2 trends to watch in $1.6bn agri-fintech startup investment scene

Niall Haughey is the co-founder of Graze, an agri-fintech studio dedicated to developing digital financial services for the food and agriculture sector. He started writing the Agri Fintech newsletter in 2021 to highlight innovative projects globally and share stories from founders. Prior to this Haughey was a consultant for the financial services industry in London, set up and ran a payments business in the UK and Ireland, and worked across Africa developing agricultural finance products for inputs, grain warehouse receipts, and equipment.

Haughey recently released a new report that revealed $1.6 billion of investment in agri-fintech startups in 2021 across 93 deals, representing 138% year-over-year growth in deal activity. Here he digs into two more trends from the research.

My recent report Agri Fintech in Numbers brought two noteworthy trends to light for me.

Investment in Europe by deal activity and dollars appears quite low, especially when you consider the total amount invested in fintech in the region. And, directly south, investment in African agri fintech models has become feverish, with an overdue recognition that agriculture, technology and finance all play a mutually beneficial role in solving some of the market’s challenges.

European investment is low, is that an opportunity?

European Agri Fintech raised $124 million in 2021, just 8% of the total funds raised in the data collected. This number actually shrinks when you strip out Wefarm ($11m) and Pula ($6m) who are operating in sub-Saharan Africa but domiciled in the UK and Switzerland respectively. However, European fintech as a whole raised approximately $30 billion, or 23% of the global total of $131 billion. Is it possible that agri fintech in Europe won’t be a ‘thing’?

Firstly, let’s consider where the general fintech investment has gone in Europe. Neobanks have been a popular recipient of funds with N26 ($900m), Monzo ($500m) and Revolut ($800m) raising astronomical amounts of investment. Klarna raised $1.6billion across two rounds, to fuel its Buy Now Pay Later (BNPL) proposition, which was another popular theme.

I don’t expect a similar surge in investment into agriculture neobanks but Oxbury Bank is one example in the food and agri sector that has raised $21 million in 2021, offering a banking model in UK markets and a tech proposition in others – that’s very neobank. Tarfin, which may be classed as a neo-lender, also raised an $8 million Series A to expand its credit footprint, with a recent expansion into Romania, one of the countries with the largest funding gap in agricultural finance, according to Fi-Compass, a European research platform.

As for BNPL, Agro.Club has taken an opportunistic approach by already launching financial products in several markets including the US, Spain and currently has an appetite to launch in Brazil, according to this AFN article. I think the agriculture version of ‘BNPL’ will be ‘Buy Now Pay Seasonally’, with amended repayment terms beyond the typical three to four months offered by Klarna, for example, so this will be interesting to watch.

Prioritisation as opposed to underperformance

There have been a few bright lights. HeavyFinance looks like a genuine fintech-first company that senses an opportunity for equipment finance across Europe. It’s readily seizing upon the €12.5 billion opportunity cited by Fi-Compass to fill financing needs and actively launched in markets such as Poland or Portugal where financial gaps are acute. The management team at HeavyFinance are enjoying momentum and have not ruled out entering markets such as Germany or France if the right opportunities arise.

Similarly, companies such as Stable and Concept Dairy in Europe offer opportunities for bespoke risk management products. Personally, the innovation captured in these types of offerings is more important than raising huge rounds – although Stable did that too, raising a credible $46.5 million Series A and $60 million Series B more recently!

An African boom

African investment has had a resounding period. There have been 16 deals in 2021, as many as Europe, with the total funds raised racing ahead to $75 million from just $10 million. This year has refused to slow down with Apollo Agriculture also raising a bumper $40 million Series B in March.

This flourish of activity is welcome for two reasons. Firstly, the emergence of these Agritech platforms has highlighted the opportunities available to investors who are willing to address value chain problems in sub-Saharan markets. Secondly, this changes the script from donor-related investment that has been the only willing investor in this sector for too long.

But what about the African outliers?

In 2021 and recently in 2022, two major rounds have been closed by Twiga Foods and Apollo Agriculture. Will these set the standard for venture rounds on the continent?. I feel there is still a lot of work to do to justify these numbers but that is not to criticise either company, which, of course, know this already.

Firstly, ignoring valuation, the funds raised are on par with other companies such as ProducePay ($43m) or Bushel in the US ($47m). ProducePay targets the fresh produce market – it has “800 customers and has financed the production of more than $3 billion in fresh produce”. This is a huge market and it has already raised institutional debt of $200 million for funding lines. Similarly, Bushel offers a product in the gigantic North American grains market and aim to develop financial functionality around it.

Twiga raised funds to move upstream into integrated production, just last week announcing a $10 million investment, including equity and debt, into commercial farming. This is a reminder to operators and investors that working with small producers is very difficult to scale. Twiga also wishes to expand into five other markets such as Nigeria and Ghana, to expand its B2B offering and perhaps commercial farming is one means of securing supply in a platform market that is becoming competitive.

Apollo Agriculture is a separate example. It has a tightly integrated platform that works with input retailers to extend credit to producers and ha cited product financing as being key to achieving a 10-fold growth in sales. It offering is more unique and it will be interesting to note its expansion plans when they are disclosed – will it be across Africa or will they venture further afield?

Both examples are classic examples of embedded finance agritech style: markets, loans, intelligence, all wrapped in one. I hope the ecosystem secures more investment in the market pull platforms which are offered by Vendease (aimed at restaurants) or AFEX, which targets processors, and also in the transactional infrastructure such as Nile.ag which is streamlining the paperwork.

Incidentally, that is where the fintech investment on the continent went also – infrastructure – with reportedly over $3 billion in VC investment going into building the rails for future commerce around payments, cross-border remittances ,and lending solutions.

In short; developed countries are seeking out niches and working around existing infrastructure and value chains. While in the developing world, it is still all to play for.