A midst a fast-growing tech innovation ecosystem, VC money has been flowing into the veins of startups in LatAm, which has nearly 30 unicorns. Yet, none of those startup ventures valued at $1 billion or more is an agtech company, although there are already 663 agtech companies in the region, according to Crunchbase‘s data, and the agriculture industry is a big deal for the region. According to the World Bank, agriculture accounts for 5-18 percent of GDP in 20 countries in Latin America and the Caribbean, “and an even larger share when broader contributions across food systems are considered per its latest data.”
Data from LAVCA (The Association for Private Capital Investment in Latin America) shows there was $35.4 million in venture capital invested in agtechs across 15 disclosed rounds last year, and the largest disclosed one went to Colombia-based Frubana, a $25 million Series A round in early 2020, led by monashees and GGV. SP Ventures and The Yield Lab were among the other more active agtech investors last year.
For the first half of 2021, investment in Latin America’s agtechs is up significantly compared to last year, according to LAVCA. Just the top three rounds in the first six months of 2021 (Frubana, ProducePay and Phage Technologies) add up to $138 million in announced investments. So what does it take for LatAm to have its first agtech unicorn?
Capria Ventures has been investing indirectly and directly in agtech startups in Latin America like the U.S./Brazilian Leaf, which provides an API (application programming interface) for agro, Argentine Agrofy – the Mercado Libre of agriculture – and the California-based Andes, with a Chilean co-founder and CEO, that provides seeds with integrated microbial technology. “Brazil and Argentina will push agtechs in the Andean region,” said Susana Garcia-Robles, a senior partner at Capria Ventures, and executive advisor to LAVCA.
According to her, tech innovation for agriculture marked a “before and after” in Latin America. The region already had a critical mass of consumers and workers in this traditional industry. Alongside mining, agro has been one of the main drivers for LatAm’s economy for many years. That’s why Capria started to invest in Brazil’s fund agtech outfit SP Ventures.
“We believe in the power of connecting the dots between the innovation hubs in LatAm, Africa and India. We don’t vote on SP Ventures’ investor committees, but we can say what we have seen in agtech in India models that can be transferable [to LatAm],” she said.
A Brazilian agtech success story, led by a U.S. founder
Leaf‘s founder and CEO, Bailey Stockdale, grew up in California but founded hisagtech company in Brazil during 2018. He was living in the state of Mato Grosso, where he led an aerial-imagery company for growers. A software developer, he realized that farmers needed to have multiple pieces of data to actually make that imagery information useful.
“We had the image to know where the problem was, but we were trying to identify how it started. Is it malfunctioning with the machine, disease, or something else?” he recalled.
Stockdale reached out to nearly 100 different agtech companies worldwide, saying he needed to bring in data (like weather data, machines, financial information) from different sources. So he asked if he could connect to their data and migrate it over to build value on top of it.
“From what we found out from whom we spoke with, everyone kind of said the same thing: yes, we can work together, you can use our data, but we’re looking at this integration with John Deere, that’s going to take us like two years. So the story started with this frustration of being a software developer focused on improving the ecosystem via agtech and saying how can I possibly build anything here if I can’t connect with anyone. People wanted to share their data, but I didn’t have easy access to it.”
Stockdale complained to venture capitalists about that and ended up teaming up with SP Ventures; joining the team as a resident entrepreneur. He spent about six months learning. Last year, Leaf emerged from stealth and raised a $2 million round from SP Ventures and will probably search for fundraising opportunities again this year as it reaches its initial milestones.
Today, Leaf is building an API that helps software developers connect with all of their different data providers in a single unified way—something like what EBANX, Plaid, Stripe and Twilio do, but with payments.
These companies all connect with bank accounts and provide a single API that helps other companies integrate with their systems immediately instead of having to connect with every single one individually.
“That’s the exact same thing that we’re doing in agriculture. So now we are giving developers’ companies the ability to build with all their partners with a single easy-to-use service rather than going to 100 individual connections.”
“Made in LatAm” secret-sauce
Latin America still has a young population compared to Europe and North America, and its millennials and Gen Zs are familiar and adept with technology. Added to that, the region’s entrepreneurs are tech innovators and can add a “made in LatAm secret-sauce” to tech, as Garcia-Robles stated.
During the Animal AgTech South America Summit, Francisco Jardim, founder at SP Ventures, noted that the region has such significant local problems and it’s a place where entrepreneurs see opportunities.
“The fintech place is an obvious [path], but there are many other gaps in the supply chain where the solutions really need to be built and developed locally. It’s why I think native entrepreneurs have such a huge competitive advantage over entrepreneurs of foreign geography because it’s not just about technological innovation to be successful in Latin America; you need to innovate in the last mile on how you deliver the product and service, and how you charge for the product and service. Attempts to replicate go-to-market strategies from North America and Europe in Latin America have been disastrous strategies, so I think the last-mile innovation is very crucial, and it’s where most of the opportunity is based,” he said.
Money is going to companies that can address the pain suffered by millions, and they address the lack of coordination or alignment in all the value chain in the case of agtech, added Garcia-Robles. “Capria is not investing in the so-called impact investors; We’re investing in people who want to make money but understand that you can both make money and solve huge problems. That’s why we are seeing an acceleration of unicorns because they are solving real problems and real pain points,” said Garcia-Robles.
Agrofy says it wants to be the first one to reach unicorn status. It raised $1 million from Capria in 2020 and a Series B of $23 million in 2019 from Fall Line Endurance Fund, Acre Venture Partners II, Agventures II Investment.
