experience as well because I attempted one before joining Matrix.

And just to clarify I’m not saying that building other startup in any other sector is easy but the level of unorganization and best practices being followed in this space throughout the supply chain is also a very different level. What it means is that it takes a lot of resilience and onground efforts in the founders like you to get things off the ground.

So basis your experience what would be your advice to the upcoming founders, what are the challenges that they should expect and any tips or hacks which they can use to shorten the cycle to their PMF. And then just to kick start, Karthik, do you want to take a stab at it?

Karthik:

I think we should bound the problem a little, there are multiple accessories of bounding the problem. You have a product category specialization, you have a channel or end consumer specialization, and you also have a geographic specialization.

We’ve chosen to be geographically focused. There may be others who may be picking either a product category or a channel. It’s very important to bound the problem because these are multiple hundred supply chains that we’re talking about and therefore it’s not one size fits all. And to get a better PMF and to use money more effectively some access needs to be bound.

Ankush:

Fair enough. I think very well said. Yeah, very well said, I think we need to reduce the number of variables there should be, otherwise there are too many variables to deal with. Thiru, what would you add to this, any other point you would like to add?

Thiru:

Hey, thanks. Actually so if I had to add to it as Karthik said very interestingly like we never had this much of understanding when we started with primarily on bounding the problem.

We went initially everywhere like so for example just to add to our experience we initially were like serving a local kirana store, serving a restaurant, serving a big chain of hotels, serving everyone, right. So then finally we figured out that serving every customer segment needed a very special supply chain by itself and we figured out like very early in those days we were all over the place.

Then we had to take a very difficult call of cutting down 40-50 percent of our demand at that time and we grew by 50 percent to actually decide on one supply chain and say okay, this is the only thing I’m going to do. And before I excel a practice I’m not going to look at any other thing. So that helped us a lot actually to scale it’s what we felt so let’s say for example like as Karthik was saying that we’re geographically bound. We’re actually – we say we’re customer segment bound in the sense our local kirana stores what are the value proposition that we could offer we went ahead and started building our supply chain to offer that, and whoever was okay with that value proposition we were able to sell that.

But let’s say if someone comes and says I want to have “this” and then we said no, sorry, we can’t build that for you. I felt there are two different types of supply chains, one is a high margin customizable supply chain, the other is like a low margin standard supply chain. Let’s say we believe that vegetables though people say that it’s a very high margin business but the value per kilogram of vegetable is so low so even you make very high margin it doesn’t matter.

To give you an example, right, onion is Rs. 10 for example and let’s say even if you get 40 percent margin out of it it’s Rs. 4, so it doesn’t – so per kilo I make only Rs. 4. So even if I had to transport it all the way from x to y it doesn’t make sense. So in this business we felt that absolute margin is what matters and let’s say absolute margin per kilogram is what matters and not really the actual let’s say the gross margin per sales value. So that is one of the key learnings that we got and once we got that then we said okay, I have to decide whether I’m going in the past market where I’m not going to customize a supply chain or I’m going to move to a niche market or a premium market whose going to pay a premium for some of the value added things that I’m going to do.

To give an example, some hotels came back and said hey, I want the cauliflower to be clin wrapped or I want the leaves or roots to be cut. We were initially doing it and so for each customer there will be a customization that will come and we’re okay to do that. But then as we scaled, we figured out we’re not able to scale because of this particular reason. Then we said, okay, nothing doing, so let’s focus on one supply chain and this is the value proposition I’m going to offer.

Anyone who is ready to buy this let’s go and crack that otherwise let’s not. I could actually relate to what Karthik said but we didn’t have the early wisdom to do that, but we actually learnt it by doing it the hard way.

So if someone is coming up and saying – initially as an entrepreneur you feel like conquering the world is easy. This problem, oh, that also I have a solution, that problem, oh, I have a solution for that. This also I can solve. Like when you’re small every problem is solvable, right, in a smaller scale solving every problem is possible also. You’re a group of ten people who can work at 20 hours a day and keep pulling it off but let’s say if you had to do that across 200 people, 1000 people, it’s literally not possible, there are definitely constraints. So scale teaches you that, with experience many people learn that but when we did we didn’t have that so we learnt it the hard way

Ankush:

Shobhit, I could see the smile on your face when Thiru said when you’re young you think that you can solve all the problems. So I’ll come to that but before coming to that, Shashank, would you mind sharing your point of view given that you have been in this space for the longest I think if I’m not wrong. You started Farms and Farmers in 2012 then it’s been a long journey and a long grind for sure. What’s your take on the challenges and the key sort of watch outs for the upcoming founders?

