Investors and Investment in farming enterprises: The iZindaba Zokudla Virtual Farmers’ Lab 30 July 2

Searching for investors and investment really focusses the mind of the entrepreneur. The Virtual Farmers’ Lab on 30 July discussed investors and investing and the conclusions and insights from this Lab are reported on here.

We had the pleasure to host two entrepreneurs in this session: Corné Barnard from North by North East is available at: market-al@outlook.com.

Fazlur Pandor from Urban Fresh is available on 081 283 6609 and www.facebook.com/urbanfreshza.

Jéròme van Innis and Zaheer Dindar from Beyond Soil are available on: +27 (0)71 567 4893 email: zaheer@beyond-soil.com web: https://beyond-soil.com/. Beyond Soil operates in the financing space and they presented their strategy for finance and business development in this Lab.

The Lab also had the pleasure to host, as critical discussant, Marno Booyens from the UJ department of Finance and Investment Management.

The Lab was attended by about 20 people according to the Facebook analytics and the event was shared about 500 times. The event is available on the iZindaba Zokudla FB page under https://fb.me/e/1CyfwpWhK or https://www.facebook.com/events/364335415221933.

In the discussion, it became clear that talk of investment and investors can only really take place when business development was done properly. The main point made was that, before you seek investments, you need to establish the enterprise properly. This may mean:

You really have to find the lowest cost way of establishing the enterprise. You have to Bootstrap!

You have to build relationships and networks immediately outside your enterprise, and these need to be seen in fact, as part of the enterprise itself. The relationships and arrangements with suppliers can be so close to you that you may want to see them as part of the overall functioning of the enterprise. These need to be seamless and flowing relationships for the enterprise to benefit from them.

The third requirements would be to develop a narrative or story about the business that leads to or is consistent with, in a direct way, the structure of the business. There has to be consistency in this regard, and this is the basis of the enterprise’s identity and the means to attract investors.

To find investors and investment can only take place if the business itself is sound. This means the business needs to have a bankable business plan. This means the structure of the business should indicate that the enterprise will be able to create value that is greater than the investment. This structure must be able to “work” and lead to a net value creation. Structures, systems, processes and procedures need to flow easily and lead to clear outputs.

To create a sound structure for the business, the right expertise is needed. This means the right things need to be done for intended purposes. This really refers to operations and processes in the business and these need to be optimized so that no value is lost or wasted and the business returns a net profit after a cycle of activities are completed.

A sound structure for a business will be compliant, and also reflect internal processes that enables the entrepreneur to make adjustments as time goes by. In this sense record keeping is important for the entrepreneur, as this is how she would know what is going on in the business. Records and compliance are also important for the investor, as this is the only way she can see what you are doing and the only way she can understand the benefits of investing in the business. There are direct and immediate relationships between the structure of the business and its ability to repay the value of investments. A good structure will translate to efficient operations and this is key in attracting investments.

The structure of the business goes beyond the structures in the enterprise. The enterprise exists within broader relationships and networks, and these are in fact part of the enterprise itself. These also reflect how the entrepreneurs socialises the business with its stakeholders, inclusive of clients, suppliers and even regulators or competitors. A business can be significantly enhanced by making these networks and relationships durable. These non-tangible resources are also part of the calculus an investor would use in ascertaining if it is worth it to invest in the business.

In this regard it is worthwhile to reflect on Beyond Soil and the investment strategy they follow. Please allow me to make some comments on what transpired in the lab.

In the discussion, Zaheer immediately distinguished Beyond Soil from a typical bank. Banks have to minimize risk, and this is why they follow a highly technical approach to lending. Beyond Soil adopts an alternative approach.

Beyond Soil’s approach is indicative of how investors are seeking new ways to gauge risk and capability and prospects for new entrepreneurs. This is the most interesting and innovative aspect of their activities and this is indicative of how investors in the future will approach farming enterprises.

Beyond Soil focusses on co-building the enterprise with the entrepreneur, which would be necessary to find an investor. Beyond Soil is able to strengthen the investment case any enterprise would make by enabling the creation of durable systems and processes in the enterprise. This is necessary before funding is sought, and this is a sense establishes the enterprise on a sound footing. We can thus expect that changes are to be made to the structure or model on which the enterprise is built. Beyond Soil thus assists in enterprise creation and the development of all operations and relationships in the enterprise, and this is to prepare the enterprise to receive and be able to pay back any investment or credit it may obtain.

Beyond Soil then prepares the path to gain access to funding. This part of the service Beyond Soil offers to entrepreneurs, links entrepreneurs with funding from a number of places. Whom to approach is a decision made based-on how the enterprise’s structure, markets and processes function and the kinds of funding available.

The third aspect of Beyond Soil’s strategy which is important is the “ecosystem service” it offers. This is similar to what iZindaba Zokudla is aiming to do, and that is to establish an ecosystem of conducive and benevolent stakeholders and actors around enterprises. This ecosystem can be managed on a case by case basis, as a organization like Beyond Soil would do, or as iZindaba Zokudla does, to coordinate the whole ecosystem so that enterprises are supported.

This aspect of Beyond Soil’s activities deserve further scrutiny. The coordination of the ecosystem around the food system could do many things for new enterprises and is a notable new development in the lending space. New entrepreneurs would have to engage in this ecosystem, and this means they need to go beyond merely “harvesting” clients and inputs from this ecosystem. It is possible, as the search for sustainability would need, for entrepreneurs to coordinate this ecosystem that new more sustainable patterns are supported by its overall functioning. I call it “infrastructuring”, “entrepreneuring” or “architecting” the ecosystem. If we sequence new players with old players in the ecosystem, we can create new incentives and opportunities for entrepreneurs. We would have to do this to promote sustainable enterprises and products, and this overall coordination is also evident in in the case of Beyond Soil.

This deep relationship building in the ecosystem is evident in the partnership between Urban Fresh and Beyond Soil. Urban Fresh can organize off-take agreements for urban farmers, which would feed back to Beyond Soil as a purveyor of financial access. It is in the creation of a tight mini-ecosystem around emerging enterprises that their solvency and thus the viability of a new economic sector can be found. We will observe with great interest how this will play out.

It was heartening that our critical discussant, Marno Booyens from UJ’s Department of Finance and Investment Management echoed most of the concerns and recommendations made by Jéròen and Zaheer from Beyond Soil. This singular instance of engagement however points out to how we can make the University available to wider society and the creation of better lives for people. Marno immediately after the Lab called me and suggested we start a programme of emerging entrepreneurship development. We will start with record keeping! This is great and I am expecting the creation of a comprehensive and accessible system of outreach and education from the School of Management at UJ that will lay the basis of further engagement. This could create the necessary minimum standards upon which an organisation like Beyond soil can build more important activities. We will do our best!

The ability to control the ecosystem wherein entrepreneurs function represents a frontier in economic management. The coordination of the ecosystem allows firms in the ecosystem to adapt their approaches, in unison with all others in the network, and this can steer an economic system in a new direction.

Mashudu Impendulo