Agriculture is the primary source of livelihood for more than half of India’s population. And with more than 3/5th of land under cultivation, the scope of incorporating technology becomes even more evident.
In this episode of Founder Thesis, Akshay Datt talks with Shashank Kumar, Co-founder and CEO, DeHaat. He is an alumnus of IIT Delhi and has previously worked in the management consulting domain before kicking off his entrepreneurial journey.
Hailing from a farming background, he had a first-hand understanding of the issues faced by farmers on a day-to-day basis. During his corporate stint, he further observed the gap between institutional buyers and farmers that led to the birth of DeHaat in 2012. And today this ‘Direct-to-Farmer’ company does not only support farmers by providing last-mile delivery of 360-degree Agri services but also helps them with insurance and loans.
Tune in to this episode to hear Shashank speak about how DeHaat is transforming the supply chain and production efficiency in the Indian farm sector through AI-enabled technology.
What you must not miss!
- Building and scaling an online marketplace for farmers.
- Incorporating machine learning to set up an advisory for farmers
- The role technology is playing in bringing behavioural change in the agriculture sector.
- Fundraising journey.
Shashank, you grew up in a village in Bihar, what was that like?
Yeah, so that was the starting phase of my life. And again, I belong to a place called Chhapra. It’s a small town, nearly 80 kilometres from the state capital Patna. The initial seven, eight years of my life I spent in a rural semi-urban setup.
So was it a pretty standard thing for people to pursue IIT as the path then like to aim for the entrance exam?
Not really, it was quite diverse, all across, right, from pure science to medical background, and a lot of new students used to opt for literature.
What made you want to do IIT? Like pursuing engineering?
Honestly speaking, I mean, once in my village, someone said that IITians make a lot of money. Good salary. Yeah, I think so. That’s how I heard about the word for the very first time in my life.
And tell me about that transition into IIT.
It was a complete transition, for sure. Right? I mean, from boarding school to again IIT and that too in a city like Delhi, and transition, because it was a more competitive world. Right. And it was, it was way faster than, of course, in what we had seen, whether in my hometown or in that school for that matter. And again, obviously, needless to say, that for people with sort of bigger dreams, but more importantly, in fact, at the same time, and in fact, many people had a lot of exposure, right? I mean, for a while, I mean, on a candid note, in my case, when I cleared IIT, I thought that now I’ve achieved in my life, right, and I think that used to be a notion, right? Because in your village or in your district, people used to say that, if you once you are into IIT, then you’re done in your life, right. So, that was like the same state of mind for me. But then it took me one or two semesters to understand that, no, it’s just a new beginning.
So you became pretty outgoing during those four years?
Where did you get placed through campus then?
So I got placed in a startup. In a management consulting startup company called Beacon.
What kind of consulting were they offering?
It was a pure sort of strategy and management consulting role in a specific domain of supply chain retail FMCG.
These guys must have been from that FMCG and retail industry?
Absolutely. I think before they started this venture, they worked with P&G, Unilever, and that’s where basically they found the trigger point.
So how did that Beacon stint lead you to become an entrepreneur?
Oh, a lot. Because technically I was the first employee of Beacon and, and of course, although I was quite junior to them, still being from the college, obviously, it brings a different degree of comfort with each other. So somehow, in such a short span of two and half years, in fact, I could experience different phases of the company, right? I mean, when you had so many projects, then sort of a financial crisis, when few projects basically happened again, I mean, people backed off and still as an entrepreneur, you are now running the company with high courage and you’re fighting. So that really helped me. And I think that and at the same time 2008-10, that was the time when at least in India, we started hearing the word called startups or entrepreneurship, right?
Early Flipkart days.
So yeah, Flipkart was there. Jabong was started. Books of Rashmi Bansal in a world out on the shelves. So it’s a good career path, right? I mean and somehow, it was a default setting for me to not follow the standard template, right, I think something that I sort of realized when I decided to join a startup rather than going for a sort of, you know, any large corporation or so. Then again, the same thought process that alright, I mean, it’s fine that two, two and a half years of consulting stint I have, while my peers, in fact, are trying to write GMAT or CAT. Let’s think about this, no startup bit, right. Because from your inner side, I think this is something which is really exciting, you. And then more importantly I had those two and a half years of experience of working very closely with the first generation of entrepreneurs or so. So then passionately, I started exploring different ideas for my own startup.
