February 7, 2017

Indian consulting firm, Sathguru Management Consultants, announced it is currently raising a $100 million Innovation in Food and Agriculture Fund (IFAF).

The new fund will be managed by Sathguru’s management company, Sathguru Catalyser Advisors, and will be headed up by Vijayaraghavan K, A Krishna Kumar, Prabhu C, and Venu Gopal Chintada – four partners who bring combined expertise from a range of areas including incubation, fund raising, venture fund management, and banking.

Referring to itself as an accelerator, the fund will be seeking out companies that are active in developing technological solutions that address the complex issues that challenge the agriculture, food, and nutrition sectors, and that already have developed products on a commercial level. From this field, the fund plans to invest approximately US$8 million per investment in between eight to 12 companies.

“We want to bring in techno-commercial expertise,” Chintada, partner at Sathguru Catalyser Advisors, told ET. “We are focusing on established businesses that have already created channel partners and developed product on a commercial level. From that stage, if they struggle to move up to the full-fledged growth stage, that is where we want to come in.”

However, even though the fund will be targeting innovative companies, the partners do not feel that it will necessarily target startups.

“Today innovation is used interchangeably with startup. However, we are not necessarily talking about startups because innovation takes place in mid- and large-size companies as well,” said Chintada. 

A Drought of Capital

The partners also see this fund as filling the gap of unmet demand for growth capital in India’s food and agriculture sectors.

Despite the fact that 58 percent of Indian households depend on agriculture, private equity has not been making major inroads into the sector, according to Quartz.

As of the beginning of November 2016, 62 private equity investments valued at $250 million were made in India’s ag sector last year, reflecting a five-year low for activity, according to data from VCCircle. This data represents a serious decline compared to 153 deals with a total value of $1.15 billion for this time period the year before. Broken down, India’s farming and processing businesses saw six deals totaling $79 million. Of this total value, $40 million was accounted for from the single investment by India Value Fund Advisors in Seedworks International. The packaged food segment saw nine deals worth $42 million, and food tech and e-commerce grocery services saw 33 deals worth $67 million.

Interestingly enough, this slow-down is not being seen in a completely negative light by industry watchers.

“After the irrational exuberance in 2015, self-correction this year has come in as boon,” Nita Kapoor, Head -India New Ventures, News Corp and CEO, News Corp VCCircle, told the Economic Times. “It gives entrepreneurs in food, agri and consumer business space to recalibrate their models and desist from ‘me too’ ideas to realign themselves with the evaluation criteria of investors.”

Early Days

Of all of India’s food and agri sectors, dairy and poultry was the only segment to see a growth in investment value last year, seeing two deals valued at $33 million, representing growth of 120 percent according to Nita Kapoor.

Private equity firm, Motilal Oswal has agreed to invest up to Rs 110 cr (US$16.5 million) into Benlauru-based Dairy Classics Ice Cream in exchange for a significant minority stake in the company, marking the second capital commitment by Motilal Oswal to food related businesses, following the firm’s investment in Paraq Milk Products.

“The consumption theme is playing well for private equity funds,” Vishal Tulsyan, CEO of Motilal Oswal told the Economic Times. “Companies with strong brand identity and significant growth potential can provide great returns to financial investors.”

After raising its first $125 million fund in 2007/08 and its second $155 million fund in 2013, Mumbai-based Motilal Oswal is currently working to raise $300 million from offshore investors for its third alternative asset private equity fund. To date, the firm’s first fund has been completely deployed, and its second fund is nearly fully deployed according to the Economic Times.

Last year also saw the launch of  The India Agri Business Fund II – the second fund by Rabobank Equity Advisors. This new fund, with a total targeted corpus of $200 million, was launched to have a focus on investments in agriculture, dairy, and warehousing, and plans to invest between $15 million and $17 million into each of 10 to 12 companies. Through its first fund – India Agri Business Fund I, Rabobank invested approximately $120 million in 10 companies, and has moved on to begin exits from these investments.

India’s startup market is the fastest-growing in the world, with nine startups already valued in excess of $1 billion – the majority of these nine businesses, however, are internet-focused, reports Quartz. And although the country is home to more than 140 million farmers, there isn’t even one major agricultural startup in the country. Despite the launch of these funds reflecting a growing interest in capitalizing upon the population, consumption, and wealth trends occurring in India, it is still early days for the private equity sector in India.

-Lynda Kiernan

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration please contact Ms. Kiernan at lkiernan@globalaginvesting.com