The J Curve: Why agribusiness is the next big thing in venture in Brazil, do's and dont's of startup pitching and Brazilian least known treasure

I have recently sat down with Francisco Jardim, co-founder and General Partner at SP Ventures, an early-stage fund investing in tech powered solutions for agriculture and food across Latin America. To listen to our full conversation, head over to Spotify. In the meantime, what follows is an excerpt from our discussion which has been edited slightly for length and clarity.

What drove your attention as a venture capitalist to the agricultural sector in Brazil?

It’s important to note that nobody in the foundational team of SP Ventures had any previous background in agriculture. We started the firm focusing on early stage startups in the São Paulo area. But as we were engaging with founders across different industries we grew uncomfortable with making generalist superficial investment decisions and, more importantly, with our very limited ability to support founders we back with sector-specific strategic advice, access to talent and access to market. So after a couple of years we finally decided to focus on one specific vertical and build a significant rolodex in terms of network to talent, network to capital, network to market and network to channel partners. As we were looking at a bunch of different sectors, ag-tech stood out due to certain macro trends and long-term Brazilian agri-sector growth drivers:

1. Global population growth and increasing animal protein demand in emerging markets

The world population is set to grow to ~10 billion people by 2050 as we've just crossed the 8 billion mark. Additionally, the rising middle class in emerging markets is driving the demand for animal protein and that means growing demand for grains, feed, land and water. Those two factors put a lot more pressure on the entire food producing system and open up a massive opportunity for agrifoodtech startups to improve the efficiency of food production via technology.

2. Brazilian agribusiness is recession-proof

First of all, Brazilian agricultural commodities are dollar denominated. Second, the agricultural products are at the very base of Maslow's hierarchy of needs. People cut out a lot of things but they don’t cut out basic food. So the sector is protected on the demand side as well. Third, Brazil has successfully diversified its agribusiness over the past few decades. It became a very relevant force in the agri markets in China, the Middle East, Europe, the US, besides having a robust domestic consumption.

3. Brazil is the major global agricultural hub

It is the leading global supplier of agricultural commodities, which include oranges, soybeans, coffee, corn, cotton, sugar, beef, swine and poultry. Brazil’s also the only major powerhouse in tropical agriculture. So it’s a very big market where we hold a unique geo advantage.

How do you evaluate startups? Do you prioritize the founder's personality and background or market opportunity? 

The most important lesson of venture capital - it’s all about the founder. We evaluate the potential of the founder, their emotional intelligence, resiliency and depth of commitment. Building tech company is a business of running a marathon, hopefully at a hundred yard speed, so we spend a lot of time with the founder to understand how they think and act under pressure. In our perspective, the founder should be messianic. What do I mean by messianic? Be a prophet. They need to persuade three very important categories of stakeholders to go up to the Promised Mountain with them. First, they need to convince their co-founders, so people who see him would say: ‘wow, I’m going to abandon my career. I am going to abandon my way of living to follow this guy right from the start when he doesn’t have anything, except for his vision.” Second, they need to persuade their first customers who will jump on board knowing that there are no other clients and the product is not fully developed. Lastly, they need to convince angel and institutional investors. Additionally, the founder needs to understand that their relevance in the company will last until a certain point and then they need to pass responsibilities to other people. Most VC investors look at the above, I think what differentiates us is the depth at which we look at deal flow opportunities.

How many companies are you looking at and what’s the conversion rate?

We look at 300-350 deals a year and we make ~5-7 investments per year. So we look at 50 to 70 deals per every deal that we do. It’s slightly higher conversion ratio than in case of most generalist VCs, but the quality of our deal flow is also higher as it’s sector specific.

What are the key do’s and don’t of a startup pitch to SP Ventures?

We want to see an entrepreneur that treats us as partners. Not as financiers, not as a bankers, but as partners. That means no sugar coating. We like radical honesty because we understand that the problems will arise and the capacity to solve the problems depends on how quickly the problem is circulated and how many brains are attacking the problem. So we want to see the founders who are very transparent, optimistic but also do not sugar coat.

If you were to give a public talk but could not talk about tech, venture capital or anything related to business, what would you talk about?

Brazilian music. It’s one of our least understood treasures. We have berimbau which is very little known, then we have capoeira. Going a little further back, we have Bossa nova and Brazilian rock. The integration of Samba and rock is a fascinating new category.

📌 On a side note, did you know that...

🗑 Roughly ⅓ of the world’s food is wasted. That’s about 1.3b tons a year.

♻️ Food is lost in every step of the food “life cycle”:

1. Agricultural production (e.g. fields)

2. Postharvest handling and storage

3. Processing

4. Distribution

5. Consumption

6. End of life

🌾 The largest source of food waste is in the production phase where over 500 million tons is lost due to things like crop pests and ineffective harvesting and irrigation. This is followed by “postharvest handling and storage” and “consumption” both with around 350 million tons. These three phases account for around 75% of all food waste.

💡 Reducing food loss sounds like a great opportunity for tech startups.

Thanks for reading,

Olga