408 Ivan Mandela - Unicorns can wait, African farmers can't

It’s a very interesting time for African agriculture and food, the continent is realising it’s potential to help feed the world, money is flowing into infrastructure to unlock this, more and more talent is coming into the space and the realisation that agro ecology or regenerative agriculture is no longer a nice niche with big margins but has the potential to become the predominant way of agriculture is performed. 

After putting over $20 million to work in East Africa, Ivan Mandela, founder of SHONA Group, has learned the hard way: chasing Western style so called unicorns might not be the right approach for a predominantly agricultural society. So he shifted his approach and started investing in real companies, to help create a functioning main street a functional real economy where unicorns will naturally start to occur. We discuss why Ivan ends up mostly backing female entrepreneurs, his tips for young students and his takes on nutrient density and quality.

More about this episode.

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In Investing in Regenerative Agriculture and Food podcast show 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. Hosted by Koen van Seijen.

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Transcript

Africa’s Food Potential Emerges

SPEAKER_00 0:00

It's a very interesting time for African agriculture and food. The continent is realizing that it has a lot of potential to help feed the world, and money is flowing into our infrastructure to unlock this. And more and more talent is coming into the space. And there's a realization that agroecology or regenerative agriculture is no longer a nice niche with potentially big margins, but it has the potential to become the predominant way in which agriculture is performed. After putting over$20 million to work in East Africa, our guest of today has learned the hard way. Chasing Western-style so-called unicorns might not be the right approach for a predominantly agricultural society. So he shifted his approach and started investing in real companies to create a functional main street and a functional real economy. In this way where unicorns will naturally start to occur at some point. We discuss why Ivan ends up backing mostly female entrepreneurs and his tips for young students and his takes on nutrient density and quality. Enjoy. This episode is part of the Regenerative African series, where we interview leading regenerative agroecological entrepreneurs across East Africa. It's a special collaboration with the Organic Guy Podcast and supported by Rutico, a regenerative venture studio rooted in East Africa. This is the Investing in Regenerative Agriculture and Food Podcast, where we learn more on how to put money to work to regenerate soil, people, local communities, and ecosystems while making an appropriate and fair return.

Series Context And Purpose

SPEAKER_01 1:32

Hello, everybody, welcome to our very special podcast episode of the African Regenerative Frontrunners, which is a collaborative series that is being done by the Organic Guy Podcast, which is usually hosted by me, The Organic Guy, and the investing in regenerative agriculture and food podcast, which is hosted by Kuhn. This podcast series is being done so through the support of Routeco, which is a regenerative venture studio that is based right here in South Africa. The aim of this series is really simple. We want to bring African regenerative voices into the global stage and into the rooms where the future of food, finance, and agriculture is being shaped. I have a very good fulfilling about today's conversation because it sits right at the intersection of capital and how it can actually be used to bring out a real economic transformation. And our guest today is a Chotabok financial analyst as well as an impact investor and the co-founder and CEO of Shona Capital, where in the past decade he has helped more than 50 SMEs across East and Southern Africa raise over 20 million US dollars. He goes by the name of Ivan Mandela. Ivan, thank you very much for making time for the podcast and welcome.

SPEAKER_02 2:57

It's a pleasure to be here, Brian and Kuhn, and looking forward to the conversation. Really exciting.

Ivan’s Path From Farm Roots To Finance

SPEAKER_00 3:04

Yeah, and to kick it off with a personal question, we always like to ask. First of all, thank you so much for coming here. Obviously, I'm Kuhn, the host of the Investing in Returnative Agriculture Food Podcast. And as Brian said, you raised a significant amount of money and not just gave it to entrepreneurs and organizations, obviously, but invested it, and most of it, if not all, plus return has come back, which is not an easy feat. But to ask a personal question, how come, and we talk here specifically on the food system and agriculture system, how come you are spending so much of your waking hours thinking about that system specifically? Why food and ag and why the role of money? There are easier sectors, let's say, to in engage with fintech and other ones, which for sure you are part of as well. But why food and ag is such an important piece of your work?

SPEAKER_02 3:52

Yeah, Brennan Kone, I grew up in a farming community surrounded by smaller farmers mostly that made a livelihood out of primary crop production, a bit of animal husbandry. And that was the source of livelihood for the bigger part of my family. I had the opportunity and I was lucky that my parents managed to grow themselves out of that system and got into former employment. So I guess I lived two lives, right? One, a bit of what you would call the haves and the have-nots. And that exposed me to the power of money as a tool, potential tool of transformation, too. And that's where the intersection of food systems and money comes into play. And that's why it makes so much sense for me. Because I feel like we can use finance and capital as a tool to transform the food system, which has evolved, you know, see the last two decades of my life. And I think it has a lot of evolution to come, and so I feel like I have a role I can play actively by using my skill sets and my passions around finance, which is why I do what I do, because I feel I believe in the power of natural incentives for people to solve problems. And that's what the private sector, that's what capital markets do.

SPEAKER_00 5:13

And do you remember, because many people, let's say, that that quote unquote escape, and I'm using that word not lightly, into more formal employment, into education, into universities, into the financial sectors, also though don't look back. They might go to bigger cities, wherever that is, like we see that in the countryside almost regardless of where you are, and not many look back and then start to work on the food system with the skills they have gained elsewhere necessarily. What was for you the trigger, or what was the moment you started looking at the food and agriculture sector also with a professional lens, let's say, with a with your investor hat or your investor glasses on? Do you remember? Was it a specific moment, or was it more a gradual one, or was it always the goal to go and then actually to then look back and say how do we how do we help improve the system? How do we engage with it?