So, how did you finalize, like tell me that journey of leaving a job and becoming a founder?
So, okay, when I found the soft corner towards entrepreneurship, so right from that day I started exploring multiple ideas. At the same time, I think my family background, I think is something which really made me worried that hey, so you are not from a business background, there is no experience, right. So more importantly, that, you know, fear of failure or some sort of, let’s say, risk-taking ability, right, I’m not having this risk-taking ability, I think somehow I believe that that was in my blood, or in my background. So again, I mean, while exploring different ideas to think or to work, I really worked hard to graduate as an entrepreneur. So, for example, during weekends, I used to go to Chandni Chowk and Sadar Bazaar, which is the wholesale market of Delhi and NCR, I mean, just to see how people operate, and what the core business looks like. At the same time, I tried to talk to as many people as possible. All the veterans like, again, Sanjeev Mirchandani of Naukri, or different people.
You just sent them an email or something that I want to talk to?
I used to keep a close track. Because, again, as I said that, because of those early signs of the entrepreneurial ecosystem, or evolving ecosystem, I mean, all the colleges, in fact, started organizing these talks. So, and I was just out of college I had, I mean, I had a good repo, among my juniors, we used to tell them, hey, so whenever any entrepreneur is coming for a talk, keep me posted. Or wherever I found any opportunity. So yeah, and then at the same time, again, when you are into a job and that too in consulting, right, and then you don’t really care about your costs or your expenses, right? Because it’s the very first time in your life, I mean, you’re actually getting good money, right? So, then also cutting down your expenses, and that stuff. I mean, so it took me one good year to certify myself as a prospective entrepreneur. I mean, after infinite visits to different markets, meeting different people, reading a lot of books, cutting down expenses, I mean more stuff and working on yourself, rather than the idea for that matter. And then along with that, again, obviously, what would be the idea for which let’s say I can give the rest of my life again. That was again a parallel exercise altogether.
So what was the idea with you wanting to explore deeply?
I explored many ideas like one of the ideas was to work with health workers or maybe to aggregate auto-rickshaw wallahs. Because those days, of course, I mean that even that space was highly unstructured, there was no owner, there was no Ola or Jugnu at that point in time.
But you knew about Uber, like the concept of aggregation was there?
The concept of aggregation was there but honestly speaking, I didn’t know about Uber at that point in time. But then, suddenly, again, it boils down to agri. And primarily because of when I think in retrospect, I think, because of multiple reasons, because by that time, I got exposed to both ends of the food chain. Obviously, one is my family background, or the farming background during the initial seven, eight years of my life. And secondly, during my consulting stint, I got a chance to work with all these FMCG players, whether it’s Unilever or PepsiCo or Britannia or Mother Dairy or so. And with getting exposed to both ends of the food chain, at least I could understand the gaps in this entire agricultural supply chain and at least the fact that one side farmers are not happy with the return and at the same time these companies are struggling to. And then at the same time, when I double-checked, and then the numbers I came across were mind-boggling in terms of having more than 100 million farmers in India, or the overall TAM or the market size as more than $350 billion or so.
So at that time, probably 50% of India’s economy was agriculture, I guess.
It was a 15% GDP contribution, even at a rate that’s close to 14% or so. But more importantly, I could understand that it’s a large market. No one else is doing it. And again, the same sort of thought process that, hey, it’s not that standard template, like nobody else is doing that I should I must do this. Right? It was more of that default setting. And then at the same time, by that time, I could realize the strength in myself, which was having great interpersonal skills.
What was your plan? Like you wanted to be like a B2B company, which purchased from farmers and supplies to the Unilever’s and the Nestle’s of the world. Was that the idea?
That was the idea for sure. But that was never the plan even for a single day because that was definitely the idea that was a trigger point to start thinking about the sector. But then we met a lot of farmers from different regions, my base was in Gurgaon. So again, I used to travel towards Rajasthan or maybe UP, Bihar and then interacted with more than 1000 farmers again, over six months or so.
And then all this you were doing while holding down a job?
