201 Luni Libes - Building a Warren Buffet style portfolio while serving 1M African smallholder farmers

A conversation with Luni Libes, about the enormous opportunities of African food companies and on buying from smallholder famers and selling into the local regional markets. We also discuss why the traditional venture capital model doesn’t make any sense and a holding company does, plus why and how he wants to take the holding company public in a few years’ time.
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Chapters

• 2:00 Why are you doing what you are doing? Why Soil?
• 10:52 Why the holding company is the perfect structure
• 14:18 How do you take a holding company public?
• 34:30 What should smart investors, who want to invest in reg ag and food look out for?
• 40:45 If you could wave a magic wand and change one thing, what would it be?
• 45:31 Where are you contrarian?

Transcript

SPEAKER_01: 0:00

Today we unpack the enormous opportunities of African food companies buying from smallholder farmers and selling into the local regional markets. The continent could easily feed itself but is a net importer of food. The opportunities are simply gigantic and the investments of today's guests show that, growing 50 to 100% year after year. Currently the portfolio holds 25 companies which work with 100,000 smallholder farmers and we learn why the traditional VC model doesn't make any sense here and a holding company company model does, plus why and how he wants to take the holding company public in a few years time. This is the Investing in Regenerative Agriculture and Food podcast, Investing as if the Planet Mattered, where we talk to the pioneers in the regenerative food and agriculture space to learn more on how to put our money to work to regenerate soil, people, local communities and ecosystems while making an appropriate and fair return. Why my focus on soil and regeneration? Because so many of the pressing issues we face today have their roots in how we treat our land and our sea, grow our food, what we eat, wear and consume. And it's that we as investors, big and small, and consumers start paying much more attention to the dirt slash soil underneath our feet. To make it easy for fans to support our work, we launched our membership community. And so many of you have joined us as a member. Thank you. If our work created value for you, and if you have the means, and only if you have the means, consider joining us. Find out more on gumroad.com slash investing in regen ag. That is gumroad.com slash investing in regen ag. Or find the link below. Welcome to another episode, Today with Loony Libbes, 30-year serial entrepreneur turned investor, author, and teacher. Welcome, Loony. Thanks for having me on. And to start with the personal question, how did you end up focusing on ag and food on the African continent?

SPEAKER_00: 2:06

happenstance. Not a plan, although my mentor always told me to make it a plan. I started a business accelerator 10 years ago called Fledge, focused on mission-driven for-profit companies, what we would now call impact companies. Any impact anywhere in the world, we started investing in companies twice a year, every year. By the time we got to 2020, we covered all but one of the SDGs, like our companies, when you asked them what mission were they solving for you would get 16 hours

SPEAKER_01: 2:41

missing like an education company okay

SPEAKER_00: 2:45

Kind of part of the story as well. And there was no majority of them. There was no majority anywhere. It was about 104 companies after eight years of work. And the biggest grouping of them was food and ag companies in Africa. And so that's how I wound up in food and ag is picking them seven at a time twice a year.

SPEAKER_01: 3:10

And how come somehow for somebody who's not based in Africa Based in Seattle, you ended up with such a strong emphasis or focus on those type of companies, food and ag companies in Africa. I mean, did they happen to find you a lot? Did it just the message or the method of you investing and working with the methods of Fledge, did it really connect there or click? Like, what's the reason? Because it could have been education in Southern Africa or Southern America

SPEAKER_00: 3:43

or Southeast Asia. Yeah, it could have been clean tech. It could have been healthcare. It could have been, you know, there's 17 SDGs. Uh, yeah. In hindsight, it's really clear why. Uh, so we, in the very first cohort, we had some African companies, right? Despite the fact we're a little tiny accelerator in Seattle. By the time we got to the fourth cohort, half the companies we invited in were from Africa, uh, but not all food and ag. Um, but in hindsight, it's really clear why. So there aren't a lot of great programs in Africa and still aren't 10 years in, uh, And so we get great deal flow because we are serving that market. And then in Africa, the biggest industry by far is food and ag. So we get a lot of applications in that space. But really what drives it is the fact that we're picking companies as an investor. So Fledge is investing in every company we invite into our program. And when you're an investor, you want to pick the ones that are most likely to pay you back, most likely to make you money, right, in addition to the impact. And so when you sit down and do the analysis on the business side, not the impact side, it's hard to debate which is more important to the world, better healthcare, better education, better food, or enough food. But when you go on the business side and you do some analysis and you say, okay, well, what's the target market? Well, we do commodity crops. We don't do cash crops. We don't do coffee and chocolate and other exportable crops. We just do corn and rice and bananas and chickens and fish. And so the total addressable market for those types of foods is everyone. Everybody eats every day or everyone wants to eat every day. Most people eat more than once a day. So the total addressable market for a food company is the population of the country where the company is running if it's, again, commodity food that's edible in their country. And if you do anything else, if you go and look at education, well, then the addressable market is half the population in Africa. Half the population is under 18. If you look at healthcare, it's who's ever sick at the moment, which is a smaller subset. So just on the first glance, the total addressable market is bigger for food. And we don't have to debate, do people want to eat? We don't have to debate Whether or not the product fits the market need. then did we notice the pattern?

