Will Water, Agriculture, and Energy Become Mainstream Investment Thesis for Venture Capital Firms Again ?
Date : March 11, 2018 By
As global sentiments run high on India, few of the government policies back home are under microscopic scanner. Amidst such peering eyes, less-traditional sectors like those of water, agriculture, and energy have begun to warrant investment manager’s attention.
Investment in Agriculture & agricultural technologies
Direct investment in farm-level agriculture and venture funding in agricultural technologies are few sub-sectors seeing rapid global investment not only because of the stable returns that these sectors generate but also due to the moral obligation of the company toward environmental, societal, and governance (ESG) mandates.
But as we narrow drown this trend to the Indian subcontinent, the picture is sketchy. With a high dependence on unpredictable weather, complex agriculture land ownership, stringent state and central land laws, unclear land acquisition reimbursement policies, and farmer suicide investing in agriculture becomes an exhaustive act. Similar is the case when we take a closer look at water and energy sectors as well.
Adopting a different “dhun,” investment managers globally treat this sector differently:
INCOME + CAPITAL APPRECIATION = INVESTOR APPETITE
Besides the obvious benefit of income and capital appreciation, other factors such as including resistance to inflation and independence from mainstream investments have increased its appeal to Indian investors as well. A fitting example on the global scale is Acumen. The company’s mission is to change the way the world tackles poverty. This they do by raising donations, which they invest in business models that deliver critical goods and services to the world’s poor. Since 2001, Acumen has globally invested more than 83 million dollars across 73 companies. The company also works to build a global community of emerging leaders that believe in creating a more inclusive world through financial and operational expertise combined with moral imagination.
Better Ventures:Backing nascent-stage Technology companies
Another investment company that has created a rage is Better Ventures. They back entrepreneurs who strive to build a better world by providing support and funding to nascent-stage technology companies with social and environmental objectives for high-growth business models. Better Ventures typically invests $100-250k at the seed stage, get actively involved with the founders to help them build successful companies, and provide larger follow-on investments through Series A and beyond.
Infuse: Cleantech & Sustainability at core
Localizing the scenario, Infuse is a first-of-its-kind partnership between the Indian government, academia, and private sector. With cleantech and sustainability at the core, the company has business interests across renewable energy, energy efficiency, water and waste, distributed energy, sustainable agriculture, green buildings, sustainable transport, and green IT. Siting partners like the Ministry of New and Renewable Energy (Government of India’s nodal ministry for new and renewable energy activities in India), the Centre for Innovation Incubation and Entrepreneurship (center of excellence at IIM Ahmedabad aimed at supporting entrepreneurs across the country), Godrej Industries (India’s leading manufacturer of oleochemicals and one of India’s biggest industrial conglomerates), and International Financial Corporation (a member of World Bank that provides finance and advisory for private sector ventures) surely equip the company with enormous technology, business, market, and policy expertise.
The largest private equity player KKR made a 100-million-dollar investment in 2014 in Sundrop Farms, an indoor agriculture company, and recently made another agricultural investment of $77 million in Kwality Ltd., India’s largest dairy company.
The new-age investment portfolio also includes farmland investment. It is also seen in a positive light by global investors. Jeffrey Conrad, former president of Hancock Agricultural Investment Group and current president of AgIS Capital, opines: “Farmland is gold with a cash flow.” However, not all Indian investors share the same view. Building a story around the same, Meera Siva, chief research analyst with the pink paper Business Line, elaborates the pitfalls in buying farmland. Citing an example of failed venture investment by Bollywood actress Rani Mukherjee, the article indeed is an interesting read.
Moving toward the water sector, the country’s recent drought situation has also brought in invest venues. The government is working on a master plan envisaging the construction of about 23 lakh artificial recharge and rainwater harvesting structures in rural areas and 88 lakhs in urban areas.
With state governments plastered all over the media for inter-state river legal battles in the apex court, Revenue Minister of Kerala, E. Chandrasekharan, “had to disburse ₹295 million to districts to take care of drinking water shortage in the state.” Considering the hard impact on state resources, the government has extended support in promoting rainwater harvesting in houses and providing subsidies to install rooftop water harvesting systems in Kerala.
Modern Technology and applied sciences aiding agricultural output
Using modern technology and applied sciences, KADWANCHI village emerges as a unique case study. On the onset of droughts in Marathwad district, Kadwanchi’s village agricultural output only grew. If the numbers were to talk, then the village economy grew from Rs 27 crore in 2012–2013 to Rs 29 crore and Rs 32 crore in the subsequent years. In 2015–2016, their agricultural output was Rs 42 crore, and the per capita income was up from Rs 3,264 in 1999 to Rs 1.27 lakh last year. Another success story would be about Prasad, a mechanical engineer from West Godavari district of Vijayawada, who made agriculture more profitable with a zero-budget concept.
Country warming up to Wastewater management & recylying
Besides this the country is also warming up to wastewater management and recycling; with multiplexes in Indian metropolitan leading the crusade with “yellow water meaning recycled water” campaign. Being the doubled-edged swords, investments in water, agriculture, and energy will eventually become the mainstream investment thesis for venture capital firms. With the need for a sustainable ecosystem, investors will definitely profit from focusing on the new “roti, kapda, and makaan.”