Three key trends are particularly worth drawing the attention of the readers to:
EARLY STAGE VENTURE FUNDS: Recent years have seen the emergence of more high-risk “impact venture” funds and other accelerators (e.g., Small Foundation partnership with Founders Factory, The Nature Conservancy Venture Fund, Mercy Corps Ventures, Ankur Capital or Omnivore in Asia) dedicated to supporting what we would categorise as “Niche” or “High-Growth” ventures. The emergence of these more commercially-oriented venture funds to invest in the promise of agri-Tech is heavily concentrated in a small subset of countries including Kenya, Nigeria, South Africa, India and Singapore and comes against the backdrop of 8-10 years of heavy grant-based investment by donors such as the Mastercard Foundation, Gates Foundation and USAID. While many of these early donors established a groundswell of new digital-agriculture startups with over 700 catalogued by GSMA in 2020, many of these initial start-ups have struggled to transition from primarily grant funding and establish a more commercial mindset and model.
Past ISF research into digital agricultural Platforms, insurance, and data has identified a growing funding valley of death at the seed and series A investment stages for many of these agri-tech companies while at the same time a number of new impact investors and commercial funds are beginning to invest in those agri-tech companies that are successfully moving to series B and beyond. As this landscape of providers continues to evolve, and more climate-smart solutions come to market, we believe this is a critical part of the finance market that can continue to be served through specialised funds.
LOCAL OR REGIONAL FUNDS: In the current landscape, very few funds are set up and managed by local or regional teams. While many of these local fund managers lack the required track record and network to access international funding, they are often set up to operate with lower cost structures, can provide deeper local insights and knowledge, as well as offering stronger links for local investor participation. For instance, Investisseurs & Partenaires pioneered a fund-of-fund approach in West Africa for first-time managers—with two funds raised to date—providing seed capital, technical assistance, and fundraising support. Part of those local funds’ capital has been provided by local or regional investors. Over time, growing this local fund management capacity, or establishing more locally embedded fund-management teams will be an important step in refining the efficiency and effectiveness of this channel.
LACK OF CLIMATE RESILIENCE-FOCUSED FUNDS: Despite the strong push for climate finance, very few funds focus specifically on agri-SME climate resilience. Those that do often retrofit their investments into one of the climate-focused categories. For example, Acumen ARAF’s investment in Tomato Jos claims that the increase in smallholder farmers’ productivity translates into higher and more diversified incomes, which in turn improves their livelihoods and increases resilience to climate change. However, this does not mean that the financing actually goes toward investing in tools, technologies, or practices that will help these farmers adapt to climate change.