SPEAKER_01: 6:39

And so what is the pattern in terms of, because food and ag in Africa is still very broad, you say commodity crops, only did you start seeing like, okay, within this 25, five or 10 or whatever the numbers are really successful and they all share like this similar DNA or they share this similar conditions. And what was the success pattern there?

SPEAKER_00: 7:01

Yeah, that's a good question. So the very first one we brought in in this past, was East Africa Fruits. It was a one-year-old company. Quite famous now, but yeah, back in the day now. Yeah, it was. This is 2014. So in 2014, it was one-year-old. The founder had taken$4,000 of his own money and earned$100,000 in revenue and broke even in year one. And so just that fact, you know, how do you take almost no money and turn it into$100,000 a year company in a single year and, you know, don't lose money. Just seeing that in the application pool, we said, well, we have to see what that, what that is. We have to invite that one in. And if he could do that with foreground, what we gave out a$17,000 investments that year, now it's 20. But what could he do with$17,000? And so we invited that first one in. And that is a little extreme, but it's indicative of what we've seen in the rest of the companies, which is they all take the form of they took a small amount of money, more than that, you know, 10, 20, 30, 40,$50,000. And they took it and made a company that was earning more than the investment. So earning$50,000,$100,000,$200,000 when we met them. And then with the expectation through our due diligence process that they could at least make a dollar of revenue per dollar of investment. And it's proven out more like two,$2 of revenue per dollar of investment in profits So that's the commonality. If you look at all the companies, you'll see, A, they're run by native African entrepreneurs. We don't do expats. We did a little bit in the early days and we don't do it anymore. That was a mistake. So they know the problem at hand because they grew up with that problem. They're capital efficient at what they do. And they had some proof before we brought them in. No company was idea stage when we invited them in to Fledge, at least not for those guys. companies. And they've been proving that out. So one thing we show off from this part of the portfolio is all those companies combined in 2016 earned cumulatively across all the companies like$1.6 million that year, which is a nice size company, but it wasn't one company, it was 25 companies. 2021, so five years later, those same companies plus a few more that the the same founders started. They're parallel entrepreneurs. But that same group of companies earned almost$17 million, 16.8, I think, precise. So they grew tenfold in five years. The reason why, again, the reason why I'm doubling down in this space is because the opportunity size for these companies. A, well, let's go two sides. One, on the impact side, there's a huge need for food in Africa. The continent grows enough food, but they lose it by the time it gets to retailers. And so they're a net importer of food as a continent. Uh, so we need to solve that problem. And then on the business side, there's an opportunity to solve that problem and more. There's an opportunity for Africa to be an export region, uh, feeding the global North. Uh, and that opportunity size is not a factor of a hundred bigger than these companies are now. It's a, it's a factor of like between a thousand and 10,000 in that, in that order of magnitude. Uh, So these companies have already grown 10 X and we're not looking and asking, you know, are you, if they grow 10 X more, is that all they have? No, no, no. They, they got a growth stage in front of them. That's a hundred X or a thousand X before, you know, competition gets in the way.

SPEAKER_01: 10:53

And how do you invest in them? Like what is the structure that you chose to, to do this? These sounds VC type returns, but it's not the structure you chose to, to put money to work.

SPEAKER_00: 11:05

Yeah, so we actually used two structures. The way we found these companies, again, is through the Fledge Accelerator. And so it's impact in general, all different impacts. Many, many companies applied, depending on which city and which year. Most recent for the Seattle program was 845 applicants from 85 countries applied. And we picked seven. And we happened to pick six of those were African. Didn't have to. One was American. And then in In 2020, that was up through 2020. And then in 2020, we changed the structure. So we changed the structure and we launched an investment holding company called Africa Eats. And we moved all of the Fledge investments into Africa Eats in exchange for shares. So Fledge is the owner of Africa Eats. And then we raised some more money on top of that. And so the new structure is answering the question of how do you scale up questions How do you scale up these companies? How do you actually achieve that 100X growth, 1,000X growth? How do you raise capital for these? They're SMEs. That's the general term. They're small and medium enterprises. They're not tech startups. How do you raise capital for them in an efficient manner? And the third one is how do investors get back out? And so in the VC world, in the standard tech VC, 60-year-old style of investing, thing, investors get out by having the companies be acquired. And that works somewhat in the tech space. It works somewhat in some other spaces, but we've just never seen these kind of acquisitions in Africa, in any market, and basically zero in food and ag. So we didn't bet on