Yeah. Absolutely. And then realize that this market linkage, or the offtake part, that’s not the only problem farmers are facing. Their actual problem begins at the beginning of the season itself, which crop to grow, how to grow, right, I mean, agri import or there are a lot of challenges they have to go through. And again, so then that’s how this model of supporting the farmer throughout the season with the end to end proposition, I think that was the idea. But more importantly, initially, it was just a thought, you know, to do something in agri so that you can bring transparency so that you can aggregate more and more farmers to change their life. I think that was the idea. The model was not clear. Right? I mean, and I strongly believe that I was fortunate to have this approach in my life. Because there was no model despite being a consultant but there was no excel sheet, no word doc or no PPT or business plan it was just a thought that can bring a change in the sector and that’s how it all started.
So what was version one of what you launched like version one product?
So our version one was… I will say there was no version one with which we started right I mean, we definitely even like for example when I felt that now I’m ready to take this plunge. In fact, I quit. I resigned. By that time, in fact, and then at the same time from Day Zero, started building a core founding team. And that’s how I basically got to know a few friends. To me when it comes to the habit of talking to as many people as possible. And in that process, basically, you got a few folks to join you and your thought process. That was another sort of thing.
Okay, join as employees or co-founders?
What was the founding team?
So a very old friend of mine, Manish, we prepared for IIT together. And then another friend Shyam. Right. So these two folks, in fact, got interested. When I went ahead, in fact, I found two-three more folks like Amrendra, whom I didn’t know earlier, but somehow he got to know that, hey, he’s doing something in agri, and he was passionate by himself to do something in agri. Similarly, Adarsh and Abhishek and that are how six of us somehow came together.
Six is a pretty large founding team.
It’s a pretty large founding team. Yeah. But yeah, by that time there was no model actually, right. I mean, that’s why I will say that there was no version one. In fact, I think version one, or version one of DeHaat was building a founding team for a goal, right. And the goal was to build a large sustainable business model around farmers.
Talk me through the model. What exactly is it like you first go to a farmer and tie-up?
The model was that, hey, so can we bring businesses and farmers together in a transparent way, in a controlled way? And then while connecting farmers to different businesses, whether it’s agri input companies or banks, or financial institutions or markets, effectively, you know, as a platform you intend, or you want to provide everything under one roof, for agriculture, to farmers in an accessible as well as affordable way.
So tell me about your go-to market then? You must have built some set of services through some alliances in some format, which may be as an annual subscription, or work for a farmer or like, what was that?
Our go-to market was fairly simple for the farmers. We are sort of a one-stop solution for you, whichever crop you’re growing, you will get at the input advisory and market linkage through this platform. Secondly, since you are a small farmer, that means your number of transactions is very high, but the ticket size of transactions is very small. And we are not just into information exchange, we are talking about actual supply chain linkage, whether it’s input or output. So all these services are really accessible for you. So for example, if you want to sell the products, you don’t have to travel 40 kilometres, or if you’re on us for the transaction. So DeHaat centre is close to your farm gate, within a three to five kilometre area, that’s where you can come, you can deposit your material, you can buy your seeds. And for advice again, you all have mobile phones. So, we’ll call you and we’ll provide you with a customized advisory.
So your GTM is physical stores, essentially? Like that’s what I’m trying to understand.
Physical as well as digital both. Because the farmers either download the app.
At that stage, it must have been more physical?
Oh, at that stage, it was all physical. It was all manual. In fact, the first two DeHaat stores or centres, we operated by ourselves for 13-14 months. So those days it was all physical.
Where did you open the first centre like, tell me about that first centre?
Oh, well, it was in Vaishali district of Bihar. And again there is a story we did not have any store. But we started operating and we started working with farmers who were excited to hear about our plan. At the same time, they had some fear too, because I mean like 25-26 years old kids know that agricultural background. I mean, and they are opting to change what they have been doing. But still again, I mean, because of persistent effort few of the farmers in fact enrolled themselves. And more importantly, they realized that hey, there is no sort of high opportunity cost right because for advisory they are not charging or agri input when we will purchase we will pay and for every output they will pay when they will purchase. Right. So as such there is no risk involved.
When was this? Month and year?
It was in 2013.
Okay. And you called it DeHaat then like, when did you coin the name?
No. So the name came in 2014. And again, because our registered name is Green AgRevolution Private Limited. So, of course, I mean, it was like, way too English, you know for any farmer. From 2013 to 2014, we had four or five centres by that time in different localities. So, we thought that no, so let’s pick a name, which will be easier for farmers to call or recall. And that’s how DeHaat as a name came into the picture.
