A conversation with Luni Libes, serial entrepreneur and investor, about the enormous opportunities of African food companies and on buying from smallholder famers and selling into the local regional markets. We also discuss why the traditional venture capital model doesn’t make any sense and a holding company does, plus why and how he wants to take the holding company public in a few years’ time.
LISTEN TO THE CONVERSATION ON:
Today we unpack how Africa could easily feed itself but is a net importer of food. The opportunities are simply gigantic, and the investments of today’s guest show that, growing 50% to 100% year after year. Currently the portfolio holds 25 companies which work with 100.000 small holder famers.
THE OPPORTUNITIES OF FOOD COMPANIES IN AFRICA BUYING FROM SMALL HOLDER FARMERS AND SERVING THE LOCAL MARKETS
There’s 200 million smallholder farms in Africa, that’s more than half the population. They are doing organic farming simply because they can’t afford the chemicals. The yields are low partly because they are doing organic farming, and because they only have an acre, a typical smallholder farm is an acre. The people they pick at Africa Eats care about the environment, but what it really comes down to, at the moment in Africa, and the reason why organic is so prevalent is because it’s cheaper.
“They can’t burn up an acre with with too much fertilizer and too many pesticides and too many herbicides. If they do that, they’re they’re done. They’re already poor, but that would put them totally below subsistence farming, they just can’t do that, they have to treat their land well, because it’s all they have.” – Luni Libes
“99% of all the agriculture that happens in Africa Eats is organic, not certified organic, because that costs money, but following organic practices. And it comes out for two reasons. One, because the entrepreneurs we’re picking, the back, are ones that care, they’re all working with smallholder farmers, we’re not investing in the actual farming. We’re investing in companies that buy from smallholder farmers and train them.” – Luni Libes
MOST INVESTORS ARE NOT INVESTING IN THAT MARKET
According to Luni, the investments opportunities in Africa are so much bigger than they are in the United States, plus the costs of those opportunitiesare are a lot lower, too. However, investors seem to be scared when considering the idea.
“I would say that probably most of your audience has never invested in Africa, and probably has never even considered investing in Africa. And the thought of investing in Africa just scares them to not act. And what I would tell you from being a startup investor in Africa for 10 years it’s just like investing anywhere else. It doesn’t seem to be any more risky than me here in Seattle investing in Portland Oregon or your Dallas or Atlanta.” – Luni Libes
“There’s definitely huge opportunities over in Africa in food and ag, billion dollar opportunities. And you can get in on $100,000 checks, and see 100x growth on that, or bigger checks if you have more money. But again, the opportunities to see 1,000x growth are all over the place in Africa, and I don’t see any of them in the States.” – Luni Libes
WHY LUNI INVESTS IN AND SETS UP LOGISTICS COMPANIES
The biggest thing that they see is logistics. A lot of the learnings in the two and a half years of Africa Eats comes through listening to the issues that the companies are dealing with, one at a time or in groups, and seeing patterns and then acting on solutions. Around 2018, 2019, a lot of the investments that followed, were equity investments to buy trucks.
“All the companies when we first found them […] none of them had a truck when we met them. And these are logistics companies, by the way, right? So they are literally buying food from farms, bringing it to a processing plant, and then distributing it to retailers. That’s the basic business model. And they were doing that without owning any vehicles. And you can do that in Africa because there’s always a guy with a truck or the man with the van […] it really eats into your margins because you got to pay them in the market.” – Luni Libes
“We just saw this transformation in these companies They would jump up by a factor of two or three or four or five in terms of revenues as soon as they had their own vehicle. And their margins would go up on top of them. And so that was the clear path.” – Luni Libes
HOW TO TAKE A HOLDING COMPANY PUBLIC
Luni argues that taking a holding company public isn’t very common, and it somehow seems to be a risk. But in fact, it’s just a matter of scale. So, when they are big enough, that is, when the value of their portfolio is 100 million pounds, or $100 million, then they will be big enough to go public in London.
“We’ve spoken to multiple organizations that run public markets in Africa and the London Stock Exchange, we’ve spoken to multiple investment bankers who do that process. We’ve spoken to public equities traders who would buy this kind of stock, we’ve spoken to the institutions that would invest in an IPO. There’s nothing actually holding us back except scale, like we’re just not big enough yet to merit doing that step.” – Luni Libes
“You just have to go through the motions of getting your accounting in order, which we are already doing, because we know we want to be a public company, getting your legal side in order, which we’re already doing, because we know we’re going to go down this path, and then filing the paperwork and doing a roadshow.” – Luni Libes
OTHER POINTS DISCUSSED:
Koen and Luni also talked about
- The current input crisis
- The impact for a typical smallholder farmer
- What would Luni do if he had a magic wand
LINKS:
LINKED INTERVIEWS:
- Thekla Teunis and Gijs Boers, The Good, the Bad and the Ugly of regenerative agriculture
- Thekla Teunis and Gijs Boers, what African regenerative farmers can teach us
- Gijs Boers on why the biggest drive to the growth of regenerative agriculture is quality
- Clément Chenost – Lessons learned on investing 80M into vertically integrated agroforestry companies in LATAM and Subsaharan Africa
- Martijn Blom, investing 15m into regen food/agri companies in Sub Saharan Africa
- Soil Builders, using a bond to scale regenerative approaches in West Africa
——————————————
Feedback, comments, suggestions? Reach me via Twitter @KoenvanSeijen, in the comments below or through Get in Touch on this website.
Join the Investing in Regenerative Agriculture and Food newsletter on www.eepurl.com/cxU33P
The above references an opinion and is for information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
1 comment on “Luni Libes – Building a Warren Buffet style portfolio while serving 1M African smallholder farmers”