SPEAKER_01: 12:54

that. So that's not a way out,

SPEAKER_00: 12:56

yeah. Yeah, well, there's a lot of funds out there that are still expecting that to happen someday, but we're not. So I looked around. I like to have models that worked elsewhere. And I basically asked the question, what would Warren Buffett do? How would Warren Buffett do this? He's not an investor like VC style. He doesn't just expect his companies to be acquired. In fact, he has the opposite philosophy, which is he buys companies. One of the pieces of his advice is if you like a company, buy it and don't sell it. Just own it. It can be the whole company. It can be part of a company. He does both. And so I I asked the question of my crowd, like, well, what would happen if we owned a small piece of all these companies? Let's just call it a quarter of all these companies. And we owned it for 100 years or 200 years or forever. Then what? How would you get your money back out as an investor? That doesn't sound good for investors. But again, Warren had the answer, which is you take the investment company public, like Berkshire Hathaway. Anyone who wants to buy Berkshire Hathaway and his portfolio can do so. You go to the public market. markets, you buy some shares, you own a piece of that portfolio. So we do the same thing in Africa Eats, but we just haven't gotten to the public. We're not big enough yet to have done the public offering. We'll do that in the next few years.

SPEAKER_01: 14:19

So how long or what are the steps for you? Because it's, I'm not saying easy to say we're going to do an IPO, et cetera, but it's not easy to do, or at least I don't think so. It's quite easy. What are the steps for you to take this 25 or this holding company public in the next couple of years? What still needs to happen?

SPEAKER_00: 14:39

Yeah, it's really strange. It's not that common and therefore it seems to be a risk. But in fact, it's just a matter of scale. So we've spoken to multiple organizations that run public markets in Africa and the London Stock Exchange. We've spoken to multiple investment bankers who do that process. We've spoken to public equities traders who would buy this kind of stock. We've spoken to the institutions that would invest in an IPO. There's nothing actually holding us back except scale. We're just not big enough yet to merit doing that step. When we're big enough, when these companies are earning easy on the London exchange, when the value of our portfolio is 100 million pounds or$100 million now, that's big enough to go public in London. There's 127 other African companies that are already there And there'll be 150 probably by the time we get there. You just have to go through the motions of getting your accounting in order, which we are already doing because we know we want to be in a public company, getting your legal side in order, which we're already doing because we know we're going to go down this path, and then filing the paperwork and doing a roadshow. And is

SPEAKER_01: 15:59

there any risk to going public?

SPEAKER_00: 16:02

The only risk is that now you have a price attached to your company and the market can bring that price down whether or not your company is doing well or not. You suddenly are in the ocean and you don't control the tide. But again, the companies we have in our portfolio historically have been growing 60% year over year. The value of our portfolio is growing 60% year over year and the markets don't move up and down that much. They're volatile. They're not volatile. So we do expect that this will be like Berkshire Hathaway where when we go public, we're expecting when we get to London, the price per share will be$6,$7,$8. And that's what it was at Berkshire Hathaway in the 60s. And now those shares are$400,000 just from the growth. And we're taking the rest of the Berkshire Hathaway model with us as well, which is no dividends. We don't extract money from these companies and hand it to the investors. We'll never hand out a dividend. We simply recycle any cash that ever gets generated into more growth. We just expect this to keep growing for the next, again, 100, 200, 400 years.

SPEAKER_01: 18:03

And in terms of ag, I mean, of course we're on a, on a regen ag and investing podcast. We talked about the investing piece, which we're going to explore further, but what do you see on the, the far, not the farms, the ag companies, the food companies you're involved in, how important is the issue of soil health and how to deal with, with that? If you're like looking at a hundred, 200 years, it seems quite obvious, but is it already current for many of the companies you're, you're investing in and, and basically partly owning?

SPEAKER_00: 18:35

Like 99% of all the agriculture that happens in Africa eats is organic. Not certified organic because that costs money, but following organic practices. And it comes out for two reasons. One, because the entrepreneurs we're picking to back are ones that care. They care about the, and I missed it, but they're all working with smallholder farmers. We don't do any, we're not investing in the actual We're investing in companies that buy from smallholder farmers and train them. And so the people we're picking care about the environment. But really what it comes down to at the moment in Africa and why organic is so prevalent is it's cheaper. Like I just saw Bill Gates speaking yesterday and maybe spoke earlier this week about how organic is just too expensive. I don't know where this man lives. He's like he's living on another planet.

SPEAKER_01: 19:32

Not that far. from you, I think, in Siena.

SPEAKER_00: 19:34

He lives like 20 miles from here. But his perspective... Knock on his door. Go and have a conversation

SPEAKER_01: 19:41

about tech and soil and stuff because I think there's something to it. Maybe take him on a trip.