Okay. And so, like, in the first year, how many farmers did you sign up for?
The first two DeHaat centres as I mentioned, were operated by ourselves for 13-14 months.
And by that you split up like three on one and three on the other centre, something like that?
I mean, at that point, like all six of us were not there. Because as I said like Shyam was in college, right? I mean, of course, a few of us got connected later. But Amrendra and I were there. So at that point of time, just three of us were there on ground 952 farmers, in fact, they were already kind of associated with those two centres and that was, again, another kick for us that things are moving in the right direction, let’s have more than more centres.
1000 is a pretty substantial number here. And the second centre was soon after the first one, like how much of a gap?
Very soon. Next season, right next season. And in fact, again, in the farmers’ community, word of mouth plays the most important role, right. So then the local farmers, in fact, they, started spreading the word. And in fact, they themselves, you know, started shortlisting someone from the same community who can run your centre. So actually, we learned, for example, for your information, this DeHaat centre, which is a franchise network today, so we actually learned from the farmers themselves, right? I mean, because we were still thinking that hey, so whether we should have company-owned company-operated centres, or we should go for franchisee but I mean, by the time we would have thought, in fact, we had four or five prospective candidates in front of us. And at the same time, there was pressure from the community that hey, so you have to start the DeHaat centre in our operating area. So we were forced to again adopt this franchise approach. But again, at the same time, we did our deeper research, and again, by 2013, there was much evidence around this micro-entrepreneur program. I mean, whether it’s a microfinance industry or rural FMCG, right, they all had adopted this micro-entrepreneur program. So, we customized that micro-entrepreneur program in our scheme of things and that’s how the DeHaat franchise or micro-entrepreneur program, basically was conceptualized. So, and that’s how basically the multiplication was started from two to eight to 21. Yeah.
Okay. So, two to eight like next season, then you had like six more people who took our franchisees and yeah, okay. And what was the services that will be offered at that time? Like a teleconsultation and then…
Yeah, it was very limited. So, for example, on the Ag input side, we did not have a pretty large market, we used to supply only seeds and again seeds were very specific crops. And then a very specific range of brands on the crop production side. There was no offering on the fertilizer side.
Does the Agri production side mean pesticides?
And were you also offering financial products at that time or did they come later?
No, not really. Similarly on the offtake side, very selective crops, we were in a position to aggregate. For advisory, we had an IVR facility. We did not have a call centre, we used to, again, we used to be the callers of the call centres.
What kind of advice would people want? What kind of questions would you get?
It was all crop advisory. And again, by that time we had already collected or prepared a decent sort of crop archives and contents from various agricultural universities. So the advisory queries used to be related to pest attack or disease attack, or right dosage of fertilizer, the right time to irrigate or right variety to grow, soil test. So, by that time, again, when we had already spent a good two and a half, three years in the sector, and we knew somehow again, I mean, we understood on the very first day that this is going to be a bottleneck if we don’t have the right advisory content. And more importantly, being not from agri, we did not find any footprints or any sort of ready-made archives to follow. That’s why we started in a building by ourselves. So on the advisory piece, we had IVR. And more importantly, call centres for a very specific duration, right? I mean, just for like, two to three hours a day.
Okay. And how did you build the content? Like, you were creating some like Word documents with all of that content in it?
Yeah, it was all Word doc, Dropbox, some bit of let’s say, some automation through your HTML page or so. We could have many interns from our colleges, right? And so they helped us while building that platform.
Yeah. And how are you capturing data around farmers? Because that data would make your advisory also better?
Initially, it was all paper and pen. If not a paper pen, then through voice. Because I remember, we used to record every single farmer’s meeting. And most surveys and stuff.
Like what kind of data do you collect? About farmers?
Starting from a farmer’s profile, in terms of their name, mobile number, their land holding, land record, which crops they’re growing to whether they have cattle or not, do they have their own access to irrigation? So starting from profile data, and then during the production season, it was all transactional data. Who is buying, selling what and so on? Yeah. Or behavioural data that asks what sort of inquiries they are asking?
Okay, so this got mapped like each person’s profile got mapped with his purchase etc. Okay. So, how does this data make you a smarter organization today? Like, you know, in terms of are you able to draw some broad macro-level trends, which then feed into your advice platform?