From Chasing Unicorns To Main Street

SPEAKER_02 6:02

Yeah, I think the goal was always to do something that would transform the lives of smaller farmers, my family being likely part of that. And so I started out as an entrepreneur myself in the food systems. This was right after high school. I started out, my startup was learning smaller farmers, and my idea was that then I would give them access to markets, lend to them so they have inputs, or so they can invest in their farms. And then I it was very clear to me that without access to markets, there is no way you would then transform these people. So the idea was that then I would buy the output from them, add value, and take it to market. And in that process of starting a business with no experience, with no exposure, and eventually trying to raise capital and not succeeding, it was for me like the turning point to say, okay, how many more entrepreneurs like myself that are trying to transform the food system have the same struggles? And entrepreneurship has so many struggles, but capital is one of the biggest struggles. And I don't agree with anyone that says capital is not a problem and it's always an excuse. It isn't, it's actually a big issue. And so for me after that, of course, eventually I had to shove that business because I couldn't just raise enough capital. I think it then inspired me to do something and maybe build a vehicle that would then help other entrepreneurs like myself. And that's formed the genesis of Shona along with my colleagues in 2013. Um when we decided to start Shona. Yeah.

SPEAKER_01 7:42

Wow, that's pretty impressive. So you've been in the business since 2013, and I really do hope that you guys are very proud of yourself because I can imagine there's a lot of businesses that started back in 2019 that no longer exists today. So you should be very proud of yourself. And that means that you have had a lot of lessons, you've learned a lot and you've gained a lot of experiences with working with different entrepreneurs and their different businesses. The aim of every fund, every capital fund is really to get to hit a jackpot, get two or three businesses that are really going to help them recoup some of the money that they've lost on different kinds of businesses. And they're always trying to chase for that unicorn, for that Facebook, for that Google, so that they can be able to invest early. Something interesting that I've was able to see with your strategy is you're trying to look for small and medium-sized businesses, which is a strange uh strategy considering how other funds operate. So I'm wondering what was the idea behind that? Why was this strategy of trying to find small and medium businesses a big part of what you do?

Convincing Capital To Fund “Boring”

SPEAKER_02 8:56

Rand, that's where I started. I had big dreams and building a unicorn or even investing in the next unicorn was one of them. And so when we started out, we were actually looking for high growth businesses, businesses that would be the next Facebook of Africa or in terms of growth scale. But also, I think because we believe scale was important, right? If you're dealing with millions of smaller farmers, then you must build scalable solutions that create significant impact. And between 2013 and ourselves to 2018, we were actually on that journey trying to find the next. And we raised significant capital, it has always been easier to pitch a high-growth business because the story always makes sense, especially for us that rely heavily on Western capital markets. It's what makes sense, it's the language they understand. But I think over time, and even though we had some success stories, a lot of the businesses we supported or invested in failed. And so the story of this is that you rely on two or one that have to give you the return and the scale that covers for the eight that failed. And I think that story for us didn't just add up, and we saw a lot of small businesses that came to us and could not either pass the criteria and they just didn't make sense to invest in that one. But I think looking at the data, it has all it has come in 2019. We had to what the data was clear that without a foundation, without a strong main street, without you having enough small businesses that create upward mobility for smaller farmers, for jobs, for incomes, then you cannot talk of unicorns because what do unicorns rely on? Unicorn rely on thriving capital markets, right? Thriving capital markets rely on stable incomes and jobs. And so there must be a starting point for the African markets and for the African economy. And the starting point, based on where we are, is the main street, is the small businesses, what others call the boring businesses. Right? Because our economies are 80% agriculture, agrarian, right? And so others are arguing we should move out of agriculture. But our argument is agriculture is actually an opportunity. If you have 80% of the population employed there, how about you invest in supporting the small businesses that account for 80% of the business happening in this sector and give them as much support, as much capital as you're giving the unicorn that fail anyway? So then you build a foundation, you go to the next stage, and then unicorns become almost automatic. Because once you have once farmers are able to purchase solar systems, once farmers are able to move money on through in through fintechs, then these fintechs have an opportunity to actually build high variations that give them unicorn status, real variations. And so for me, it's really about the foundation. The foundation is on the main street, it's in small businesses because they are the ones that actually create that upward mobility that we need in terms of incomes, whether it's for smaller farmers, for their employees, or for their suppliers, that then strengthen your capital markets because guess what? People are saving more, people are participating in the public markets or capital markets, then an IPO is possible, right? Then mergers and acquisitions become possible because you attract the big corporates or big agriculture businesses or the high-value businesses coming into acquire businesses that understand the market and have already built the infrastructure.

How Shona De-Risks SME Lending

SPEAKER_00 12:48

At such an important point, an interesting one. Like we're chasing unicorns before Main Street is functioning, or before, and it's sort of the assumption is let's just leapfrog that or something. And you're saying no, we need to. But you also made a very important point before, saying that's the language that the capital markets we depend on are unfortunately used to, meaning the Western capital markets, unicorns, high valuations, hockey sticks, or the whole shebang. So, how has that been? Because you've been successful there in raising funding, not always successful in chasing unicorns because, as for the reasons you just explained, how has been that switch then to uh going to the capital markets and saying we need to do your words boring, boring businesses? How has that landed?