SPEAKER_00: 19:47

I would love to take him on a trip because the reality is that the smallholder farmers, and there's 200 million smallholder farms in Africa, about half the population is farmers, more than half the population. They just can't afford to come chemicals. They don't want to put on chemicals on their property. Well, maybe they do, but they just can't afford them. Part of why the yields are low is that they're doing organic farming, but part of it is because they only have an acre. A typical smallholder farm is an acre. They can't burn up an acre with too much fertilizer and too many pesticides and too many herbicides. If they do that, they're done. They're already poor, but that would put them totally on below subsistence farming. They just can't do that. They have to treat their land well because it's all they have.

SPEAKER_01: 20:41

And the companies you invest in, are there any examples of taking that further from trying to get the yield up with organic inputs, with pushing in terms of seed selection, et cetera? Because of course, there's a lot you can do without going the extreme chemical and let's say fossil fuel-based input route. Do you see that happening or is that really out of your realm,

SPEAKER_00: 21:08

basically? It's below my level of detail that I jump into. So I don't need to know as the investor which seeds that they're choosing to plant in Tanzania's maize. I don't get down to that level because there's hundreds to pick from. Some of our companies are using a model where they give the inputs to the using the model where they're just buying the outputs, but they know what the inputs were, and then have one company that sells seeds, and only one company. So it is the

SPEAKER_01: 21:43

current input crisis or the price levels. I've seen some reports of, I think it was in Ghana, where suddenly, of course, the interest in, let's say, non-imported fertilizer, meaning compost, meaning skyrocketed. Do you, like the current political situation and uh the prices that come with that do that affect your companies at all or because by definition they're not using very expensive and and inputs coming from outside they're sort of shielded from that or what do you what do you see we're talking november 2022 and prices are still of inputs extremely high um do you do you feel that or do the companies you you invest in feel that or not so much

SPEAKER_00: 22:28

probably uh i have heard you know we have whatsapp groups with all these companies. We talk to them all the time. And yeah, we heard fertilized prices are way up. That's a problem. We're going to see growth this year is probably only going to be 50% instead of 60%. And I don't know what percentage of that drop is due to fertilizer and animal feed prices going up. That was a similar issue. And I don't know what percentage of that is just our companies are getting bigger. And as you get bigger, you tend to grow slower. It's It's hard. If you've got a million-dollar-a-year company, getting from$1 million to$2 million in a single year is a big leap. Getting from$1 million to$1.5 or$1.6 is an easier leap. And so as they get bigger, they grow slower. But we didn't see anybody get smaller because of fertilizer prices or animal feed prices.

SPEAKER_01: 23:26

And do you see it as an opportunity as well, or are you entrepreneurs, to replace

SPEAKER_00: 23:30

expensive

SPEAKER_01: 23:33

inputs?

SPEAKER_00: 23:33

It came up, do we have enough pieces in our portfolio to solve the problem of animal feeds? And the answer at the moment is no, we don't. And then the other issue is that Africa is humongous. And so even if we did have all the right pieces, and we were missing protein as one of the pieces, just shipping it around, even the East African companies in East Africa, it's just too big. It doesn't make economic sense. the price of transport would overwhelm the savings.

SPEAKER_01: 24:08

Which also the price of transport exploded, so that doesn't help either. Can you start a local but regional animal feed provider by mixing in the different ingredients needed, but it just didn't turn out to be feasible?

SPEAKER_00: 24:28

Yeah, this is another interesting part of our model. So we're not a fund. We're not a a VC fund. We're VC-esque, but we're not a VC fund. We're not 10 years. We're not just looking for companies and then spinning them away or having to be acquired. We're permanent. We're a holding company. And so when something like this pops up, we sit down with our entrepreneurs and not just one at a time, but in groups, and we try and figure out, is there an opportunity here? And if so, who in that group is going to put their hand up and take hold of that opportunity and run with it or which two or three companies are going to work together on that and so we have done some preliminary work on joint ventures between companies and we have one spin out that's up and running and another that's coming and so we're kind of excited about the kind of things that can pop out like that without having to find an entrepreneur who's already solving it and without having to do this without the private equity fund style of, okay, we'll hire a team and we'll go do it ourselves. So we can't solve every problem this way, but we're working on some opportunities.

SPEAKER_01: 25:46

And on average, talking about the impact, of course, average is horrible here, but what's the difference for a typical smallholder farmer working with one of your companies? What's the selling to one of those? What is the impact for him or her with his or her one acre?

SPEAKER_00: 26:04

If they're selling us honey, we have five honey companies. If they sell us honey, their income is growing by like 50%. Five, zero. Five, zero. So of the 25,

SPEAKER_01: 26:14

five are honey companies. That's an interesting...