So, firstly, I think for our own internal efficiency enhancement, this really helped us in terms of reducing your TAT, to maybe maximizing the time spent by the farmer with you, right. I mean, whether it’s physical earlier, or now it’s digital, but of course, the behaviour of people is the same. And more importantly, what next, because the vision had always been to bring everything related to agri under one roof for farmers. And again, as we just spoke, that initially the offerings were very specific, very limited, right. So some sort of data-backed decision making that what should be the next right subcategory to introduce?
How did the services being offered increase? Like what was the next set of things that you added on? You know, how did you make the DeHaat centre richer and more compelling?
It has been a bottom-up approach and journey action right. So with respect to time around our older centres, the farmers kept demanding more and more.
Like what? Tell me, if you can, chronologically that we introduced this.
For example, there was a time when fertilizer and farmers demanded that you should supply fertilizer as well. You’re buying just one crop in a year. Can you buy the secondary crops as well? Right after then, at some point in time, they started saying that hey, we need more pesticides, we need water-soluble fertilizers, right I mean, then, of course, the financial product, which we introduced a couple of years ago. So it has been again there has been a journey but more importantly in mid-2014 or early 2015, I think there was a time when we realized that we must invest in tech. Because by that time, we had close to 14-15 centres. And of course, we obviously were getting good confidence in ourselves, that model is working. So of course, we need to replicate this number of micro-entrepreneurs, we need to add more and more farmers to serve. So that’s where basically, you know, we felt the need for technology as a strong enabler. And since then the overall approach basically, started shifting from physical to physical as well as digital. And, then in 2015, we raised our first angel round. And since then we started investing in technology. And that brought more scalability because that’s how this number of micro-entrepreneurs started growing on a seasonal basis.
Tell me about how that evolution happened. Like, you started giving a tablet to the entrepreneur for him to punch an order.
Yeah. Yeah. So we built and we developed an Android app, initially, you bang on said it. Actually, you rightly said that because again, those days, everyone did not have smartphones, right. I mean, it was limited, so we used to give a tab with our app installed. And more importantly, again, I mean, in the product, again, we ensured all those things, what we had learned during our early days, successfully, we could transform our grassroot learning to a platform or to a product, so that any micro-entrepreneur irrespective of their background, they can get complete hand-holding through the platform from the very first day, right. And today, what you have to do, how should you do, right? I mean, how many farmers should you meet? Which this brand basically, you know, probably you should sell and your incentives and everything. So, yeah, initially this was a tab given by us, of course, someone with respect to time that was not needed, because of the increased rate of smartphone penetration.
So your first initiative was towards digitizing the micro-entrepreneurs experience, did you also then digitize the customer’s experience, like for them to place as the farmer can directly place an order through the app or stuff like that?
No, no, it wasn’t, it was not there on the very first day.
I mean, eventually, did that happen, like, do you have them today?
It is, yeah, we do have now. For farmers, we have a completely digital interface in the form of an application, in the form of a call centre where they can call and they can order. Whatever query they have, whether it’s on the buy side, or the sell side or just the query.
So when did you launch the farmer app?
Farmer app we launched in 2017, early 2018.
So that would have made the farmer enrollment process more efficient.
So how did the numbers look on a per centre basis or a per store basis? You know, like, what kind of turnover was one store doing and how did that evolve over the years?
In terms of the number of farmers per centre, there is no change, there is no evolution. And we actually want to keep it the same, keep it intact.
What is the ratio you are gunning for?
400-500 farmers per centre because that in a radius of three to five kilometres, but of course, with respect to time, when we added more and more categories on the platform, more and more offerings, of course, the business per centre or the revenue per centre of each farmer kept increasing.
So one question here, this turnover. One part of the turnover is what you’re selling, right? Like the seed the Ag inputs, and what about the stuff that you’re buying that gets added on?
So someone sold 10 lakhs worth of seeds and he bought 10 lakh worth of product from the farmer. So that’s 20 lakh turnover.
The business is 20. Because that’s clearly two different revenue streams for us. But it’s definitely not doubly counted, but yeah, with respect to time with more and more brands and categories we added or offerings were added we again I mean this number kept increasing. For example, as of date, the average number is 55 to 60 lakhs rupees per centre. However, there are many older centres in fact they are doing close to a crore. So, but again the enterprise they will average is 55 to 60.