SPEAKER_02 13:35

Well, it's a difficult switch, right? Because then it it has meant that you have two options. You either convince, try to preach and convince the unconverted, or you then have to create a whole new network around this mission and vision and this message. And I think it's been a mix of both. Within our networks, we I think had people that had the message, right, and helped us start on this journey of transformation, because it's been a real change for us. And I guess that also informed our rebrand, right, in 2019. And then I think also looking out for just new networks and immersing ourselves into who else, trying to find who else believes in this message, who else is on this journey, and such that we learn together with them, right? Because it's also been new to us. And I think we've been lucky to find a few people that really believe in this message that have had the same experiences we've had, because all the investors we have invested in potential incomes in the past. So I guess it's also maybe it's been necessary that some investors go through the process and understand the market. And I think for those that really are genuine and are looking at the data are starting to see the same things that we are saying. And I believe the capital markets are going to eventually end up here. It's just a question of how do we get there faster, how do we not incur the cost of failure and minimize it as much as possible. But I think it's really the data, right? We've had to dig out the data, we've had to share experiences, right? And continue sharing that openly and as much as we can. Because that's what it takes to really get the kind of support you need to build what we are building.

Policy, Infrastructure, And Market Signals

SPEAKER_01 15:22

Yeah, absolutely. And one of the advantages of being in business for such a long time is that you have had a lot of data and you've been able to look at it and you can decipher it and really be able to avoid some of the mistakes that a lot of newcomers can be able to make. So I'm wondering because I saw a very interesting statistic that up to 90% of the money that you put out, you are able to recover it, which is pretty high. And given the fact that you are lending to small and medium-sized businesses, so I'm thinking they might not have uh the kind of assets that you can be comfortable with to lending your money, or they might not have uh the kind of revenues that you expect with the big companies, or the kind of profits that they make that gives you confidence when you're giving the money that you will probably get the money back. So, how do you go around that? How do you go around measuring the right kind of money you're able to give to these businesses? Because I'm thinking if it's either equity or is it a debt, there is some kind of criteria that you're using to give money to these businesses. So, what criteria are you using?

SPEAKER_02 16:39

So, I I I guess so in any form of investment, whether it's debt or equity, I think you're usually relying on the entrepreneur, right? You're really investing in the people, investing in their skill sets, their commercial saviness, and their character. They must want to pay you before they are able to pay you. And so I think we've just, I think after a decade, we've accumulated some data around who is a good entrepreneur, right? And we've even distinguished that and say who is a good kind of profile for a unicorn, what kind of skill sets or mindsets are you looking out for? And who is a good kind of entrepreneur for these small businesses that we are now focusing on, and brought it down to practical things that we look out for. So I would say we've gotten really good at selecting good entrepreneurs that have good character, right? And are really committed to the cause, right? In depending on what they're building. But I think the other thing is to remind ourselves that at the end of the day, we are risk managers, right? So for each investment, and our data is a lot about which risks, right, do we face, which risks can we take, and which ones can we not take. And being really genuine in that process and again relying on data to be honest about the risks you are taking and which one and how we are going to manage them. And but the most important thing, and that's why we management support for us is critical, it benefits the entrepreneurs, but it's also a risk management tool for us. Because what we believe is that even it doesn't matter how much assessment you do at the beginning, business is dynamic, things are going to change, challenges are going to come, and there'll be times when the business has cash for constraints and they can't pay you. How do we step in to support these businesses and help them navigate those dynamics as a risk management tool for us, but also as a growth tool that supports these businesses to lead to the next stage of their life cycle? Because we believe that as businesses grow, then it means we are able to deploy more capital and our economics even make more sense. So I would say it's that, right? Those three aspects with the management support or technical assistance, we hope are being most important because it's a de-risking mechanism.

Debt, Equity, And Revenue Share Lessons

SPEAKER_00 19:08

And what have you seen? Obviously, mentioning, let's say, the agriculture sector is 80% of the in Uganda. What have you seen over the last years in the food and agriculture sector? And what gives you maybe hope is not the right word, but what have you seen in terms of trends, in terms of changes, in terms of opportunities from an investor point of view?

Agroecology Economics: Margins And Costs

SPEAKER_02 19:31

Yeah, so I think, especially from Uganda's perspective, but also generally, I think in general, there is a lot of recognition, increasing recognition of the sector and how important it is. I think also looking at what is happening in the West, especially in terms of food systems, I think we are starting to see that as an opportunity for the continent, right, to feed the world and tap into those markets. And so what that means is that governments are investing more in infrastructure and investing more in the sector, right? And looking at how we build the infrastructure and build the capital to invest in value addition and increase the value that we are getting from the sector. Because while the sector is employing 80% of the population, the value that we are getting out of the sector is then actually lost. So there's a mismatch between the size of the sector in terms of people and activity versus the output. And so there is then an intentional intentionality around policy and investment from I think most governments. So in terms of a policy at policy level. From an investment perspective, I think we are seeing a lot of capital flowing. I think there is more and more intentionality around policy, but also in investing in infrastructure that supports a special value addition. Because I think governments and I think the private sector has recognized the opportunity that we have from a global perspective. If you look at the advantages and leverage we can have as a content, it mainly tends towards the food systems and feeding the rest of the world. So I think that's an opportunity because once you have everyone else has been investing in trade when it comes to agriculture, not as much investment in infrastructure, whether that is warehousing systems, whether that is actual physical road infrastructure to make markets accessible, or even just digital infrastructure to connect farmers and make sure they have the information and access to markets. I think that is an opportunity for the sector. And then that is starting to change the perspective of the capital markets, and especially the foreign capital markets, because we are seeing, I think, a lot more capital flowing in for the sector, just as we've had fintechs take a biggest share of capital in the last five years. I think we've seen that there is increasing more capital. In fact, I always argue one of the I think one of the reasons it's honestly been possible for us to raise capital is our increasing focus on the food system, because then you have a bigger pool, you have more conversations. Can go to so that is an opportunity that I hope we both as intermediaries but also the entrepreneurs can leverage as we go forward. And then I think there is a lot of penetration of digital infrastructure in the rural areas where production is happening, which means that farmers are more and more connected to information and that is influencing the way they farm. They are more and more connected to markets, that is making the sector more competitive. I think competitiveness is good for all people across the blockchain, but the farmers obviously benefit most from that. And I think again, with competitiveness comes more investment. You just have more opportunity coming into play.