SPEAKER_00: 26:16

Who would have thought that? farmer just learned about this and just bought the beehives. And so they got some beehives somehow. And then our companies are also aggregating the outputs, right? So the farmer doesn't have to worry about how to sell the honey, which is nice. We take care of that for them. And that's the general model of most of our companies is we buy the outputs for the farmer. They get an income. They don't have to worry about anything else after that. So we're buying the honey. Their income goes up by 50%. They're still doing whatever they were doing before. It's just bonus income. On the food side, when we're actually buying the main product that they're growing, we're growing their income by at least a factor of two, sometimes factor three, biggest is factor five, depending on what the company is and what the crop is. So that's typically taking people who were subsistence farmers and giving them the median income for that country or a little higher than that. So we don't have hard numbers on this for every farmer, We do for about 25,000 farmers, but not for the 100,000 farmers we work with. But in the 25,000 number, yeah, we're seeing they're earning$1,000 a year,$1,200 a year, whereas before they were earning a few hundred dollars a year.

SPEAKER_01: 28:06

Which is massive differences, yeah.

SPEAKER_00: 28:08

Oh, yeah. Yeah, it's the difference between I can definitely pay all the kids for the kids. They all have shoes. They can go to the doctor when needed. And everybody eats every day. Between that and I'm not sure if my family will have a good life for the next season.

SPEAKER_01: 28:30

And what are you missing in terms of... companies or entrepreneurs, like, of course you're not picking them and then finding them to build it, et cetera. But, um, what are you from now until the IPO, like what, what are some companies or crops or, or like approaches you, you would like to add? Is there something you're, um, like you're missing on that matrix of, I mean, quite honey heavy, uh, but let's say in general, is there something you would love to add if you would find it?

SPEAKER_00: 29:02

Yeah. Biggest thing that we see is logistics. So again, this a lot of the things we describe as Africa eats, a lot of the learnings in the two and a half years we've been doing this is, is really just listening to the issues that the companies are dealing with. You know, one at a time or in groups and seeing patterns and then acting on the, on solutions. And so one of the biggest learnings I've had in it, It's taken a little more than two and a half years in doing this work. All the companies, when we first found them, were$100,000. Again,$50,000,$100,000,$200,000 in business. None of them had a truck when we met them. The way you do business, and these are logistics companies, by the way, right? So they are literally buying food from farms, bringing it to a processing plant, and then distributing it. Distributing it to retailers. That's the basic business model. And they were doing that without owning any vehicles. And you can do that in Africa because there's always a guy with a truck. Or the man with the van is the aphorism. And so that's what they were doing. They were finding the guy with the truck, calling him up, and moving stuff around. I hope they show up. It's men. It's men with trucks. And yeah, they'll show up eventually. And it really eats into your margins because you've got to pay them and the market. And so very early on, even 2018, 2019, just before Africa Eats, a lot of the fledged follow-on investments were equity investments to buy trucks. And we just saw this transformation in these companies. They would jump up by a factor of two or three or four or five in terms of revenues as soon as they had their own vehicle and their margins would go up on top of that. And so that was the clear path. And then that East Africa Fruits Company, that one that was a hundred thousand dollars in 2014. It was 5 million last year. And right now they have, I don't know, about 80 trucks in their fleet. They had to build out a logistics system because there wasn't one to hire. The guy with the truck's fine, but when you need five trucks, it's hard to find. So one of our companies in Rwanda, Paneel Meat Processing, fourth largest meat processor in Rwanda, in the pandemic shutdown, he couldn't do his main company. So he's an entrepreneur. He found a guy who had four extra trucks he wasn't using. So it wasn't trucks for hire. It was trucks to lease completely. And he created a logistics company, the first refrigerated logistics company in the country of Rwanda. And this was just at the time the Africa Eats was starting. Got it up and running, earned a teeny bit of money in 2020. In 2021, with no new investment. Actually, no investment whatsoever into this company. He did a half a million dollars in revenue with five trucks. So, Afrogates, we invested in February this year. We invested enough to let them buy four more. That and the profits that we now have 13 in operation in that company. And it's, I think it's about a million and a half so far by November this year. So, it'll be a little more than a million and a half. With a total investment, I think we put in$200,000 in February. And those trucks got more learnings. Those trucks are not just driving around Rwanda carrying food for a handful of companies, they're driving all over East Africa, picking up and delivering food for hundreds of companies. All of a sudden, we discover this opportunity exists not just for our companies, but for many, many, many others. We've seen this as a pattern. The question is, is this a Rwanda thing or is this an African thing? And it seems to be an African thing. It seems to be that everywhere we look, the same missing piece of the infrastructure is there. And so we are in the process of spinning up an equivalent company in Tanzania, spinning out of East Africa Fruits. We know there's a need in Western Kenya where we have two companies. We know there's a need in Uganda where our seed seller can't find enough guys with trucks. And so we're building out a brand that we came up with, Africa Eats came up with it's called truck t-r-u-k um stands for tanzania rwanda uganda kenya four major countries of east africa but it sounds like truck uh and so we're building out truck across these four countries to start with and then beyond that uh and it's just filling in a huge gap that we're seeing uh and that gap will then help the next wave of of companies that are doing food in africa you know get bigger faster because they don't have to build that out too they don't and And especially, they don't have to go raise the money from the global north in order to buy all those trucks. Which is not

SPEAKER_01: 34:10

the most efficient way to do it.

