Banking & Payments
Aquaconnect, pre-Series A done, goes fishing for data
The Indian “AgriTech” is developing the data to plug fish farmers into lending and insurance products.
India is the world’s leading exporter of frozen shrimp, and the second largest fish farmer after China. But its aquaculture farmers are a lot less efficient than competitors in Southeast Asia. They operate completely analog, with farmers keeping track of things via ledgers that resemble diaries. This keeps costs high, risks large, and access to capital very expensive.
A Chennai-based startup, Aquaconnect, has developed a Software-as-a-Service model with an app that helps farmers digitize operations. Since launching in 2017, Aquaconnect has accrued enough data on its more than 30,000 users to pivot to a model of embedded finance and developing relationships with local banks and insurance companies.
Now, as it begins to plug in financial services, the company has just announced a $4 million pre-Series A capital raise, led by ReBright Partners and Flourish Ventures. The company plans to raise a Series A round in late 2021 or early 2022.
For now, the proceeds are going to both developing the technology as well as to developing the user base and other operational aspects, says Rajamanohar “Raj” Somasundaram, co-founder and CEO. The priority is to hoover up as much data as possible.
Later, the focus will shift to data verification.
“The byproduct of all of this is traceability,” Raj said. Exporters will be able to improve business if they can prove they are not, say, farming in environmentally delicate mangroves, or using child labor, or without a license. He says he is starting to look at how to validate the data, either by joining international agribusiness associations, or exploring a blockchain solution.
From farming to fintech
For now, though, the team is keen to expand its userbase.
“The industry lacks data, the ability to make data-led decisions, and transparency,” Raj said.
Anuradha Ramachandaran, investment director at Flourish in Bangalore, says Aquaconnect offers several attractive aspects to investors. First, aquaculture farms in India are fragmented but they’re not too micro-sized; they’re viable. Second, they require daily intervention, which lends themselves to digitalization. Third, the impact is easy to measure in the form of rising incomes, cheaper access to financing, and access to insurance.
She says adding financial services on top of a tech platform usually comes in one of two flavors. “It’s either the oil greasing the wheel of an industry, or it’s gravy on top. In this case, it’s oil: liquidity is a challenge for the farmers, and what Aquaconnect provides can help them improve their income.”
The startup has recently formed a lending partnership with state-owned Bank of Baroda, with another deal in the works with State Bank of India. This is partly thanks to a recent push by the federal government to push state-owned banks to lend to the aquaculture industry – but banks remain loathe to extend credit to small businesses they don’t understand. So a platform like Aquaconnect comes at a fortuitous juncture.
The company is also now working with Alliance Insurance Brokers to source cover and develop products, with partnerships with carriers in talks.
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The biggest finance integration is likely to come from non-bank financial corporations. These companies are eager to take on more risk. Although non-bank lenders have been around for decades, a new generation has arisen in India that is digitally native, and therefore easy to integrate into an app.
Aquaconnect’s existing users are already winning much cheaper access to credit. Raj says these small farmers usually rely on local lenders and pay 35 percent to 45 percent in annualized interest – a crushing cost. Through the app, they can borrow from non-bank lenders at 12 percent to 16 percent annualized; and below 10 percent if from a new government scheme for the industry.
The new kind of A.I.
The reason for the lower costs of borrowing are because the data entered into the Aquaconnect app enables the tech company to provide farmers with meaningful advice.
That data includes things like water quality (checking their ponds for levels of oxygen or ammonia), and feed management. Feed is critical, accounting for 60 percent of a farmer’s costs. Yields (meat) are benchmarked against the amount fed to an animal.
A cow, for example, typically requires 8x its meat in feeding. Fish are most cost-effective: a well-managed aquafarm has a feed conversion rate of 1x to 1.2x. But a poorly managed one has a ratio of 2x – a big difference.
Better data-led decisions can help farmers become more efficient, so each fish or shrimp yields more per feeding. This is money in farmers’ pockets, but it’s also parametric data that helps them access insurance – all of which in turn gives banks and non-bank lenders the confidence to lend to these small farmers at affordable interest rates.
Raj says getting the first thousand farmers to use the app was hard work. The business relies on a ‘fremium’ model, giving farmers free access to the aggregated data and advice.
“Farmers are already using A.I.,” he said. “It’s called ‘Ancestral Intelligence’. We’re just augmenting this with technology.”
But data-rich platforms do more than just improve the status quo.
“Giving farmers this data is the only way to change their behavior,” Ramachandran said.