SPEAKER_01 23:15

Yeah, absolutely. And yeah, I find that fascinating. And that makes me wonder in terms of the products that you're offering to the market, whether be it diet or equity, which ones of those products are you utilizing most? Or which one of those products that a lot of entrepreneurs prefer that they get from you?

Kenya vs Uganda: Performance Insights

SPEAKER_02 23:38

Yeah, so I think we we've mainly been focused on loans as Shona Capital. We started out doing equity, had the same challenges that all equity investors have, which is where you struggle to point to liquidity and exits. And so we've been now doing debt and trying to do a mix of long-term debt, short-term debt, give that balance for the entrepreneurs. I think the interesting instrument we've been trying out with the nature fund is revenue share, which is our attempt to blend the advantages of equity in terms of flexibility and the liquidity and straightforward structure of debt. And by the way, the it's interesting. When we started out, you think that endeavours will jump on equity as a more interesting instance?

SPEAKER_00 24:21

I was gonna ask that because my experience is different, but I'm so curious about how entrepreneurs and farmers, because I've seen some attempts of revenue and profit share with farmers in the US. Shout out to Matt Capito, Brian, Brandon, and Phil, etc. And they didn't have a lot of uptake. But I'm super curious what was your experience?

SPEAKER_02 24:39

Yeah, with equity, no uptake, certainly. The instrument usually comes off too complicated, too involving. To be honest, in especially in art, most entrepreneurs do not find that attractive, they find it too complicated and too sophisticated for and misaligned to most of the business models they run.

SPEAKER_00 24:58

Interesting. So they find that misaligned compared to depth, where like there's no way of sharing the risk or or upside together. That's so fascinating. Yeah, it is.

Designing For Farmers As Customers

SPEAKER_02 25:08

And I think it's because they think from a different perspective. They are not investors, right? They're entrepreneurs. So I think what that does is give them clarity, right? Of how much time do I have, what is their motorization like. And guess what? I retain control and ownership of the business, right? That's the primary motivation. But it's control, ownership plus clarity. And so, of course, then they will demand a bit of terms to give them some level of flexibility in terms of grace periods, in terms of tenure, the same sort of flexibility you would get from equity, even though they can't get the same level. The revenue share has equally been interesting, right? Because we thought, okay, maybe revenue share looks interesting. And I think it's the same problem, right? Slightly more interesting than equity. There's still some lack of clarity of to what point you exit, we are now dealing with multiples. And by the way, I have to give you a share of my revenue every quarter annually. They struggle to deal with that, especially, I think, for agriculture, when you have, especially if you're doing trade and you have thin margins, right? Then revenue share becomes even less interesting. So debt is still a main instrument and really aligned to the market and demands of the small businesses we serve. Revenue shares would be the next best instrument. We are still yet to gain enough traction to claim it works.

SPEAKER_01 26:33

Yeah, absolutely. Early on, you mentioned about the nature program, which I find fascinating for some of those guys who don't know about it. So there's a program where you're actually lending money to agroecological businesses, uh, both in Kenya and Uganda. And you've been doing this for a while now. I think now you're going to your third cohort, and that means you have some kind of data. So I'm wondering from that perspective, or it can be from an investor perspective, what are you seeing in terms of differences between the agricological businesses that you've been learning through this nature program and the normal, what we may call conventional businesses that you've been doing so for the past 10 plus years. What would you say is the differences between those two businesses?

Investor Takeaways And Scale Of Opportunity

If Given A Billion: Priorities And R&D

SPEAKER_02 27:21

Yeah, I think from our perspective as investors, we've had to think differently, right? Because when you're dealing with a conventional business, you're thinking top line. You know, I grow the top line revenue, you focus a bit less on the middle in terms of cost structure. It is important, but I think like the mind is always on top line revenue, right? How do I grow the top line? How is my investment going to help you grow your top line? And how do I structure my investment around your cash flows? Because that's where I create value. I think for agroecological businesses, we've seen that is true, you achieve that, but initially, there is usually actually you have to think of value from two angles. There is, yes, maximization of the top line and bottom line, which obviously ties into the bottom line profitability, right? But actually, a lot of agricultural businesses where they get a lot of value is in reducing costs, right? In terms of the cost structure, there's usually a lot of value in the in optimizing and maximizing the cost structure and margins, right? At least that's how the market is responding. The market is seeing agroecological products as healthy products, high value products, and so your margins are likely to be bigger, right? And that's the status of the market. So if you're going to invest in agricultural right now, agroecology, you must be thinking margins, you must be thinking cost optimization, right? Because right from farm level, what agroecological products are doing for the farmers is help them reduce costs. Because then you do not have to use as many inputs, right? Once your soil gains that sort of optimal health, and that trickles down to the business itself. Now, that is a phase, I believe, of the market. We are going to get to a point where the market shifts its perspective, and I think there is a lot of things we can do, but the market will eventually shift its perspective to then drive top line through volumes, right? Because then they stop to think of this as niche products, but they should become the conventional products because growing up, actually, what we are calling agroecological products were the conventional products, right? Because I feel like it's shifted and it needs to shift back for this to be the normal and for the other to be the abnormal. But I think as we are now, right, the normal is the conversion from a market perspective, which is unfortunate. And the agroecological products are the special niche products that must, you know, generate, of course, they naturally generate high margins, and and I think that is going to change over time. So, as investors, I think that's how we are approaching it. We, of course, have to align with the market now. So the way we look at businesses is we will because you cannot really compete right now with the conversion of products. We will have to look at okay, how are you approaching the market in a way that gives you advantage? Because you can actually have advantage, right? But position yourself for the future as it comes.

