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Image credit: Agrofy

Amazon for ag? Agrofy closes $23m Series B in LatAm’s largest-ever agtech deal

January 16, 2020

Argentina’s Agrofy has raised $23 million in Series B funding in the largest fundraising effort for a Latin American agtech startup on record. Agrofy is an online agribusiness marketplace matching buyers and sellers of a wide range of agricultural products ranging from machinery and crop inputs to farmland and financial services.

Agrofy’s business model differs from many agribusiness marketplaces deployed in the US that aim to cut out the middlemen, namely agricultural retailers. Instead, Agrofy works with all existing vendors in the supply chain with the aim to digitize their work and make the supply chain more efficient.

SP Ventures, Latin America’s most active agtech investor, led the round, joined by two US-based, agri-foodtech investors making their first investment outside of the US, Acre Venture Partners and Fall Line Capital. Brasil Agro, a farmland investment company focused on acquiring and improving underutilized or non-productive farms, also participated. The new investors join Agrofy’s list of heavyweight existing shareholders: Bunge Ventures, Syngenta Ventures, and two major local agribusinesses Cresud and Lartirigoyen. Agrofy raised $6 million in Series A funding in 2018.

“This round is a very big deal. It proves that the region has the capability of producing global innovations and world-class agtech firms. I compare this to what happened in China when Tencent & Alibaba came of age,” Franciso Jardim from SP Ventures told AFN.

Closing during political turmoil

Agrofy closed the round in December, shortly after Argentina’s presidential election produced a shock result and sent the local currency plummeting 30% in a single day. The currency has not recovered since Alberto Fernández, flanked by ex-President and left-wing Peronist Cristina Fernández de Kirchner as his running mate, dominated the country’s primary vote in August. The new presidential team is expected to undo many of Mauricio Macron’s economic policies that included severe austerity but that many, particularly in the international community, believed would help to get the country’s finances back on track.

To have such an economic and political cataclysm take place in the middle of a fundraise was certainly not ideal for Agrofy and did delay the close a little; but the fact that it still managed to close successfully is a signal of the strength of Agrofy’s wider business opportunity, Agrofy’s founders told AFN.

“Of course it made some noise but our new investors and current shareholders know very well that Agrofy is not only an Argentinian company; we now have a footprint in nine countries in Latin America, and 50% of our revenue comes from outside of the country. Furthermore, macroeconomic instability sometimes helps agribusinesses,” Alejandro Larosa, cofounder and president of Agrofy told AFN.

Fall Line Capital’s Eric O’Brien said there were benefits and drawbacks to the currency drop — Agrofy’s US dollar-denominated funding would now go further in Argentina, while domestic revenues would decline in dollar terms. He also outlined the challenge of managing an investment based miles away, but detailed how he was able to get comfortable with these risks during due diligence.

“Firstly, Agrofy holds its dollars in the US and only draws them down when it needs them so we’re not worried about a $10 million investment turning into $7 million overnight. Secondly, we know the founders very well now; we started due diligence with them seven months ago and have a fantastic rapport with very clear plans on how we will remain in close contact with board meetings held both in Argentina and the US throughout the year and regular phone calls,” he told AFN.

But perhaps even more importantly, O’Brien pointed to Agrofy’s rapid growth outside of Argentina, which he witnessed first-hand during the due diligence process; Agrofy first took in revenue from Brazil in April 2019 and that business grew to nearly 50% of the company’s total revenues by December. This growth highlights the scalability and replicability of Agrofy’s business model in other countries, he added.

“We are excited to make our first investment outside of the US with this impressive team, as we know many of agriculture’s greatest challenges and opportunities are in Latin America” said Alex Bondar, partner at Acre Venture Partners in a statement. “Looking at the unconstrained potential of e-commerce in agriculture and Latin America’s growing importance to the global food system, we view Agrofy’s experienced team and network of partners as the best positioned to enable traditional ag markets with technology,” said Acre’s Bondar.