SPEAKER_00: 34:12

Yeah, it's so much more efficient to have a few really big companies, one per country, that can attract commercial capital. We don't need impact capital for trucks. We just need commercial capital for trucks.

SPEAKER_01: 34:26

And so what would you tell, I mean, for sure, you, you talk to a lot of investors, let's say that are potentially interested in these kinds of opportunities, but are on the fence in the global north. Like what is your main message to them? And what would you like people listening to this as well? Walk away with as, as obviously not investment advice, but as a, the main lesson learned or the main, the main message to, to remember after our interview of about 50 minutes.

SPEAKER_00: 34:53

Yeah. So I would say that probably most of your audience has never invested in Africa and probably has never even considered investing in Africa. And the thought of investing in Africa just scares them to not act. And what I would tell you from being a startup investor in Africa for 10 years is it's just like investing anywhere else. It doesn't seem to be any more risky than me here in Seattle investing in Portland, Oregon or Dallas or Atlanta or, you So anywhere where I can't physically just go in an hour and go see the office. Investing is investing. Common law is common law. The British left lovely legal systems all over the world. The opportunities over there are so much bigger than they are here. And it costs way less to grab those opportunities than it does here. So I was a techie. I was in the tech space for 20 years. I see the massive amounts of hundreds of billions of dollars being thrown into the tech space. And it just flabbergasts me that somebody thinks there's another opportunity out there for the next Google. Maybe there's one or two more, but there isn't thousands. And yet thousands of tech startups get started. But there is definitely huge opportunities over in Africa in food and ag, billion-dollar opportunities. And you can get in on$100,000 checks and and see 100X growth on that, or bigger checks if you have more money. But again, the opportunities to see 1,000X growth are all over the place in Africa, and I don't see any of them in the States.

SPEAKER_01: 36:40

And so how do you do like the accountancy from a distance? Like SMEs globally, absolutely not just in Africa, are not famous for their paperwork or keeping track of anything. You'll be surprised how extremely disorganized many SMEs are and thus very difficult to raise funding.

SPEAKER_00: 37:02

Yeah, it's a global problem. That is not an African problem. No,

SPEAKER_01: 37:06

absolutely not. It's everywhere. Any SMEs, I would urge you to walk in any anywhere. And yeah, you'll be surprised about the non-existence of Excel, even in many cases.

SPEAKER_00: 37:15

Yeah. So we know this and we plan for this and we work around this. So I often describe, I think I did a blog post on the Africa Eats website. I said, here's the recipe. We're one part venture capital, we're one part business accelerator, and we're one part Berkshire Hathaway in food and ag in Africa. That middle part of business accelerator, right? All these companies, all these founders, chose to come to a business accelerator. That's how we found them. They all knew they needed help. They all knew that they didn't have all the answers, which is, again, vastly different than the world of tech. And so we've trained them in what it means to produce financial reports. And I can't say that we train them perfectly and they all produce great reports. That's not true yet. But as part of Africa Eats, what we do is we check in on them, constantly. We require them to report to us on a quarterly basis what their financials are. We review all that. We review their annual audited financials because in most countries you're required to submit audited financials. When they're out raising money, and most of them are trying to raise money, when they're out raising money, they're sharing with us their forward-looking financials and we're reviewing those and giving our feedback on that. And we're about to launch a service where we're going to just do the financials for them. So what we've learned in teaching them over and over and over again what it needs to look like is they still don't always get it. And so we're just going to hire a small team of bookkeepers and accountants and just offer to them that we're going to do their books for them. And we're going to show them what it means to have a CFO. We're going to show them what it means that on Monday morning at your management meeting, you have an actionable financial report as opposed to your auditor gave you a report from six months ago, which is generally what they're doing right now. And our expectation is once they have actionable financial reports, their growth will speed up, which is one reason. A, we're doing it because it's the right thing, and B, we're doing it because we think their growth will speed up. And if their growth speeds up, then our portfolio is worth more. It's probably

SPEAKER_01: 40:10

needed for the IPO at some point.