SPEAKER_01 30:31

Yeah, just out of curiosity, by the way, and I think my Kenyan colleagues may be interested in this. What are you noticing between Kenyan and Uganda now businesses? Which of the two businesses is actually performing better?

The Magic Wand: Reward Nutrient Density

SPEAKER_02 30:44

It's not a race, right? Do you want me to say do you want me to answer that question, Brad? Anyway, I think Kenyan businesses come off stronger, come off bigger, but in terms of from money investment point of view, somehow, right? And from a return point of view, the Ighanan businesses do better. So you have more volume coming from Kenya, you have what comes off as more mature or stronger businesses coming from Kenya, but somehow, when it comes to the bottom line, in terms of risk, in terms of return, in terms of default rates, you have the Ighanan market performing better. And I think it has to do with, of course, Kenya is a more supported market. You have more incubators, you have more accelerators, you have more capital there. So it is not surprising that businesses come off more prepared, more mature, right? Because they already, from the word God, know what investors want. They they have obviously stronger opportunities from on the market side. But we've actually learned that too many opportunities sometimes then are not good because they create the opposite effect, right? Then you have entrepreneurs focusing on the wrong things. You have them chasing more capital than they chase revenue, than they chase customers. You have them not focusing enough on their value chains in terms of organizing and creating value, right? Across. And then I think Ugandan entrepreneurs come from a perspective of lack, because they know they don't have as much capital, they don't have as much opportunities. The value they attach to an investor relationship, you're basically an angel to them when you give them money. And I think that is the difference we've been we've seen. It's been interesting. The Kenyan market is still very important, I think, because it's just a more mature market. Even the value chains, I think, are stronger because they've just had us more investment flow there.

Moving Consumers Beyond The Niche

SPEAKER_00 32:44

So that's the difference we've seen in terms of market. And coming back to the point you made before, which I think is fascinating and something we see partly here as well, is the notion of the shift from conventional to to let's say agroecology as the norm. Do you see the end the level of entrepreneurs, or do you see the entrepreneurs that are not just thinking this is a niche, how do we reduce cost, how we how do we play the current high margin game, let's say, but do you see entrepreneurs coming in now that are chasing that or that are thinking and acting, okay, what are the steps from here to actually 80-20? Like we switch the whole market, like agroecology is the norm, etc. Do you see that kind of type of entrepreneurs coming in? Because we see a bit of the last two years, maybe that let's say the quality of influx of talent is in the food and agriculture sectors starting to change, more and more people bitten by the soil bug, focusing on food systems for health, for inequality, for biodiversity, for carbon, whatever it might be. But do you see that as well or not yet?

Why Women-Led Firms Outperform

SPEAKER_02 33:46

I think the talent is certainly improving. You have more talent coming into the sector, it's starting to look sexier than it was for a lot of people. So you have ex-corporates, really experienced talent coming in, and that's good for the sector. I think there's also a bit more support, and that's why Root Core makes so much sense because it's a studio, and studios by nature focus on talent, right? And that's where the gap is. And so that is starting to shift, and so the quality of entrepreneurs and entrepreneurship is also changing. To be honest, historically there have been the market has also been largely driven by concessions, too many concessions. So it means the incentives and the kind of entrepreneurs you've had and the incentives they have, I think have not limited how much progress we've made when it comes to market and penetrating the market. And without the market, then the value in the supply chain doesn't matter what you do. It doesn't matter how much the farmers are producing. And so I think it is that sort of balance as you have more talent come into play with the right balance of incentives in terms of, for example, for agroecology, looking at the principles of agroecology and seeing how those apply to the customer, the person going to buy these products, right? And what they are thinking and how that is evolving has been, I think, the most important shift for me. Because there's been a lot of focus on the supply chain and production side. And I think what we are seeing now is more and more interest in the market side, the customers, and how they are thinking and how that evolves. And so that brings, once you bring those two sides together and have enough focus on them concurrently, then a shift in terms of how investment the sector, and that once you change that perspective and investors start to look at regenerative agro agroecology as a real opportunity, placement opportunity, then that drives more capital naturally. And that's how things start to shift. That's what is happening. That's that's what I see happening in the boardrooms and in the conversations.

Idea vs Execution vs Capital

SPEAKER_00 36:37

Do you have any examples of like how like entrepreneurs, brands, or what companies you you've been working with that are reaching a different market or a larger market because they understand how to translate agroecology to the average consumer in the supermarket, the average consumer on the market, or the average, not the soil food health bubble, let's say that we are potentially all part of. What have you seen there in terms of things that resonate?

