Indian AgriFood Startups Are Innovating to Give Consumers What They Want, and Fix a Broken Industry.
India has a rapidly growing population of 1.3 billion and is predicted to surpass China as the most populated country in the world by 2024. With billions of mouths to feed and a broken agricultural supply chain, innovation in the country’s agrifood industry is desperately needed.
Luckily there is a bustling startup ecosystem working on disrupting the status quo across the value chain, and today we release the first-ever look at the India AgriFood Startup industry in collaboration with local agrifood VC Omnivore. (Download the free 36-page report here.)
Between 2013 and 2017, Indian AgriFood Startups raised a collective $1.66 billion. That might appear low compared to the $10 billion raised globally in 2017 alone, but it was spread across some 558 deals, which is around 10% of global deal activity during the same period. Deal sizes are smaller in India, reflecting the lower cost base for running businesses in the country.
Middle-Class Aspirations Drive Investment
So far, agrifood entrepreneurs have mostly focused on answering the demands of India’s growing middle class. Middle and upper-middle-class households increased to 57 million — 21% of the population — in 2016, from 24 million in 2005 (11% of the population).
This growing middle class upgraded their food consumption habits, demanding increased quality and convenience across all channels — CPG, restaurant, retail, and delivery. Aided by the proliferation of affordable mobile devices and data packs, tech-enabled food offerings, especially food delivery services, scaled rapidly. With a long tradition of food delivery through dabbawalas, doodhwalas, and kirana shops, the application of technology to home and office food delivery was a logical next step.
Of the $1.66 billion raised overall, $1.48 billion went to downstream startups. Downstream investment came from major global private investment funds such as Sequoia Capital and Accel Partners, large multinational corporations such as Alibaba, Naspers, and SoftBank, as well as local consumer funds such as DSG Consumer Partners and Saama Capital.
Given the importance of consumption upgrade as a driver in India’s startup ecosystem, AgFunder and Omnivore instituted a new category, “Premium Branded Foods & Restaurants”, to reflect this influential trend. Increased awareness of food quality, rising incomes, greater demand for convenience, and a growing willingness to experiment with new ingredients, gave rise to several consumer food startups. New brands in categories such as ready-to-cook, craft beer, and healthy snacks continue to gain momentum.
While food delivery startups dominated downstream investment (eGrocery – $526m, Restaurant Marketplaces – $470m, Online Restaurants & Meal Kits – $148m), Premium Branded Foods and Restaurants raised $308 million during the period, and we expect this category to drive early stage deal activity in the coming months.
Food Delivery Failures Drive Investment Fluctuation
Total investment in Indian agrifood startups grew over the five years to $342m in 2017 from $89m in 2013. But investment peaked in 2015 at $681m as VCs started writing larger cheques for early stage agrifood startups, particularly at the consumer end of the supply chain.
Food delivery startups were especially popular among investors in 2015 when the average Series A deal in the eGrocery category increased to $9.2m from $5m in 2014.
Investment activity in Indian agrifood startups fell off in 2015 after the failure of multiple VC-backed startups in the hyperlocal food delivery space, including PepperTap, an eGrocer that had raised over $50m, and TinyOwl, a restaurant marketplace that had raised over $30m. These failures prompted some VC-driven portfolio consolidation in the food delivery segment.
Funding activity picked up again towards the end of 2016, with larger follow-on funding rounds into more mature startups in the sector. Deal activity grew overall during the period to 147 deals in 2017 from 45 in 2013, peaking at 158 deals in 2015.
Farm Tech Acceleration
There is a small but rapidly growing number of startups and investors aiming to increase the efficiency and profitability of Indian agriculture, all along the supply chain.
Companies in the upstream categories – Ag Biotech, Farm Management Software, Sensing & IoT, Farm Robotics, Bioenergy & Biomaterials, Midstream Tech, Agribusiness Marketplaces, and FinTech — represented only 26% of deal activity by number and 10% by value from 2013 to 2017. However, growth is picking up from a small base, and investment in startups closer to the farm grew nearly seven times over the five-year period.
Agribusiness Marketplaces ($78m) and Midstream Technologies ($54m) startups raised the lion’s share of upstream funding, while Farm Management Software, Sensing and IoT startups raised just $21 million between 2013 and 2017, as relatively untapped technologies in India so far. We expect these farmtech categories to drive early stage funding levels in the coming months.
With the exception of US-headquartered Accel Partners, specialist funds dominate upstream funding activity in India. These include Omnivore — India’s only dedicated agrifood tech fund – as well as impact funds Aavishkaar, Aspada, and Ankur Capital. Omnivore, which started investing in 2011, has backed some of the most innovative agrifood startups in India, including Skymet, Stellapps, Ecozen, Eruvaka, and Y-Cook. Other active upstream investors include Qualcomm Ventures, Mistletoe, and 500 Startups.
Some high profile people are also paying attention to agtech in India, including Bill Gates, who has directed his foundation to support India’s farmtech sector, as well as the SoftBank family’s Mistletoe venture firm, which recently launched an Indian agrifood startups accelerator in the Indian state of Andhra Pradesh.
According to Mark Kahn, managing partner of Omnivore, “Small landholdings and fragmented supply chains, alongside rising rural smartphone penetration, offer a compelling opportunity for disruption around the themes of precision agriculture, transparency, financial inclusion, and supply chain efficiency. Moreover, solutions developed by Indian agtech startups will find relevance beyond the large domestic market, as products and services exported to smallholder farmers globally.”