SPEAKER_00: 40:12

Yeah. So that part of Berkshire Hathaway meets business accelerators, sometimes the answer is in cash. Sometimes what they need is something beyond cash. And if we can provide that, we'll provide that too.

SPEAKER_01: 40:28

And to, probably it's a nice bridge actually, to a question I'd like to ask on a magic wand. So if you could change one thing, but really one thing only overnight, could be in Fudanag in general, could be in Africa specifically, could be, or could also be globally, what would that be?

SPEAKER_00: 40:46

Can I just put two more zeros on the end of the bank account in Africa?

SPEAKER_01: 40:52

Yeah, you could, but let's, yeah. But what would you prioritize? I asked this question because I I want to know what would you prioritize if resources, I'm not saying are unlimited, but are pretty limitless in this case, a billion dollars is still a lot of money even with these inflation numbers.

SPEAKER_00: 41:09

Yeah, I'd say the only problem we're facing at AFRI, the only real problem we're facing is lack of capital. So this could be a hundred company portfolio in a year if we had the capital. It could be a thousand companies by the end of the decade if we had enough capital. We could be working with tens of millions of farmers if we had enough capital. This model could solve the problem of Africa being a net import continent if only for the capital. That's the biggest story. I was mixing up

SPEAKER_01: 41:42

questions of magic want and a billion dollars, which you also answered. You would just add a few. That's the missing link here. It's extra capital to accelerate.

SPEAKER_00: 41:54

That's all we're missing. Of course, we'll need a bigger team to That comes with capital. That's easy and relatively easy. And just to show, we didn't talk about the land accelerator or that side of the work. One of the fledged programs that's still running even through the pandemic was the land accelerator with World Resources Institute. And that's a program focused on restorative agriculture, restorative forestry and agriculture. And mostly winds up being... Tree-based crops, so fruits, nuts, things like gum arabic, things that grow on trees, edibles that grow on trees. And we had 1,400 applications for that program this year and 1,300 last year, and we have 250-ish alumni of that program. And they're mostly trained as well. Again, if only for capital, we would invest in a whole pile of those. Like we already know them.

SPEAKER_01: 42:59

Because they would fit the holding company. Yeah,

SPEAKER_00: 43:04

I can't do the forestry ones in Africa Eats, but we have a plan out for Africa Trees that would do the forestry ones.

SPEAKER_01: 43:11

And so how do you raise money now for Africa Eats as you didn't do the IPO yet, obviously? I mean, you need scale for that. So how do you raise to get to that scale?

SPEAKER_00: 43:20

We've raised about$7.5 million so far, all from individuals and family offices. We have talked to many institutions. We expect some to come in in 2023, but to date, it's individuals and family offices with relatively small checks.

SPEAKER_01: 43:38

And you see those institutions as a key, let's say, stepping stone to then be able to take a bunch of the land accelerator program, for instance, in or to really start scaling to 100 companies? Yeah. Or can it grow with just family offices and individuals?

SPEAKER_00: 43:54

It will continue to exist and grow with family offices, and then it'll step up in scale when the institutions come in because the institutions are ordered magnitude larger checks

SPEAKER_01: 44:10

and why are they holding back until now is it the model or is it like the hold code they're not used to or is it just wait and see to to make sure you're you're around

SPEAKER_00: 44:20

part of that yeah some of all of that i'd say the biggest driver is we're two and a half years old uh it's not a model they've seen before and they tend to like they tend to very very often ask give us a three-year track record show us three years of operations

SPEAKER_01: 44:36

you're almost there

SPEAKER_00: 44:37

can't show yeah i I can't show three years with two and a half years of incorporation yet. But we'll get there by the middle of next year.

SPEAKER_01: 44:44

And then how much do you imagine you need to raise to get to an IPO at some point?

SPEAKER_00: 44:50

The model says about$30 million. Which is not

SPEAKER_01: 44:54

even that. I mean,

SPEAKER_00: 44:55

it's a lot of money. To get to London,$30 million. To get to the IPO in Africa, about$10 million more. We're about halfway

SPEAKER_01: 45:05

there.

UNKNOWN: 45:06

And...

SPEAKER_01: 45:07

I asked this question, I mean, there are many things, but if you had to pick one, for sure you go to impact investing conferences or Africa conferences. What makes you contrarian? What makes you really, is it your optimism for this space or you're just the view of this enormous blue ocean that's in front of us that others don't see? Or what's the biggest difference? Or is it the model that you see, let's say, with any others when you go to as typical, let's say, impact investing conference or food and ag conference focused on Africa?