The crore centres must be like in, say Punjab and better to do states, like which have wealthier farmers?
Not really. As of date, we are not present in Punjab. But you’re right, of course, I mean, if the prevailing cropping pattern is, is more remunerative for cash crops, of course, it is more likely that business is on the higher side, you’re absolutely right. Well, I think the larger reason for this evolution is that firstly, farmers see the value, whether you were offering very selective services a few years ago versus how it’s evolved, very important, right. So even with that, they see a very clear value. Secondly, the way the overall platform evolved, for example, as of date, on the input side, you have more than 120 brands with more than 4000 SKUs. So being a small farmer, whichever crop you’re growing, you get a wide range of seed, fertilizer, pesticides, herbicides and everything. And then in a neutral way, the final decision making that always remains with you. Secondly, on the advisory side, again, I mean, you are getting a complete, customized advisory. In fact, on that piece, we started fetching data from satellites very recently at the interval of three days. So that means that you know, that let’s say, as a farmer, we are monitoring your land parcel as well. And then again, based on that spatial data, whatever is needed to be done at your farm. In fact, we are advising you based on that, right?
Give me an example. Like what kind of advice could you give through satellite imagery?
Everything. For example, like, at this point of time, let’s say water stress, or nutrient stress, or crop stress, everything, right?
How would a satellite image show that like talk me through an example?
Sure. So five-six months ago, we acquired a company called Farm Guide. They had been working for the last five, six years. What they have done is that they have fetched the last 10 years of data from satellites at an interval of three days, okay, of 2 million square kilometre area, and 6 million different land parcels. And based on this, basically, they have written an algorithm, right? So basically, this is your platform. Now, on a practical day, today or any day, if you fetch data from satellites, obviously you get images. Right? And then you superimpose those multispectral images on your platform. And then you compare that with this combination of RGB, right? I mean and based on your 10 years of machine learning, what would be the kind of no current status at your farm, whether your soil moisture seems low, whether your crop stress is high or low
So if the crop stress is low, the leaves will be brown or something like that?
Absolutely. So of course, for farmers, basically, they get advisory. So farmers always get advisory in an actionable form. But the point I’m trying to make here is that it’s super customized for them. And of course, you are not charging anything.
How do you map this, like, the farmer on his mobile app will give you geolocation? How do you map it per farmer?
Those farmers with smartphone users, they do that. Because it’s again, it’s a one time job. If not, then our micro-entrepreneur basically go or our physical team, they go and they map the plot. Yeah.
So part of your farmer onboarding process includes mapping the plot also?
Absolutely. Absolutely. And then on the output side, again, as of date, there are more than 650 companies or buyers, they are already listed. So that means as a farmer, whichever crop you’re growing, whether you are growing vegetables or fruits or staples or pulses. You don’t have to be dependent upon just the local market or mandi or trader versus us, where you’re getting a much wider option of buyers to the fair billing and payment terms.
How does the farmer sell his produce? Does he sell it to DeHaat, you take care of it or he comes and then you connect him to buyers?
No, they sell to us. We take care of logistics and everything.
You would have regular price updates, real-time price updates and the farmer on the app can see them?
Absolutely, every day.
And he has to drop it off at DeHaat and after that, you take care of logistics.
So there’s fairly logistics-intensive now like 2300 locations, which may not have great road connectivity, where every day I’m assuming your trucks would be going and dropping out.
Yeah, so that’s the fun. That’s where technology helps us.
How much of your total expenditure is on logistics? Like what is the split of your expenses? Like how much goes to logistics? How much goes on the input costs, like whatever you procure and how much on payroll etc.
Of course, the overall execution is pretty asset-light. Of course, our largest expenditure is manpower. Right, and then the warehouses we have taken on rent, right? Then, in terms of delivery cost or the logistic costs, I think somehow we have built it on a shared basis in a way that let’s say, last-mile logistics to farmers that’s built-in their incentive to be given to micro-entrepreneurs in a way. So the logistic cost is not directly incurred by us.
But warehouse to DeHaat, that you would incur right?
Yes. So that is somewhere around 1.5-3% depending upon the stage and age of that area in a way
Do you have anything in return? Like you deliver after the order is placed or you deliver and the entrepreneur keeps inventory?
No, not really.
Okay. But he stocks inventory or is it real-time, like when an order is placed the next day the delivery happens?
