Sramana Mitra: Can you talk about what those bottlenecks are that can be tackled with IT? When you say AgTech, I take it that you are talking about information technology as it applies to agriculture?
Francisco Jardim: When we say AgTech, we mean the entire agribusiness value chain, which represents approximately 22% to 24% of our GDP. This includes all technologies or improved methodologies to increase yields from planting and soil fertility, all the way to how we deliver food products to end consumers.
It has what has become well-known in the industry as farm to fork. I’ll give you two very hot sub-sectors that we’re looking at right now. First of all, distribution of agricultural products is a $35 billion market. Distribution has always been offline. This is quickly going online.
I’ll give you an example. We invested in a company based out of Argentina called Agrofy, which is quickly becoming the MercadoLibre of agriculture here in Latin America. That’s an example of e-commerce and online distribution.
Another sub-factor is, agriculture business traditionally has not had a financial services industry for a wide range. First of all, there’s subsidized government funding that distorted and crowded private markets out.
Secondly, the traditional financial services industry was never capable or comfortable pricing and understanding the uncertainties related to agriculture. Just remember, agriculture is a manufacturing operation with a 9 to 12-month working capital necessity involving biological activities. It’s difficult to finance and manage risks. These are two reasons.
Now what we have is the public sectors leaving the subsidized market simply because government machinery is exhausting from a physical perspective. Tech-enabled and digital transformation of agriculture has started to bring a lot of transparency to the sector.
The financial services industry starts to see opportunities in distributing financial services products. What we see is tech-enabled insurance tech, credit tech, and payment platforms surging to be able to bring productivity to agriculture.
We are also looking at smart irrigation, smart application of herbicides and insecticides. We are looking at smart planting. We are looking at satellite technologies. We have invested across the board. There is so much to come. There’s a lot of stuff going on.
Sramana Mitra: You said the first fund in 2007 was $10 million. What fund are you on and how has the fund size progressed?
Francisco Jardim: Our funds until the current one have always been locally-denominated. I’ll give you what they represent in dollars at the time of closing. The first fund was approximately $10 million. The second was $40 million. The one we’re closing by the end of December will be hard-capped at $75 million.
We’re not going to be those billion-dollar funds. We feel that venture capital is a very boutique financial intermediation. We get very involved in deal flow sourcing and especially adding value to entrepreneurs. We really want to have four to five deals max per partner.
Sramana Mitra: How many partners are there in the fund?
Francisco Jardim: Four partners. We have another business that we started as well. We launched the first venture debt fund in Latin America. This is a business that is within the GP. My partner, Gabriella, runs this practice. It’s starting to replicate the Silicon Valley Bank original business model that offers non-dilutive, long-term financing to entrepreneurs.
We have seen in our portfolio that the best companies in our portfolio are growing three digits a year, have great management and great unit economics. Equity financing was the only type of financing they could do. Entrepreneurs were just getting too diluted. This is a $40 million fund.