Shashank:

Yeah, so I think in our case the trigger point was somehow in my case I was doing consulting in supply chain so I had some exposure of one end of the food chain because I had got chance to work with mainly retail chain and FMCG players.

I initially come from rural background so anyways always I had exposure of the other end of food chain which was the farmer’s side. So somehow I could not understand the gap between the value chain and that was the trigger point. But I totally resonate with what Thiru and Karthik said that like for example I still remember in our case the first thought was that hey, it’s very simple, I mean let’s go to the village, let’s aggregate different produce and we’ll sell it to the bigger market, it was as simple as that.

I think we were fortunate that we could go to ground zero. I think I strongly believe that I think that was one of the most fortunate moments or decision that the day, the moment, we decided to get into it. The very next day we saw ourselves in some village of Bihar, and I think that changed the whole perspective then I think very soon we realized that of course there’s market linkage but that’s not the only problem.

I mean to any individual farmer in India their actual problem begins in the beginning of season itself because if you’re planning to aggregate any vegetable or rice then you will realize that in same village ten different farmers are growing six different varieties of same crop and following five other different agricultural practices, how you will aggregate – and that’s how our journey started.

I always say that in case of DeHaat the journey has been bottoms up with respect to time how things evolved I will say still it has been evolving. But, yes, the problem statement what we’re trying to solve now at DeHaat is that any individual farmer in India, they have multiple agricultural requirements and for all these multiple agricultural requirements they have to rely upon different people. The idea is very simple: how can we bring everything under one roof?

But, yeah, the problem or rather louder thought or suggestion again is it’s nothing right and wrong, you all would agree. For any entrepreneur everything is right, everything is wrong, it’s very subjective. But I always say that to any entrepreneur and all entrepreneurs are ambitious, we have to be, the best part of agri sector is that there are too many things to do. Like that’s the best part and probably I think that could be one of the most common trigger point in case of any agri entrepreneur that there are too many things to do. But I always say that the worst part is the same that there are too many things to do. So we always get confused that, we always get aspired that alright, let’s do this, let’s do this too, let’s do this also. And it looks like they can do everything but of course that’s not the case. So having a strong focus I think that’s very important, maybe what Karthik said that focus on category, focus on geography. For example in our case I remember we focused on one geography, right, I felt like in our case the overall approach is service agnostic, we worked with input, output, advisory, everything but we remained focused to one geography.

Going forward we started replicating. I think that focus again that’s based on my experience I believe that that’s important.

The second and I think another important learning or the skill we could develop is the patience. You’re talking about a sector where your so-called TAT is 4-5 months, right, because that’s the average crop cycle. Whatever model you have whether you’re working on input or financing or tech or aggregation you have to go through the same cropping cycle of 4-5 months. If something goes wrong and that’s not completely your fault but you’ll probably have to wait for another season. So I think the patience is something which is very much needed in this space

Ankush:

I think that’s really helpful. So, Shobhit, moving on to you and I’ve a slightly different question for you given that you just started, how did you go about – and first of all I think you should also talk about what’s your interpretation of all the good advice you’re getting from the other panelists.

That is one and second is how did you go about finding the opportunity given that all these have entered in the space already. How did you sort of go about that this is the specific niche I want to play in as Karthik spoke about geography cut, products cut, customer segment cut, which cut did you go after and why is Vegrow different from all the players that are out there in the market?

Shobhit:

Thanks, Ankush. So first of all as you said, right, I think we’re still very, very early stage and a lot of insights are actually inputs for us as well but I think fortunately the founders had I would say decent exposure in the agri value chain in our job and in our careers in the past.

So we’re from ITC Agri and that kind of really gives you a good opportunity to work on the ground and we kind of manage a lot of crops, we build a lot of supply chains and I think I did a very similar mistake when I was at ITC - I remember in my first, second year where as engineers, and I’m an engineer, so as engineers it’s really a formula that works in the end. A plus B will give you C and you try to kind of put that equation and work out in the farm. But as everyone said in agri they’re so different, the psyche of farmer comes into the picture, there’s so much of subjectivity involved, it’s not always very objective.

That kind of trains and teaches you that you need to really trim down and focus and I think somewhere I got that experience a little bit I would say at farming at ITC and then I was in sales so I got the same experience in the marketplace itself.

