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Twiga’s $30m Goldman Sachs-led Series B towers over African agri-food tech like a friendly giraffe

October 29, 2019

Kenya’s mobile money market has reached a point where the value of cell phone-based transactions is equivalent to half of the country’s GDP. It’s spurred on by a young, growing population that benefits from ever cheaper smartphones and cellular data plans as rural internet coverage improves and incomes rise.

Enhanced mobile connectivity has implications for fixing Kenya’s disjointed, informal food system, and Nairobi-based Twiga Foods has been an early mover in a widening push to digitize and streamline the country’s supply chain.

This week, Twiga, which means giraffe in Swahili, showed itself to be a rainmaker for early stage capital, securing a $30 million investment deal led by the New York banking behemoth Goldman Sachs. The deal amounts to the largest early stage investment in African agrifood tech in 2019 to date, and represents a promising data point in Africa’s early-stage venture capital sector, where tech startups often struggle to attract capital.

(Only $1.7 billion in private equity funding was raised across the continent in the first half of this year, according to the African Private Equity and Venture Capital Association. That’s less than half the tally of a mid-sized European country like Spain.)

Twiga’s funding round is comprised of $23.75 million in Series B equity and $6 million in debt from OPIC and Alpha Mundi. Existing equity investors participated, including the International Finance Corporation (IFC), TLcom Capital and Creadev.

The Series B close tops up a $10 million investment from the IFC, TLcom, and the Global Agriculture and Food Security Program (GAFSP) last November, and a $5 million investment from French family office Creadev in June.

Catalyzing capital

What has caused a stir is both the scale of Twiga’s latest round and the arrival of a firm like Goldman Sachs in Africa’s agrifood tech scene.

Goldman’s backing isn’t out of the blue: the bank has been showing increased interest in Africa’s economic growth, bucking bearish market expectations by ramping up activity in South Africa. The firm staked out a partnership with Investec on equity trading earlier this year, which extended the trading operations of both companies from Johannesburg to the rest of Africa.

Of Goldman’s decision to invest in Twiga, Jules Frebault said in a statement: “Twiga’s innovative model combines technology and modern logistics tailored to the local market to re-engineer the food supply chain. We are delighted to be backing [CEO and founder] Peter [Njonjo] and the highly capable team as they scale operations and drive sustainable access to lower cost quality food on the continent.”

Goldman’s foray into African agtech could be a watershed moment for the region and sector, encouraging wider interest from rival New York investment houses, which have been eying the sector for its potential to bolster African food security, according to various reports. Sub-Saharan Africa’s population is set to double over the next 30 years, and with climate change affecting food production, the challenge of guaranteeing farmers’ market access and consumers access to reliable and affordable food sources are political and economic necessities.

In Kenya, where a large slice of the country’s GDP is tied to the agriculture sector, huge tech-enabled efficiency gains are possible. Currently, an estimated 30 to 50 percent of fresh produce is lost through poor post-harvest processes.

“Food security is a key priority for the Kenyan government, and Twiga Foods is playing a major role in achieving this,” Hamadi Boga, principal secretary of Kenya’s State Department for Crop Development and Agricultural Research, said in a note sent to AFN. “As our population grows and urbanization continues, it is essential that we provide access to affordable food for as many Kenyans as possible, as well as support and promote sustainable agriculture.”

He added: “We commend [Twiga] on their impact so far, as well as their ability to attract investment to Kenya.”

Fragmented retail

CEO and co-founder at Twiga, Peter Njonjo, described some of these challenges and opportunities of working in the Kenya’s food ecosystem in a recent interview with AFN.

“At the heart of it is what I call the fragmentation of retail,” he said. “You’re looking at Nairobi, a capital city of six million people, served by 100,000 retailers.”

But Njonjo is used to navigating a fragmented retail space form his time serving as president of Coca Cola’s Central and West Africa business unit. Njonjo said a portion of Twiga’s latest funding would go to exploring expansion into many of the countries he once oversaw at Coca Cola—the large market of Nigeria and the relatively currency-stable French-speaking West African countries.

For now, however, Twiga will focus on fine tuning and expanding its end-to-end distribution model for fresh and processed food within Kenya. In Nairobi, the company already sources from 17,000 producers, and delivers their products to 8,000 retailers three times per week. It handles a range of fresh produce, bananas, potatoes, onions, tomatoes and watermelons, and is expanding into popular processed foods like rice, maize flour, cooking oil, milk, juice, sugar and snacks.

Twiga claims its supply chain and material handling has enabled the company to cut the market’s average rate of food waste by 70%.

Now, the firm wants to replicate its model and results in Mombasa and Nakuru, Kenya’s second and forth largest cities respectively, Njonjo said.

Last-mile delivery

Twiga’s reach is no easy feat, given the challenges of last mile delivery in the region.

“We started with tuk-tuks,” Njonjo said, referring to motorized bikes and rickshaws—an approach another Kenyan company, Sidai, has also attempted for delivering farm products.

The idea was that smaller vehicles would minimize time lost in Nairobi’s notoriously congested traffic. But Twiga ultimately opted for vans, despite the traffic, because motorbikes required too much back and forth to the distribution center for loading and unloading.

Their approach means retailers gain access to lower-cost, higher-quality fresh produce and processed food that is reliably delivered within 18 hours of ordering, management claims. Farmers and food manufacturers, in turn, have guaranteed access to a fairly priced, transparent marketplace. Twiga says it pays farmers within 48 hours of collection, providing them with increased income visibility and permitting better financial planning.

Tech experimentation

To continue strengthening transparency across Kenya’s food chain, Twiga has tried out blockchain. The company recently teamed up with IBM to deploy the decentralized ledger system across its own supply chain, to improve traceability and accountability.

Another company, Agrikore, offers a blockchain based contracting, payments and marketplace system in Lagos, Nigeria and is now deploying in Kenya.

Two other technology integrations Twiga may consider: micro-credit and insurance tech.

 Tala, a data science and mobile technology company, iProcure and FarmDrive are already actively working to enable mobile access to micro-credit solutions, while Pula is working on mobile insurance solutions for Africa’s farmers, less than 0.5% of whom are insured.

Whatever its strategic plans, Twiga’s Series B funding round represents a pivotal moment in African agtech. It also signifies Kenya’s progress in improving its business environment, where recent reforms have improved access to credit; guaranteed stronger protections for minority investors; simplified tax payments; and have made it easier for domestic investors to allocate capital to private equity and venture capital funds.

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