Advice To Young Builders

SPEAKER_02 37:06

Yeah, so I think we have two groups on our portfolio. We have businesses that are focusing on the production side, so mostly trying to less and provide alternatives to conventional inputs, synthetic fertilizer or synthetic. And I think the shift there is thinking we have businesses like Agapi that are producing fertilizer. And I think the shift in mindset and what makes these businesses tick is they are now starting to think of the farmer as a customer. And there is a way that just changes the relationship we have you have with the farmer and doesn't allow your value proposition to come out clearly. And I think shifting and looking at the farmer as a customer, if you're selling to them fertilizer, allows you to listen to them and see and understand what their challenges are and how they think of your product and how you evolve the product. And it brings simple things like how you package your product, right? If you look at previously, you have agroecological businesses not branding their product because it's BSF fertilizer. Just it's the product represents the process that the fertilizer has gone through to get to the farm. But again, we realize farmers are visual by nature. So when they go to buy fertilizer, if a synthetic product is packaged, well packaged, branded, they naturally have the attention more than they have the attention, your attention. So I think that shift and thinking about the customer more and more, it doesn't matter whether that customer is the farmer or the end consumer, is being demonstrated by a number of businesses on our portfolio.

Closing Reflections And Listener Invite

SPEAKER_00 38:50

And we already covered a few of these pieces, but I always like to ask this question in a way. Let's say we're in a theater in the financial capital in Kampala or the financial capital of the region, depending on where you feel more comfortable. And the room is full of investors, could be their own wealth, could be institutional capital, and we have a whole evening about the agro-food system, what's happening, what is what is interesting, what is relevant, what are challenges? And of course, people are excited and interested. We have some nice meals, and we are on stage discussing a lot of that. And then, but people forget as well. What do you want them to remember the next day? What is the seed you want to plant in the mind of investors about this transition that we're at the moment of? If there's one thing they should remember from the evening and they heard a lot of talk, what would be that one thing?

SPEAKER_02 39:35

Yeah, I think one is to remember that all nature survives on food and that there is no investment opportunity that can beat that. Investing in something that touches every human. Think of the internet. There are people that are still of the grid, not connected to the internet, and it's taken years to get here. You think of social media, one of the key sectors in terms of if you think about incons, and there are still people that are not on social media. Any transformation in the food systems touches all the people we have on the planet, right? And so that's a huge opportunity that every investor should be interested in. And guess what? We are doing about 8.3 billion people in 2026. So that's the size and scale of investment opportunity we are talking about. And what kind of transformation or trends are happening or are inevitable, I think it is this transition, right? From synthetic because it's not sustainable, and anything that is not sustainable has to stop or we perish. And so for me, it's looking at this as an opportunity, especially for the long-term investors that have capital seated, that have capital seated anywhere, I think there is no better opportunity than this, than investing in something that has the potential to transform the 8.3 billion people's lives. So I think it's remembering the number and scale we are talking about, and remembering that it's inevitable, and that that makes it an interesting opportunity for every investor to look at. And guess what? The anchor of that opportunity is Africa as a continent. If you're talking about sustainable food systems, I think Africa as a continent is the anchor of that opportunity, and everyone should be interested in looking at the continent and thinking about the opportunities that we hold here.

SPEAKER_00 41:41

And if we flip the conversation and you are somehow, and I'm not saying anybody should be in charge of such a concentrated wealth portfolio, but let's say you have a billion dollars under your management suddenly, you have to put it to work. And I'm not looking for exact investment advice, obviously, that we don't do that, but I'm looking at what would be your top priorities if you had so much money and so many resources at your disposal. What would that be?

SPEAKER_02 42:08

I think the first one is infrastructure. I think we still need a lot more investments in infrastructure, uh, especially for Africa. And again, that's where the most opportunity is for Africa. Is we are the anchor food system that also lacks the infrastructure that is needed to get us there. And by infrastructure, I'm talking of warehousing infrastructure. I'm talking of internet and digital infrastructure that is customized and targeting food systems. And I'm talking of I think just production technology that makes managing food and getting it to market easier without reforming is its contents or its composition and leaving it in a natural state. I think the other thing would be so infrastructure would be one, I think RD would be next, is to put data together and have innovation and research and development or innovation driven towards protecting nature, not transforming it or repurposing it, because clearly that has gone wrong in the past. Because I think I feel like a lot of that is left to the small businesses, and that's not sustainable, it doesn't make sense. So someone has to, I think, hold that burden, and I think I see a lot of opportunity in it. But I think the other fact that every investor coming to the sector, every philanthropist, every person that holds wealth needs to think about is that we got the food system from where it was here, like with all the synthetic fertilizer, like shifting and going back, there is this deep that must happen, right? And that is actually happening for farmers, and I think someone with more wealth has to bear the burden of that deep or take some risks on that deep because the farmers are struggling, they can't hold that burden, right? That deep. Deep in returns, deep in production, right? How do we protect farmers? How does someone else take that risk, right? And maybe we can design an instrument around it to potentially, if it's not philanthropy, is there an instrument we can design around it that promises or gives opportunity for this capital to get a return on it once we are out of it? I think those would be my priorities.