It’s mostly real-time.
Okay, okay. And what is the margin for micro-entrepreneurs like for every 100 rupees of the product he sells, what does he get to earn?
So, basically here, the incentive structure is designed in such a way so that every month, they make around 15000-25,000 rupees. Okay? That’s because the point is that If you give them a fixed incentive, so let’s say, against any delivery or against any aggregation of the produce, right, so of course, it will end up in, let’s say making sizable income in few months, when which are peak, because agri is a seasonal activity, right? So right, because there’ll be a few months there’ll be a harvesting phase when they are aggregating both, there will be more money. But at the same time, there will be like three-four months, when you don’t have enough harvesting. Neither do you have enough deliveries, right. So you’ll end up making very little money. And that’s where basically you will experience the churn.
Isn’t this part of life for people in the agri sector, that you earned this for a couple of months, and that earning is your annual earning?
Absolutely. And actually, that’s what we wanted to change, right? Because when we were drawing our learning about this micro-entrepreneurship. And that’s what we basically learned, right, because of this seasonal income, you always experienced significant churn from these micro-entrepreneurs. So that’s why we designed this unique structure, where instead of giving them an understanding that you’re doing this was like fixed margin or slightly like, it’s like fixed income, more than fixed margin. In fact, it’s like fixed income every month throughout the year. Yeah.
How does it work? Whatever money he collects, he doesn’t keep any share of it, he gives it all to you. And then you have some way…
No, it’s the other way around, like when you’re giving any product to deliver, obviously, you said that, hey, if your price is 12, and farmers price is 14, so that means like that 2 is yours. Similarly, let’s say, for the next order, let’s say your price is 10, farmers prices maybe 11 and a half, so 1.5 is yours. Similarly, on the optic time, we are making payments to farmers. And then if you are aggregating, let’s say 100 kilos, let’s say like per kilo, you are gonna get this one this much. So and that incentive again, they get into their account. That’s how it works.
So this is margin only, right? So besides this, what other ways are there for them to earn?
Some sort of, you know, data collection, some bit of feasible activities in terms of aggregating farmers, conducting farmers meetings, so non-transactional activities, they also get incentive out of that.
So, if my understanding is correct, essentially, the margin that you’re giving them is kept at a little lower rate so that you have that extra money to play around with during the low season, which you give them as a way to do tasks, and they remain engaged throughout the year.
Got it. Okay. That’s a good way to ensure low attrition. Okay. And what is your margin? Like for every 100 rupees sold? Like, you know, what margin do you get as a company?
I can tell you a broad range at an enterprise level, I think which is 7-10% of the money.
So you’re like a 1200 Crore business as on date.
Currently, yeah. Again, I mean, of course, I mean, which is growing on a month to month basis, but at the current time, our monthly revenue is 1200 crore.
So in a way you’re building the Amazon of farming or farmers in the way you know, now, because of Amazon, you have so many new age D2C brands who are able to get distribution because Amazon exists. So similarly, you could have a scenario where you have D2F like Direct to Farmer brands, who are creating new kinds of products based on a better understanding of what a farmer needs and they get distribution through your platform in a quick plug and play model.
So this D2F is the right way to define. Whether it can be called the Amazon of agriculture, not sure. But yeah, this D2F bit is definitely something we are building.
So, what has been your fundraising journey like, when did you raise funds at the first angel level, and then institutional level?
So as I said earlier the first angel round we raised in 2015, another angel round we raised in 2017.
How much did you raise in these rounds?
This was just one and one and a half crore. We raised a lot of debt. But at that point in time, short term debt, we took debt we repaid again, then we took more.
Because you needed working capital. So debt made more sense?
Working capital. And more than that, in fact, we thought that probably that was the time when our model was in the process of making or evolving in a way. So somehow, and again, I mean, I don’t know that, you know, where this thought came from, but we thought that we let’s not take VC money unless and until you as a founder, or you as a promoter don’t get enough confidence on the model or on the approach.
But how did you get debt without being profitable? Because traditional banks would ask for profitability before giving loans.
We were profitable. Of course, I mean, our size was small. But this was the beauty of the model, right? Because you were actually sort of bringing value for your customers, right, which are your farmers or businesses, right? So for example, you actually did not need any cashback to give any promo to run, right. I mean, so that’s why let’s say the overall unit economics was healthy and profitable.
