By Pranbihanga Borpuzari
The business of agriculture has survived almost as long as the civilization of humanity. A business in this sector has the inherent advantage of always having a customer. But, in order to grow and take your business to a level that benefits you and your producer, if you are not one, external funding is important.
- Experience counts
Get some years behind your company. While it's true for every other sector, the years are more crucial for agribusiness. Angel investment in the sector does exist but is far less compared to others‚ such as the IT sector.
Investors prefer to come in at the pre-growth or growth stage and they generally want you to be in the business for a few years. This would mean about three years of operation and after having seen some track record of growth.
- Get the financials right
An agribusiness company generally tends to be a proprietorship. In order to raise funds, a company has to change this status to a private limited company. Investors also like a certain degree of accounting and finance practices to be followed in the company so as to ensure transparency.
Before seeking funding, it would be worthwhile to clean up your accounting registers to enthuse confidence amongst the investing community. Investors would also want to see clear management lines and before you embark on that funding round, ensure that you have a good business plan and an even better management quality with a reliable second level of management.
- Figure your sources
It is very important to know which source works the best for you and how it would impact your company. Your source can be a mere loan from a bank to take care of the monetary needs or it can be an equity sale to a VC or a PE.
A very good source of fund which comes with minimum strings attached, is funding from friends and family. However, the needs of an agribusiness firm are intensive and this route may not be ideal. If the company is in its early days and you are looking to raise a small amount of funding, angel investors would be a good bet. For larger sums and greater equity dilution, a PE or a VC round may be more suitable.
Some funds that invest in agribusiness are Omnivore Capital, Standard Chartered Private Equity, TVS Capital and International Finance Corp.‚ while Mahindra and Mahindra Financial Services, Jain NBFC and Magma Fincorp Ltd.‚ are some NBFCs that invest in companies.
- Know the right people
Getting funding is not merely about getting a pile of cash to work with. It is also about the association that one would start with the investors. It is always important to get like-minded people on board with knowhow of the sector. Agribusiness is very different from sectors like IT. Most agribusiness ventures are capital-intensive, asset-intensive and cyclical in nature. An investor who does not understand such trends would make your job only tougher.
- Increase your value
Money will come into a company only based on its value. Whether you raise funding through equity, debt or a combination of both, the extent of money coming in will be dependent on the value or the worth of your venture. Before one decides to raise money through funding, it is very important for a firm to increase its significance.
The best way to do it is to ensure a consistent cash flow and ultimately boost profits. If profits are hard to come by in the initial stages, optimal cash must be generated to maintain day-to-day operations. A company should also look to increase sales quickly. Investors like firms that are going north and good sales numbers mean good returns for them.
- Plan for ups and downs
Agribusiness is a highly regulated sector not only within the country‚ but throughout the world. It is very important to understand that there are a lot of internal regulations that exist in the country and a lot of regulations change periodically. These would be export, import policies, WTO rules and regulations amongst others.
It is important that your business plan should be robust in terms of what you will do in the next five years. Factor in all the underlying assumptions and risks. Investors like companies that are cognizant of all that is happening around them.
- Will to carry on
Agribusiness takes time before it starts showing results. It is a very lucrative sector, one that can withstand economic downturns, but is also dependent on a lot of permutations and combinations. In a country like India, there are substantial challenges when it comes to the sector, and the entrepreneur must have the drive and energy to carry on.
The entrepreneur also needs to be patient and demonstrate to the investor that he has what it takes to withstand the setbacks that this sector throws up.
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