SPEAKER_00 44:32

Yeah, so RD, some kind of transition finance vehicle right here. And really and it's I think people underestimate. At the same time, it's people underestimate the transition, but also underestimate and how much RD, actually, in many cases, farmers are doing now on our for us, all of us, they're figuring out in their context what works. And a lot of small companies are doing that, a lot of trying to figure out okay, if I want to grow without all these chemical inputs and fossil fuel-based inputs. How can that be done? Without any support from universities, without any support from any research, or not any, but very little. And I think Take Latinas, a friend of the show of Grounded, wrote a piece on LinkedIn on the mismatch between RD going into conventional ag, let's say modern agriculture, or agroecology. And the difference is just it's immense. And she was quite generous, I think, with still with counting some of the research for agroecology and regen. So there's a huge opportunity, completely agree that, because we somehow have been in this mindset of as long as it's technology is involved and more input, then that's worth investing in or worth researching. And of course, that leads us down a path. And getting out of that path is just very tricky. And the African continent with its massive potential is just very under undervalued and under and neglected basically, which is always a good point to repeat here. We have a question where you basically you get a magic wand and you can change one thing in the food and agriculture system. So you're no longer in charge of the one billion dollars. I'm sorry, we took the fund away, but something happened there. And but you have quite unlimited powers, but only one thing. What would that be?

SPEAKER_02 46:14

I think my unlimited power would be, or I'll call it like magic, magic stick. I think for me would be if I could change the standard of success, right, in the global food markets or commodity markets, from rewarding volume, right? If you think about in Africa, we keep talking about tons or kilograms per acre. Or for the businesses, it's also about volume being channeled. If I would shift that system, the global food system from rewarding volume to rewarding nutrient density or soil health, I think that for me would be the magic stick in generally leaping agricultural and regenerative ag forward, because then you just change the incentives for everyone involved. And so it means that you realign how farmers are paid from being paid in terms of how many kilograms they are delivering out of the farm to maybe how much magnesium or whatever nutrient is in their wheat or in their maize, right? Grow a lot of maize here. So rather than just weigh the maize or the flour, can we test it too and reward that? If there was any magic that would do that, I think for me, I feel like that would be it.

SPEAKER_00 47:57

Coming back to your incentives, alignments, and what capital markets do really well. And have you seen interest from because we asked, but not really double down on that, on the consumer side, on that health angle? Is that one of the keys you see potentially to get out of the niche and get out of the agroecology corner, like the small corner, not because it's a it's bad because it's a corner, but to get more to mass?

SPEAKER_02 48:24

Yeah, I I think that's it. And I've been, I think last year when I was in Belagio, we had convening and discussing with different players. And I think my question to the group, and which was an interesting conversation, was how do we get the market and the consumer, right? Because we invest a lot in shifting the farmer, shifting the entrepreneur. But is there something about shifting the customer and how they think about whatever they are buying on the shelf? And I gave an example, I think it was again last year, we had a news daily have their front pages. Um, the heading, I think, was tomatoes as a desk trap because everyone is now spraying tomatoes in the markets. They are adding sprays on the farm, they are adding sprays. So by the time the tomato is in your kitchen, it is basically you're eating your way to the grave. And just that heading changed like for two weeks, consumers, people are not going to the markets to buy tomatoes. They were calling farmers directly and saying, Can I actually buy my tomatoes directly at the farm? I think we had people start small tomato gardens in their backyards. But because the message disappears quickly, then the behavior also resets quickly, right? So I think if there was any form of investment in that, and how do we sustain the message consistently? Because that's what the synthetic guys do. They have big buildboards, they have ads running consistently. And so the message is stuck in the marketplace. And so then ours remains the niche, remains the corner, right? Because the message is not mainstreamed. So I think that probably would help us in shifting because then consumers start to demand and get us to what I think requires magic, but could actually be achieved, maybe. Very nice, Brian.

SPEAKER_00 50:21

Any final words before we wrap up?

SPEAKER_01 50:23

Absolutely. And as consumers, we can be very brutal on what we want. We know exactly what we want, and in most cases, what we want is the best possible product so that we can find that is cheaper, and uh that that's what we are always looking for. And that leads me to my question, and it's something that I saw fascinating. I saw that up to 50% of the people that you are actually lending money to are women. So that leads me to the question: was this a deliberate effort by you guys to try and get as many women as possible that you will be able to uh lend money to? And what what have you observed so far in terms of the differences, right? Consumers may not want to know who is at the helm, is it a man or a woman? But in terms of the raw data that you have, what differences are you noticing between female entrepreneurs and male entrepreneurs?

SPEAKER_02 51:20

So our portfolio is currently 54% female. And we didn't start out targeting female entrepreneurs, we ended up there and we're like, oh, wait, this is a an interesting opportunity. Maybe we should double down on it. And I think for us, it's if you look at our thesis, we are saying how do we deliver capital, debt capital to businesses without all the stringent collateral requirements? And for a market like Africa where women's property rights are weak and culturally also women do not think about owning property and assets as much as men do, then it naturally means if you come with a solution that is not requiring them to put up land and houses, then they are naturally attracted to the product. That's one. But the second thing is we are saying we are not only giving you capital, we are pairing it with support. We will be there with you to look into the business and help you navigate the challenges. And I think our data says women are actually that is a stronger sale. The very proposition for women when you talk of management support is stronger, actually. Because compared to men who do not want you in their business, they would rather keep you away if they have the choice to do that. And so I think it's been it would it's been product market fit, right? But I think after that, once as we've looked at the data more, women's businesses are growing faster after our investment in terms of the first 12 months. They come in smaller, okay, because of course their history, but the jump from where they are within the first 12 months is stronger. Their NPLs are lower, it means we expect less defaults when we invest in entrepreneurs. That seems obvious. It's interesting when you combine with the fact that they are growing faster. And third, they align more with the product, so they are requesting more support from us, and that makes the product and world population stronger for them. And so we've decided, you know what, we will market more there. We will talk to more female entrepreneurs as we go because clearly the product is designed for them. We yeah, we still open our doors to the male entrepreneurs, but I think it's been an interesting opportunity when it comes to female entrepreneurs. Yeah, so I think as the data has come through, the data came through, I think we decided, okay, this is an interesting opportunity. So how about we do we do more marketing, targeting women, female entrepreneurs? And we do not outrightly focus on them, but we do certain things to make sure that we are more visible to female entrepreneurs. And that has kept our portfolio there at 50 more than 50% of female entrepreneurs.

