An awards ceremony marked the culmination of the Africa-Korea Agtech Challenge and Summit, a World Bank initiative held in Nairobi to identify and collaborate with innovators of “disruptive agricultural technologies” (DATs) from Korea, Kenya and Uganda.
Three winners from distinct categories were selected from a pool of 21 startups. Uganda’s EzyAgric bagged the award for improving agricultural productivity and efficiency; Kenya’s Kuza Biashara won the award for improving market access and providing downstream and upstream linkages while Ghana’s Farmerline was crowned winner in the financial inclusion of farmers category.
With the support of the Korea World Bank Partnership Facility (KWPF) and the Korean Green Growth Trust Fund (KGGTF), which partnered with Plug and Play Tech Center and Intellecap, the summit pooled startups, financiers, and other ecosystem enablers, as well as representatives from Kenya’s and Uganda’s agriculture ministries – who were urged to take steps to support ag ecosystems, beyond the provision of licensing.
The policymakers were urged to hold frequent roundtables with ag innovators, build supportive infrastructure and consider startups in rollout programs such as subsidy delivery.
“There are solutions that we can actually present to the government and tell them rather than building a new solution, we have a solution that can be perhaps enhanced, or you [the government] can actually fit in and deliver your services,” says Peter Muthii, Senior Manager, Expansion Operation and Government Relations at Apollo Agriculture.
This was just one key takeaway from the many sessions held at the summit which was not short of perceptive conversations around the necessity of farmer financial inclusion, leveraging DATs to boost gender equity, World Bank’s work in DATs, and the government’s role in fostering DAT-supportive ecosystems.
World Bank’s agriculture economist John Ilukor, in a session on learning from other successful agricultural innovation ecosystems, remarked on the growth of scalable DATs in Africa over the last decade. Most of them operate in Kenya, Nigeria, and South Africa, according to a World Bank report.
“The spike is a step in the right direction and follows in the footsteps of developed countries such as South Korea and Israel,” he says.
Another session that resonated out of the many that were held over the two-day event was one discussing drivers for investments in global and African DAT ecosystems.
Some takeaways from the session were:
There needs to be more collaboration between private and public financiers
Speaking at the session was Teymour Dajani, associate investment officer, Disruptive Technologies & Venture Capital at The International Finance Corporation (IFC) who highlighted the need for blended financing to aid in de-risking investments.
IFC launched a $225 million fund to back African, Asian, and Middle Eastern startups last year to back VC firms and startups in an array of industries including agriculture and climate. But since IFC lends to financial intermediaries who then lend to entrepreneurs, it’s quite difficult to do the relatively smaller ticket sizes.
“The $1 million to $3 million structures do exist, but they need to be expanded,” he says.
This expansion, he suggests, could be fostered by mixing capital. In turn, financiers such as IFC get the opportunity to invest smaller ticket sizes that sit in the $1 million to $3 million range, which the financier cannot offer on its own due to risks associated at that level.
In support of this was Martin Karanja, Director at GSMA Innovation Fund & Ecosystem Accelerator. The fund offers grants to innovators across various sectors including agtech and climate tech, who are willing to work with mobile operators.
Karanja notes that grant funding is essential for startups, as it gives them more room to test a couple of things, which they can’t with VC funding. He emphasized the need for more grant players and their collaboration with commercial lenders to optimize this space for startups to test and improve certain business models.
Learn from other regions of the world
Dajani pointed out that his entry into the African ecosystem was met with a lot of fragmentation not only in the market but in knowledge and data sharing. He says, one thing the African ecosystem could learn from the global south, is there’s a lot of knowledge sharing across different models in their ag ecosystem.
“Look to other models in other geographies that have similar challenges,” he says. “Their business models might be more interesting than the tech.”
Trends and emerging investment opportunities
IFC, according to Dajani, is now keen on businesses that plan to scale across Africa. He points out that the financier is comfortable with debt financing and also offering convertible notes which are often suitable for early-stage rounds.
Lucie Pluschke, East Africa Hub Manager for Water and Energy for Food (WE4F) observes convertible notes becoming an increasingly preferred investment option, given their accessibility for MSMEs. She sees this financing going into climate, gender lens financing and startups offering market linkages for farmers.
Also commenting on the state of investments in agtech, Karanja of GSMA, pointed out that:
- There’s a shift from B2C models to B2B models by startups in the agtech space
- More agtech startups are starting to offer fintech solutions for their users
- Investors are now looking at startups that collaborate with other ag stakeholders for instance, startups that are working with credit and insurance providers or input dealers. In his view, such collaborations tend to lower customer acquisition costs, lower user churn rate and in the grand scheme of things, increase customer lifetime on startup platforms.
- Investors are keen on backing emerging technologies, that is, startups leveraging AI, IoT technology and machine learning
2021’s investments showed some of the trends mentioned above are clearly attracting investors, but to what scale?
Karanja urged for more designation of financing into agtech as investment in the sector is nowhere near that which is channeled to other sectors like fintech – which secured almost half of Africa’s tech funding in 2021. Agrifoodtech on the other hand accounted for just about 10% of all 2021 VC investment.