SPEAKER_00: 45:37

I'm still stuck on the word contrarian. I don't see myself as a contrarian. I'm not following the path that others follow, but I don't think I'm following the opposite path. I think what I've done is that I just sat down and said, here's my problem. My problem is there's no exits in Africa. So I can't raise an equity fund like I would if I were investing in tech in the States. So I need another solution. And I found another solution. solution. And so it doesn't look like the other people's because I don't think they sat down and said that. I think most of the other fund managers said, well, there's opportunities in Africa. My choice is debt or equity fund. I'll pick one of the two. The ones that picked equity just picked equity and gave no thought to the fact that there's no exits and their investors are going to be asking them in 10, 15 years, are we ever going to get out? So I don't think I'm a contrarian as much as I'm just worrying about the next step. I'm worrying about it from the perspective of the investors, not just from the perspective of the funding.

SPEAKER_01: 46:46

And some of these funds are getting to, I mean, it's not 10 years for them anymore. It's quite a bit less. So investors should start to ask questions soonish or at least in the next few years where the exit should be coming.

SPEAKER_00: 47:00

Yeah. And this is why in Africa, most of the institutions are dead. Because maybe they did ask the question in the answer was, well, we can't do equity, so we'll just do debt. But then you don't get the right return for the risk. And

SPEAKER_01: 47:14

you did use revenue-based financing in Fledge at the beginning, if I remember correctly, right?

SPEAKER_00: 47:19

Fledge uses revenue-based financing, but when we moved the investments over to Africa Eats, we undid that and said, no, we like these shares, we want them forever. So revenue-based is another answer, but the challenge that comes on the revenue side, revenue-based investing side is how do you keep funding these companies over and over again when there's no other institutions that are following you and so in the Africa Eats style we are the institution that's following ourselves so we just do that by buying more and more equity Fledge gets 6% for its cash and its help and Africa Eats is aiming for 25% for these companies and we do that with cash we just buy shares and we pay more and more every time we buy shares because the companies get bigger So that's kind of VC-esque. And so we don't want them to buy their shares back from us. We want them to just take the money and keep getting bigger.

SPEAKER_01: 48:17

And keep growing, yeah.

UNKNOWN: 48:19

Yeah.

SPEAKER_00: 48:19

Yeah, again, there's

SPEAKER_01: 48:20

anything. Yeah, sorry, go ahead.

SPEAKER_00: 48:23

Yeah, I say that the opportunities are so big that you don't, you know, in the case of Fledge, again, it was global. And so it was trying to cover all these things. But in the case of food and ag in Africa, why would you take money out of a company when there's a thousand X growth in front of it? That's just going to slow down its path to get there. We want to put more money into it to go and solve that problem now.

SPEAKER_01: 48:46

And so what do you see? I mean, I know you're not a far farmer nor a soil expert, but like the opportunity for regenerative practices in Africa, you say most of it is by definition, but of course there is a lot of chemical fertilizer, either counterfeit or real for very high prices that is being used by different programs, subsidized by different programs and being pushed by certain people as the solution. We mentioned Mr. Gates before, like we need to get African farmers on high energy and and also high cost inputs because that's the only way to grow. What do you see as, and this might be a rabbit hole and I want to be conscious of your time, but let's see if we can round it up. What do you see as the regenerative practices and going forward next 10, 20, 15?

SPEAKER_00: 49:33

Yeah, I said average is mostly organic. On the restorative side, I see those answers in the land accelerator. Again, I've seen thousands of applicants and hundreds of companies I've mentored. Yeah, there's some breakthrough through ideas that are sitting there in the continent, making organic fertilizer in 24 hours from ag waste. But they're just not funded yet or they're barely funded. And so on that side, my nonprofit runs the Terra Fund or operates the Terra Fund with World Resources Institute. It's a$3 million revolving loan fund provided solely through philanthropy, which is why it's sitting in my nonprofit. And so we've done loans to 20 companies in the restorative ag space. But I think there's just one that's doing fertilizer. Most, again, are either fruits or nuts or moringa or gum arabic. But we have a whole bunch of other companies that hopefully we'll be able to fund with the next tranche of capital in that fund. Again, hopefully through Africa Eats as it gets bigger. And we would love to see organic fertilizer all over the place at a cheaper price than than mined fertilizer and i think the technology is there to do it it's just not at scale yet

SPEAKER_01: 51:00

thank you so much i want to thank you for your time be conscious of it and definitely link everything below honestly on obviously on your work but also keep checking in as the the two worlds collide of the land accelerator and africa or africa eats and obviously follow you over time towards the ipo and because it will be quite a quite a story and hopefully as successful on the monetary side but also let's say more successful on the impact side compared to to warren buffett but definitely We'll set an example. Yeah,

SPEAKER_00: 51:32

yeah. All right. Well, thanks for letting me share and thanks for having me on.

SPEAKER_01: 51:35

And maybe you even could get your nearby neighbor to convince that organic is not necessarily too more expensive. Perhaps someday. Someday. Thanks again and see you next time.