And asset-light like no investment from your side?
Absolutely, absolutely. So and that’s how basically, we grew till 2018. Organically with just a small raise of 1.5 Crore plus a lot of debt. And then the debt was, again, I said, short term debt, right. I mean, we did not take huge debt and long term, but we took 60 days, 90 days, 45 days.
What was the advantage of that?
Mostly because of the seasonality because during the peak season, you need more of working capital also, okay. And at the same time, we did not want to take debt in the company when the overall business size was small, right, because the idea was to build traction initially. But then, in 2019, we started raising institutional capital. In April 2019, we closed our first institutional round of $4 million. And since then, again, I mean, we have been raising consistently…
Who backed you for that 4 million first round?
That round was led by Omnivore, an agri focused VC fund in India. And it was co-led by the Family Fund of Narotam Sekhsaria Group, Ambuja Cement if you’ve heard. And then early this calendar year means January 2021, we closed our last round which was the $30 million round. This was led by Nasper. And then another fund that co-led the round was RTP Global.
So financial services, you are doing your own data there? What is your role in financial services, or do you just really act as a platform?
We just act as a platform where we bring more and more data in front of any financial institution, and then they use that data to make their own decision making or hypothesis about how much to lend or whom to lend or not to lend. But it’s completely off-balance sheet financing. I mean, we are not lending through our balance sheet. The hypothesis is the same here actually the way how to let’s say as I said that it’s Direct to Farmer construct. So our role is just to bring banks or insurance companies and farmers together. I mean, if you have the right insurance products for farmers, whether it’s cattle or crop or maybe any other sort of general insurance, but related to farmers, I mean as a platform, we are going to give you farmers or a digital interface to collect premium or so. Similarly to any lender, we will give you enough validatory fact that if you want to lend any farmer to grow tomato, we will we are going to validate that as a farmer, this farmer has grown historically tomato or not, and hence there is previous revenue and exactly this much value is the right amount to lend for him to accomplish this task or so.
Okay, so, what do you think FinTech will be like a big part of your long term play or what do you think? How much will it contribute to your revenues in the long term?
I would say it’s complimentary because without input and output again, I mean, you will not be in a position to have this FinTech play. So and that’s the way we have always been seeing our work, that everything is complimentary, right? I mean, your advisory is linked to input, right? I mean, because of the right input and advisory access, you are getting the right access to the output. You are doing all these things, that’s why you are collecting a lot of data sets because of which you have integrated financial services. It’s all complimentary. And yeah, but at the same time, again, at this point of time, we find ourselves as pure facilitators. Yeah, but needless to say, it’s a huge opportunity, considering the current penetration of financial services in rural areas, that’s very low. And it’s very disheartening for us when we see farmers borrowing money at 3-5% monthly. So it’s a huge opportunity on top of what we are building, or what we are currently working at.
Right. Okay. So, you are following pretty much like an Amazon path in the sense that I think part of the reason why Amazon picked up so much initially was content like if I wanted a review of a book, I would search and I would reach Amazon’s ratings. And I would say, Okay, this book has got good reviews, let me buy it, where will I buy it? Amazon. Something similar is what you have also done where content is a way to get stickiness with customers, acquire customers and then convert them into transacting customers.
Yeah. Though, as I said that it’s there because of our own experience and own sort of inner journey. But yeah, I mean, good to have validatory facts that I suppose works or this approach has worked somewhere else like Amazon.
Do you have competitors? E-Choupal is somewhat like a competitor, the ITC initiative?
Well so, of course firstly, E-Choupal is not present everywhere. Secondly, ITC is one of our buyers. So I think that answers your question, right? I mean, because if someone is buying so of course their initiative can’t be a competitor.
Right. And it’s not their core business.
It’s not their core business. Absolutely.
You don’t have any direct competitors as yet. Like nobody comparable?
There are many. But again, more on the structure side, because this is not a new business you are doing. I mean, there are, again, unstructured players, local traders, middlemen, distributors, of course, you have to compete with on a day to day basis. But on the structured side, in fact, there are a bunch of folks. On top of it, the market is huge and the sector requires many more DeHaats for sure.
If you want to know more about the mission to impact the lives of millions of farmers, then to check out DeHaat by logging in at www.agrevolution.in.