The J Curve: Revolutionizing agricultural finance in Brazil, turbulent fundraising environment in tech and mistakes fintechs make

I have recently sat down with Alan Glezer, co-founder and CFO at Agrolend, one of the fastest growing fintechs for the agricultural sector in Brazil and 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 interest towards financial solutions for rural farmers?

So first, the agribusiness sector in Brazil is huge. We are talking about 1/3 of Brazilian GDP. Second, the monopolistic player Banco do Brasil halted the expansion of the credit portfolio in 2015 due to the fiscal conditions of the country. Third, there were some important regulatory changes introduced by the Central Bank of Brazil that allowed startups to get regulatory licenses. Fourth, because of the inflation that came as a result of the war in Ukraine and Covid Zero policy in China the prices of agricultural inputs like fertilizers, seeds and chemicals went through the roof and the farmers really needed working capital loans. And lastly, before Covid-19 pandemic farmers and retailers were not willing to do business online. After the pandemic people were more willing to accept this kind of virtual relationships.

Why instead of starting as an intermediary like a lot of fintechs you chose to be vertically integrated from day zero and applied for the license from the Central Bank?

So as you probably know, in Brazil we have very large banks like Itau, Bradesco, Santander, Safra. In order to be as competitive as those banks, you have to be fully integrated from originating the loan to formalizing the loan. But the most important part is the funding. If you don’t have competitive funding, you cannot compete with the banks. Just like banks in the US, the banks in Brazil have a low cost of funding. The difference is that here in Brazil it is still possible to get a license while in the US it's really difficult.

Most fintechs try to do only the asset part but it’s not sustainable in a scenario where interest rates around the globe are going through the roof. In Brazil, we have almost 14% interest rate. In the US you have the short term rates at 4%. If you don't figure out how to solve the funding side of the balance sheet, or how to sort out the liability part of the balance sheet, you’re gonna struggle.

What are the long-term competitive moats of Agrolend and what are the barriers to entry for your competitors?

The first barrier to entry is the license itself. If you want to issue deposits, It will take you a lot of time and capital - $10m-$15m that will be blocked by the Central Bank for an undefined period of time until you get the license. Given the current fundraising environment, it’s not easy to raise that amount of cash that will just sit in the Central Bank.

The second barrier to entry is the team. You need a team that is different from what you traditionally have in a startup. We have a mix of people with legal, compliance and tech background that have already worked for banks and know how to handle the relationships with the Central Bank. We have people that came from financial markets like myself and Andre (Andre Glezer, co-founder and CEO at Agrolend). So our team is also our moat.

How did you manage to get together $27m+ Series B at the end of 2022 when the majority of other growth companies were struggling to raise?

When we started in 2020, we invited our friends and family to invest in the seed round. We were telling the very early investors that we wanted to be profitable. This mindset was not popular back then but we knew that we couldn’t build a bank by burning cash. Our clients and partners wouldn’t trust us if we did. Before raising Series B we were already at breakeven that did help us in this environment. Across several; rounds of funding we brought very good investors to our cap-table that really appreciated our approach towards efficiency. Valor Capital led our $14m Series A back in December 2021 and then we raised $27m Series B led by Lightrock. So a strong base of investors from the very beginning was a successful factor but I guess the path to profitability and conservative way of spending cash was what made the fundraising amidst market turbulence a success.

If everything goes right, what will the future look like for Agrolend 5-7 years from now? What’s the scale of your ambitions?

The scale of your ambitions depends on the market size. We are talking about 2m farmers in Brazil and the $500b reais (US $100b) size of the outstanding credit line. We as Agrolend currently have 1000 clients and a $200m reais (US $40m) portfolio more or less. If we do well in the future we could get to 30 000 clients, 30x more than what we have today and probably could reach a portfolio of $10b reais (US $2b). If we reach this target we will probably become the largest credit fintech in Brazil and probably in Latin America and it will still be about 2% of the market.

What are other verticals in agritech space you are excited about?

The one that we are super excited about is biological inputs. It’s the segment that we expand very fast. Another area is carbon credits.

What are the growth inhibitors of the agricultural market in Brazil? 

First is the logistics. Here in Brazil, until very recently, we didn't have proper roads to connect Mato Grosso state to a distribution channel to export the grain production. We need more railways, we need more roads, we need more ports. And we need more capital to fund these infrastructure projects. This is the biggest obstacle in terms of sustainable growth. We need more banks in the agribusiness sector to provide more credit to the farmers to help them reach their max potential.

If a crystal ball could tell you the truth about yourself, your life, future, or anything else, what would you wanna know?

Maybe if I could reach a proper equilibrium between work, life, family and health. If you are in the very beginning of your startup life, it’s tough. I have two sons and I wish i had more time to spend with them but you have to make sacrifices. Maybe that’s out of fashion and people want to work three days a week but that’s not how you achieve results. No pain, no gain.

Thanks for reading,

Olga