SPEAKER_01 54:03

Thank you very much for your time. And I'm looking forward to see the progress you guys make, especially on the nature front of funding agroecological businesses. So I'm wondering from you, from your perspective as an investor, which one do you consider to be important between these three? Between an idea, execution, and capital. And capital here, money, which one do you think is the most important in an entrepreneur?

SPEAKER_02 54:32

Look, I think ideas change. Rarely do ideas stay stagnant. When you start with an idea, it's based on your assumptions. As you start to execute, as that as you start to interact with the market, that idea evolves, right? So I think success is in entrepreneurship is about navigating those changes and dynamics. And that for me makes execution the most important. Because guess what? Even the capital changes, the investors you're dealing with changes, the needs for capital change. And so what you need is someone who is able and excellent at navigating those changes and making smart decisions and knowing when to pivot, when to make what decision, which relationship to build, at what point. That is what makes success in business. I think that's what entrepreneurship is. It doesn't stop at the idea, it doesn't stop at just getting the capital. It's about navigating and managing those relationships and dynamics in the marketplace that get you to succeed. And so I would say execution. You you get a good executor, bad idea, they will evolve. The idea which will evolve. Bet on that any day.

SPEAKER_00 55:42

Yeah, I think it's we have so much more to cover, but I also want to be conscious of your time and wrap it up. Brian always likes to ask a question around young people studying or working as well, but are, let's say, the future of the continent, obviously. If you have any specific tips, ideas, directions for them if they list if they listen to this.

SPEAKER_02 56:04

Yeah, I think I like to be honest that entrepreneurship is not the easiest thing to do. It's hard, it's can really be challenging, but it is extremely rewarding. I think the power of entrepreneurship in terms of what it can do to solve problems and transform the way the world operates and the way we view things, that power run should be an inspiration, right? Because it is worth it at the end of the day. So I think it's really about commitment and building your tenacity to navigate those challenges and enjoying the moments of success and learning to celebrate that. So I think it's that and knowing that and just really managing your relationships. Because from day one, you're looking at investor relationships, you're looking at customers, you're looking at partners, you're looking at co-founders. I think it's really about managing and navigating those relationships and giving it your full commitment and time. Because ultimately, when you stick to it and when you do the right things and manage your relationships, right, I think you always succeed. It's always a matter of time. But it's extremely rewarding and really encourage anyone, right, that has the passion and commitment to take the path and journey because it's a rewarding and interesting one. I've experienced it myself.

SPEAKER_00 57:27

And I think we we experienced some of your successes and challenges and your journey here. So I want to wrap it up and thank you so much for obviously the work you do and for taking the time here to share that with us and hopefully inspire a few more people about the opportunities and the challenges of agroecology and regenerative food and agriculture systems on the continent, and obviously all the other things you have been doing. So, thank you so much, and hopefully, be checking in not too long.

SPEAKER_02 57:56

Thank you, Kuhn, thank you, Bran. It's been a pleasure. All the best.

SPEAKER_00 58:03

Thank you for listening all the way to the end. Definitely let me know what you think of this series, what you think thought of Ivan, and um what it made you feel or realize while listening to such an experienced financier, investor, and entrepreneur talking so deeply about agroecology and why it makes sense, but also so deeply about finance. And I think there it's just that's what the show is about. The show is about bridging that gap and seeing how we can use the tool of finance to do more and to go deeper and to really build on the things we need. And it's so interesting to see the African continent, of course, massive, so many different countries we cannot generalize, but is really ready for playing a much more fundamental role in helping to feed the world. There's a lot of land, there's a lot of people, there's a lot of deep knowledge, a lot of potential, and probably a lot of legacy systems that we've built in in the West or in the so-called global north or whatever horrible term we use, that they can sort of leapfrog in that sense, and not because we're chasing unicorns, but because they are going straight to agroecology practices and they are going digital first, and they are etc. etc. So I'm just really curious if this series is opening your eyes a bit. If you maybe are on the continent, please let us know. Let me know who else we should have on this show. We're always open to feedback, always open to suggestions. If you know how to reach us, it's through the website is PropheEasiest, or otherwise one of the social media channels, Instagram, LinkedIn, and looking forward to hear from you and keep building wherever you are. It might feel like a niche, but we're definitely not alone. Thank you for listening all the way to the end. For show notes and links discussed, check out our website investinginregenerativeagriculture.com/slash posts. If you like this episode, why not share it with a friend? And get in touch with us on social media, our website, or via the Spotify app and tell us what you like most. And give us a rating on Apple Podcasts or Spotify or your podcast player. That really, really helps us. Thanks again and see you next time.