India’s agri-foodtech scene is hot with venture capital investors. Not so much with lenders. That’s why Dutch banking giant Rabobank is teaming up with impact investment firm Caspian on a $2 million debt fund for India’s agtech startups.
The three-year fund, called the Rabo-Caspian Agtech Financing Fund, is being capitalized by Rabobank India and managed by Caspian as an experiment to prove agtech startup’s bankability.
“The biggest challenge agtech startups have is access to debt financing,” Arindom Datta, Rabobank’s executive director of rural and development banking, told AFN.
That’s because in India’s mainstream banking sector, tech startups are seen as high-risk borrowers, because they don’t hold traditional types of assets or collateral. “When they begin a new project with a supply chain player or government or farming cooperative, they need to invest in their technology and human resources,” Datta continued. “Often the only option they have is to raise more [equity] capital.”
India’s agtech startups have proven adept at fundraising, collectively taking in $1.7 billion in investor capital since 2013. Investor interest in the sector is accelerating. For example, one of the sector’s most active investors, agtech-focused impact investor Omnivore, recently raised a $97 million second fund, surpassing its fundraising target. This year also saw the sector’s biggest ever deal: the $89 million Ninjacart raised from New York-based hedge fund Tiger Global in April.
A steady stream of smaller agtech deals have made headlines this year too, including financing rounds for farm tech startup Ecozen, food quality analytics venture Intello Labs, animal health company Ashish Life Sciences, sensor venture AgNext, and agribusiness marketplace DeHaat.
DeHaat is unique in that it followed its $4 million equity round in March with a $3 million venture debt round backed by Trifecta Capital Advisors in May.
But that type of financing is rare in India, says Datta, and the alternative—raising more equity funding—isn’t an efficient way for startups to cover working capital or short-term credit needs.
Rabobank and Caspian’s fund will largely look to originate working capital loans. Its structure is flexible enough, however, that it can accommodate other types of debt, like two or three year term-loans.
Datta says Caspian, which is a seasoned agtech investor, has a ready pipeline of ventures. He expects the $2 million to be fully deployed over the next two to three months but declined to discuss pending deals.
And while Caspian has the option of recycling capital over the course of the fund’s three-year term, Datta says $2 million is just the beginning of the partnership. Rabobank, known worldwide for its expertise in farm, food and agribusiness financing, anticipates ramping up its capital commitment to the fund.
“This fund is the first of its kind,” Datta said. “What we’ve decided is to see how the fund performs, and if we see demand and bankable clients, then we’ll scale it up.”