Three investment risk lessons from Thrive Agric’s revenue struggles
The unraveling of revenue challenges and the consequent inability to meet up with contractual dividends commitment by Thrive Agric in recent times would likely have investors scratching their heads on what to do when next they want to invest in similar platforms.
Thrive Agric is like a middleman that leverages digital technology to bring farmers, investors, or buyers together. Investors get the opportunity to support agricultural ventures by investing in farms at specific seasons. Those who invest earn a return on their investments depending on the duration and the amount they invest.
Since it was founded in 2016, the company has grown from 1,000 farmers to 39,000 farmers as of the end of 2019. Agric investments on Thrive Agric mature between 3 to 9 months and returns range from 6 percent to 25 percent.
In the past few weeks, the company has fallen into troubled times. Thrive Agric has reportedly not paid their investors since March 2020. The company confirmed to BusinessDay that it was affected by the COVID-19 pandemic and offtakers inability to repay the investment they received.
Below are the three things new investors need to be mindful of when investing in agritech businesses.
Poor corporate governance
This is arguably the biggest elephant in the room. The digital agri-investment space is new and regulation is yet to take hold. The Security and Exchange Commission (SEC) had in March 2020 released a regulatory document for crowdfunding platforms in the country.
The SEC’s exposure document classed Thrive Agric and similar platforms in a category called Digital Commodities Investment Platforms. This describes a digital platform that connects investors to specific agricultural or commodities projects for the purpose of sponsoring such projects in exchange for a return.
The regulation requires platforms like Thrive Agric to provide a capital requirement of N100 million ($263,157 using N380/$) which is far higher than the funding ($170,000) the company has raised so far.
It is highly unlikely that Thrive Agric has complied with the new capital requirements from SEC. BusinessDay’s query to the company in this regard was not answered.
In the absence of a proper regulatory environment, nothing is fully guaranteed, including investors’ funds. Several investors who spoke to BusinessDay said they were concerned with the little communication the company was providing. Even when the company managed to communicate and make promises, they were not kept, thereby eroding investors’ trust.
For instance, Thrive Agric has assured some investors, who were protesting, that it plans to clear the March and June backlog by September 30, the investors told BusinessDay the company has made similar promises before and reneged. But Charles Isidi, Head of Growth, Strategy, and Partnerships said the seeming break in communication was due to the COVID-19 which did not allow for public gathering.
“We have told these customers that we can’t put everyone on a zoom call and that would be the equivalent of a mob attack. And that they should select 10 people to represent the online agitators,” Isidi said.
Offtakers are humans too
While the COVID-19 pandemic played a role, it was offtakers’ refusal to make payments that exacerbated Thrive Agric’s cash problem.
“A rep only called some days ago saying that they are yet to receive payments from offtakers,” Sandra Obiukwu, one of the investors who committed N255,000 to a farm advertised by Thrive Agric told BusinessDay. “My due date was yesterday and no official email has been sent concerning the reason for the delay. However, I contacted them on WhatsApp about 2 days ago and their rep said they will be having a meeting with their offtakers yesterday. Till this moment no official email has been sent to explain the way forward.”
Offtaker as used in project financing refers to the party who buys the product being produced by the project or who uses the services being sold by the project (farm produce). The project output buyer can be an independent third party or an affiliate of the project sponsor.
In project financings, the offtaker’s rights and obligations under the offtake agreement must be coordinated with the project company’s rights and obligations under the loan documents, the construction contract, and other applicable project documents.
Although offtake agreements are legally binding, it doesn’t have provisions for a pandemic.
There’s insurance, but no coverage for a pandemic
Thrive Agric is insured by Leadway Assurance. However, like the offtakers agreement, there is no insurance cover for a pandemic.
“Note that loss or damage to the insured crops/livestock/poultry/farms directly or indirectly attributable to or caused by the adverse consequences of the outbreak of the COVID-19 pandemic which in turn affects the management or operations of the farm is not covered by the policy,” another investor who simply identifies himself as Austin told BusinessDay. Austin said his investment in Thrive Agric’s farms amounts to N800,000.
In essence, any hope of Thrive Agric recouping some of their losses through the insurer is very dim, hence affected investors would have to wait longer to get paid. Although the company has set March and April 2021 as timelines for clearing all backlogs, 52 investors said they would be owed N50 million by December 2020.