Co-founders Maximiliano Landrein (CEO) and Alejandro Larosa know each other from Bolsa de Comercio Rosario, a non-profit trade association in Argentina. In 1999, they started talking about helping farmers in the country by trading grains and co-founded what is today one of the biggest grain traders in Argentina: Futuros y Opciones.
Even though Landrein and Larosa imagined a landing page where the farmer could get a marketplace, in 1999, they didn’t feel that the internet timing was right. Yet, in a garage not so far away, Hernan Kazah, Stelleo Tolda, and Marcos Galperin were creating Mercado Libre, LatAm’s leading e-commerce giant.
Landrein and Larosa decided to start the online endeavor with a news outlet, Agrofy News, which today is one of the biggest media websites in Argentina. In 2018, the company began to build its agro-focused marketplace with less than 40 people and raised a $6 million Series A round from SP Ventures, Syngenta Ventures, Bunge Ventures, and Endeavor Catalyst.
Currently, Agrofy has 280 employees spread across Argentina, where it has its headquarters in Rosario, Brazil (São Paulo), Uruguay (Montevideo), and Colombia (Bogota). In the long term, Agrofy wants to expand to Mexico.
Added to the marketplace, which has 50,000 merchants on board and the news website, it launched Agrofy Pay, an e-wallet for farmers, last year.
“Agrofy is an ecosystem that offers products, services, and real-time information for agribusiness companies and farmers who aim to take advantage of the exponential growth of the internet. With a true focus on agri-community development, we are business and technology partners with agricultural DNA. We bring the chain together”, said Viviana Lauschus, branding and communications manager at Agrofy.
It means that the distributor is within Agrofy’s ecosystem, and for the farmer in Argentina, it is bold because the farmer buys directly from the distributor. Typically, agtech companies build growth slightly slower than other fintech companies because the distribution market for agriculture is challenging. That could be the reason why LatAm doesn’t have an agtech unicorn yet.
Also, agriculture is a highly competitive industry. Because of that, agtech companies get acquired really early on in their growth lifecycles. They are usually acquired for hundreds of millions, but not billions of dollars because huge companies like Bayer, for instance, move quickly to acquire a
startup, when in other industries, these companies get more mature and have a much longer valuation, as they stay private longer, according to Leaf’s Stockdale.
“It’s a growing market, absolutely, but we’re starting to see these companies
now. To be a unicorn, it takes a bit longer, and very often companies are acquired for lower valuations,” Stockdale said.
“When we look at unicorns, fintech is way ahead of agtech, but we are beginning to see the consolidation of those two pillars, and more and more especially marketplaces in agriculture are beginning to incorporate fintech
verticals,” added Garcia-Robles.
Agrofy is that case. The startup is aiming to raise a Series B extension. Thus, the letters ESG (Environmental, Social and Governance) have been buzzing on the team’s minds, as investors and stockholders are looking pretty close to these corporate practices.
LatAm’s ESG trend as a fertile ground for carbon offsetting
The COVID-19 pandemic shined a light on investors with a dry powder to wisely use their money to have a much broader impact than just gaining financial returns. ESG guidelines have been followed by private equity and venture capital funds because investors want to see that.
“Nobody wants to see their money go into something that damages the planet or has social concerns or lacks governance. And this is tough when you’re talking about startups, and is tougher in agtech than fintech, because fintech is even more technology-based. On the other hand, in agtech, you’re still in the value chain of people, and people who were accustomed for a long time to be very informal and do not have guidelines to abide by,” said Garcia-Robles.
In the U.S., carbon marketplaces and businesses that work with carbon traceability have been developing really quickly. In Latin America, this carbon market is developing more slowly. “It’s not a bad thing; there are
still so many questions. Does carbon-capture work? How long does it work for? Are credits from carbon valid long-term?” asked Stockdale.
Software developers use Leaf’s API to build and scale a wide range of products, including carbon-removal marketplaces. “We are bringing them management data, and they are using the information to create models and generate carbon credit from that,” he said.
“In Brazil, I think it’s a massive opportunity; it’s going to be a very large piece of agriculture in the next ten years. Companies are working with similar things in Brazil, but usually, it’s more related to another financial
product. There’s still a lot to learn about carbon marketplaces and how they work; certainly, there will be even more questions when Brazil adopts them. It will happen, but it’s been less accurate in Brazil than in the U.S. so far,” added Stockdale.
Capria’s Garcia-Robles believes that a company that strictly enforces ESG guidelines in the end would get more funding because it’s more professional and will provide more returns. Besides social impact, diversity, and environmental policies, the G stands for governance, which the fund values a lot. Garcia-Robles recently left the InterAmerican Development Bank, where she was Chief Investment Officer and Gender Initiatives Coordinator at the IDB Lab.
She recalled that in the first years of IDB, she worked with green funds managed by NGOs. “They were saving trees but didn’t understand a thing about financial returns or governance. What happened in the end? All those companies that were supposed to save the planet didn’t save the planet, didn’t save jobs, and made us lose money. One lesson that I learned early in my career: becoming more professional is tough for a startup when switching to audited financial statements, but you have to make the point that this is growing up.”
Meanwhile, Latin America has seen innovation like never before in all agtech ecosystems, which also holds for foodtech startups. Before there were no regional innovators who could match the plant-based Impossible Burger developed in California, but now LatAm companies like Fazenda Futuro and the new Chilean unicorn NotCo are proving that they can do that and many other things. “Talent to develop the solutions is everywhere, not only in Silicon Valley. The access to resources so that talent can be used is what is scarce. We are living in a moment in LatAm in which the world has taken notice, and they are seeing innovation in fintech, agtech and foodtech. As our challenges are greater, our innovation capacity to solve them is also greater,” said Garcia-Robles.