The Amazon of ag?

Agrofy currently lists over 200,000 different products from 10,000 merchants representing 95% of agricultural products in Argentina across 17 categories. The company also has 500,000 farmer members and 5 million visitors to its site each month. One of the key ways Agrofy has built this audience is via its news site AgrofyNews.

Machinery is the most active category so far — buying and selling used machinery and parts through online listings is not necessarily anything new — but over the longer term, the team and its investors are excited by the potential for other categories to build out the business further, including agricultural inputs.

“It’s a hard concept to grasp, but since Agrofy has great developers and the right number of bodies to cover all of these many different products, they can really boil the ocean; once they’ve put in the work to offer all categories of agriculture products in one country, they can easily do the same elsewhere and at some point it becomes the Amazon for agriculture,” said O’Brien. “Today, no matter what I need to buy, I go to Amazon first because they have that depth of products; Agrofy could have that same level of coverage for the agriculture space.”

Currently, Agrofy’s revenues are based on the membership fees it charges vendors to list their products on the platform, but part of this new funding round will go towards introducing transaction-based fees as well, which the founders believe could be worth $50 million in the first year.

The company will also expand to Mexico in 2020, its first location outside of South America, and grow its team from 200 to 300 overall, increasing the number of offices it has globally from 10 currently. Agrofy’s founders said they were eyeing other regions in the future and O’Brien indicated particular interest and excitement about expanding into the US and Europe, particularly with Agrofy’s differentiated business model to other venture-backed online agribusiness marketplaces out there.

“This is not a situation where a startup wants to eliminate the middleman, but one that preserves the relationships growers have with their retailers to make the supply chain more efficient. These retailers provide an enormous amount of value, particularly when it comes to the logistics of getting products to farmers over large distances; logistics that manufacturers do not want to get involved in. While at the same time, Agrofy is helping those manufacturers with their digital marketing efforts, sometimes through separate consulting services,” said O’Brien. “This could absolutely work in the US and Europe and we have an advanced look at that potential via Latin America.”

Growing its way out of Latin America may not be so easy, however. Any Europe expansion, for instance, will come head to head with the likes of France’s Agriconomie or Germany’s Even in the tiny but tech-savvy Baltic nation of Estonia, there’s a comparable marketplace offering in the form of e-agronom.

Still, for Acre Venture Partners, the data Agrofy is collecting about its 500,000+ farmer members, is another key piece of its appeal.

“We’re particularly interested in their work in Brazil and view the knowledge and data they’re generating as a way to understand what’s happening in the market and how to service the small and medium-sized farmers in a better way,” Lucas Mann from Acre told AFN.

Popular founders

Larosa and his co-founder and CEO Maximiliano Landrein already launched and sold a grain trading marketplace business fyo to Cresud, the Argentinian agricultural conglomerate and an investor in Agrofy, making them “very compelling entrepreneurs” to back, according to O’Brien. “They did all that on a shoestring budget and lived through tremendous difficulties; they’ve seen markets as hard as they come so they are very experienced building businesses cash efficiently.”

“I’m happy not only as an early investor in Agrofy, but also because it is a great example of the potential we have in the Region in general and in Rosario in particular,” added Bernardo Milesy from GLOCAL, the first agrifoodtech acceleration fund in LatAm. “The driver of the evolution they had is the team. Alejandro and Maxi are great entrepreneurs with the perfect mix between vision and operational skills. Their best ability is to create high-performance teams.”

Tomas Pena from The Yield Lab, an accelerator group with a program based in the region — applications for the next cohort are now open — said the quality of the team and the strong investor syndicate, despite economic turmoil, made this “one of the most important milestones for LatAm agtech, especially for (the Argentinian town of) Rosario, a key ecosystem in Argentina.” He reckoned this deal will “open doors for other startups in LatAm.”

“I am truly happy that this has been achieved,” he added.

The team will also put the funding towards simplifying the logistics and payment processes and improving the user experience for farmers.

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