So I totally aligned on that and I think we’ve been very cautious about it, I’m not sure we’ve done the best job, I think time will show that, and I think we’ve been very cautious on trimming down our scope.

For instance currently there are two types of – they did scope down in two different ways. One, we really scoped down in the place in the value chain we play a role. So for instance the two decisions that we’ve made, one is that we will not be a big portfolio company. So we will always trim down our products, so we will not have 200 SQs ever and we’ll always work in few SQs. So what it does typically for us is we can never play in the field where some of the biggies in this industry are playing. We can never sell to end consumers because they want the portfolio, we can never play in the end retail or end pushcart segment because all of them want a portfolio and I cannot deliver.

But what we realized is if you take one product itself there’s a lot of opportunities if you get into it. For instance, as a farmer if I think – if I’m a farmer and growing a product, say pomegranate or apples or anything, and if I have to really make money out of it I really need to do two things. The first thing is I really connect to the best marketplace possible. And you have to understand that as a farmer obviously organized space is probably 20-30 percent of what I grow but I really sell a bulk of it even today to these super unorganized tier 2 or 3 markets and I actually depend on many people there. So as a farmer if I think how do I actually understand the different marketplaces for everything that I grow and how I maximize my profit. So that’s a key piece and that’s where I believe we play slightly different to many other players.

Then we’re trying to organize different types of marketplaces in the market for a given product. And that works because we’re working with demand aggregators, right, there are big players who we’re already working with and there are also lot of small individual players historically working whom we support. So that’s where we play a role. It’s very different to I would say the role that is being played by many biggies.

The second thing is as a farmer if I think again the mindset is that I’m a farmer I need to know that I need to make my farming more profitable and simple and it’s too complex for me in my mind that there’s the weather, then there’s some credit that I have to get from someone else, there’s thousands of input companies coming and telling my product is better, I depend on someone, agronomy things are changing, someone comes – you know, it’s so complex for me in my mind. So if I think myself as a farmer there are a lot of things that I can actually support myself with which is first is obviously the marketplace but there’s also a lot of other services like agronomy in terms of the best practices, in terms of credit financing inputs and long term obviously customer’s mechanization and things like that.

I think that’s the role we play and typically what we see ourselves as, rather than competing with some of the big players I think we are a very good synergistic partner because in reality getting backward integration and contract farming for 200 SQs is very difficult. And we all spoke about scoping so obviously there will be two or three lines that people can work on but we kind of do not work on the core big products like a potato and a tomato per se.

We have said that that’s something which big players will always work and we can’t enter how about the balance of the products and therein when we come in we work as a farmer and we can now work with multiple organized players and also semi organized and that’s where our scope is. So I think some way we do not compete with existing big players, I think we have a different role to play and that’s what we felt a lot of opportunities also there because underutilization is significant. And that might help us in unit economics and things like that which is very important in an agri sector. When you look at unit economics you look together with scaling so that’s very important.

Ankush:

Got it. I think fair enough, so you’re saying there’s an additional cut which is where in the supply chain are you playing. You’re playing more towards the farm side whereas the other players are playing more towards the customer side. Is it a correct understanding?

Shobhit:

Correct, correct.

Ankush:

We’d love to hear from Karthik and Thiru if in case they are buy this argument of another cut which is where do you play in the supply chain and do you agree with the end scape vision of the supply chain which Shobhit described or do you have any other thoughts?

Karthik:

I can chip in. I think I completely agree, in fact that’s an axis I missed out and it’s a very, very valid point and that we have to pick which part of that supply chain we need to operate in. And it doesn’t stop there, it’s also extending into how we can collaborate for making sure the full loop is addressed.

So we have in the last year started working with many of our fellow startups in helping the farmer with inputs and advisory rather than doing everything ourselves. We’re working with the small startup that does soil health testing for example for the farmers. We work with another that does optical grading of produce and so on. So it doesn’t make sense for us to introduce soil health as a feature or lending as a feature equivalent. It doesn’t make sense for us to do that, I think what we’re doing is hard enough as it is therefore completely agree that we should pick which part of the supply chain we choose to operate. We choose to operate in the demand connection piece, we do have extensions in the back but we orchestrate that rather than operate the extensions such as going into inputs.

Tarun:

Sincerely thank you everybody, this has been excellent actually big learning for all of us I guess with some of the points you have made and also for all the young founders who are watching this. So thank you once again, really, really appreciate it.