Impact Reports

1. Could you walk us through the investment thesis that Mandala Capital has developed for the Indian market? Our readers will greatly benefit from understanding the ‘Mandala Playbook’ better when it comes to identifying Agritech companies for investments.

Our strategy has evolved from being a minority investor to being more control and operationally oriented.

On the financial side- we look for intrinsically positive cash flow businesses that we can take over to drive growth and margin improvement and create large, sustainable businesses.

On the impact side – we are increasingly focussed on climate adaptation and food security as a theme. Though we naturally touch areas like rural employment, gender inclusivity, water management, waste upcycling, food affordability and so on given our sector focus.

The playbook has four components – Thesis development, Deal Creation, Deal Structuring, Value Creation.

Agribusiness – as we define it – is a very large sector and overlaps with several different sectors from industrials, logistics, manufacturing, consumer and so on. During the Thesis development stage we use our collective experience and our proprietary ranking system to evaluate various sub-sectors and choose the best ones for the current Fund. Deal Creation is a process where we spend up to 2 years tracking and developing relationships with companies to find a meeting of minds. Deal Structuring involves finding win-win solutions between all stakeholders. And Value Creation is the most important part for us where we drive performance improvements and eventually exits.

2. Mandala Impact looks at the entire food value chain right from agri-inputs to farm-to-fork solutions. Which part of the value chain, have you experienced to have presented the maximum potential for business scale as well as farmer-level impact? Could you share a few examples from your investment portfolio that demonstrate having achieved this balance?

It becomes difficult to scale something if the buyers or suppliers are not scaled up as well. This is one of the issues within the agri chain in India. One way to address this is to be in the entire value chain from Farm to fork – thus creating the necessary infra and scale yourself – this is happening with some of the VC backed agribusinesses in the market but has its challenges and requires very deep pockets and time horizons. The other could be to identify specific areas where scale can actually achieve maximum impact and returns and solve a bottleneck.

Two examples would be Jain Farm Fresh and Keventer Agro – both within the food processing or midstream part of the value chain.

In Jain Farm Fresh’s case – we funded and built one of India’s largest fruit and vegetable processing units – which is able to service the volume requirements and quality standards of International MNCs. The key differentiator was the ability to buy from hundreds of thousands of small holder farmers on a consistent basis on remunerative pricing terms, while simultaneously building farmer relationships through agri inputs and technical know-how to enhance productivity and yields.

In Keventer Agro’s case – we funded and built the largest and first UHT milk plant in East India. We also had to invest in the back-end to to ensure quality and consistent supply. This included working with small holder dairy farmers, funding collection centers and cooling tanks and building relationships with the various milk traders in the region

In both these cases we were able to deploy $20-30 million each in building scaled infrastructure that could generate good financial returns. (We exited Keventer last year with strong returns to fund investors). At the same time we were able to create huge benefits for small holder farmers by providing them consistent offtake at fair prices while also delivering high quality products for consumers at affordable prices.

3. One part of the food value chain that we observe coming up with innovative solutions is the alternative protein (plant based protein, dairy alternatives, microorganisms derived protein, lab-grown meat) segment. Our understanding is that the consumer and industrial demand for such products is still at an evolving stage in India. What has been your assessment of this space in India? Do you see a pipeline of investable opportunities emerge?

While there are several interesting opportunities and concepts in this space, most companies are at a relatively nascent stage with several challenges around long-term economic viability, supply as well as demand constraints and investment gestation periods. Therefore, there are currently very few suitable candidates for our Funds and our mandate.

Nonetheless, these areas are where the future of food is likely to be and our team actively tracks and monitors companies in these sectors globally. We also have made a few investments from our Mandala Innovation platform into these areas but we are extremely selective.

4. In the last 5 years, we observe an increasing number of agritech startups coming up with ‘climate-resilient’ agricultural solutions. Climate-resilient seeds, weather and soil monitoring advisory and cold chain are some of the solutions that have garnered investor interest. Do you see a business case for such solutions to scale up and especially meet the requirements of the small and marginal farmers in India? From your experience, how ready and equipped are small-sized farmers to adopt such technologies at scale?

The solutions in cold chain and climate resilient seeds specifically are not that new – they always had a climate angle. These remain attractive sectors for investors in terms of scale and financial return and also offer great benefits to farmers and suppliers. Overall small holder farmers are not averse to adopting new technology – just look at how quickly BT Cotton was adopted across the country. The issue is more about what impact it has on their bottom line and whether it makes a step change for them.

We observe that as long as solutions are available to farmers at an affordable price point and also bring with them tangible benefits, farmers will be open to using them. Farmgate solutions including those that offer storage and warehousing for agri produce and especially ones that have a strong climate lens (for example: solar powered cold storage) have been seeing good traction with farmers.

5. Mandala Impact has a presence in Indian and international markets. How different is the Indian market, as compared to the rest of Southeast Asia, from an investment perspective? From your experience across these geographies, what could be some of the best practices that both investors and investees, could learn and adapt to the Indian context?

This is a broad question but overall the Indian investment ecosystem is quite well developed compared to the rest of our markets – which is southeast asia. We are seeing companies in Vietnam and Indonesia for example that are doing what some of our portfolio companies in India were doing 10 years back. This is I think also a similar story in the agritech space. So I feel India is leading the charge on the agribusiness side within the South and South East Region -where we are focused.

6. Mandala’s Impact Report lays out a very comprehensive framework towards impact measurement and alignment of impact with the SDGs. How can emerging agritech enterprises in India better prepare themselves to measure the impact of their solutions, in line with the expectations of investors?

There has to be alignment of goals along with coordination and support between shareholders and management to make impact creation, measurement and monitoring effective across the organisation. This is possible through quantitative metrics, benchmarks and KPIs to set targets, measure and report. And it allows everyone to evaluate performance and provide constructive feedback.

7. Lastly, given your past investments and learning in the agriculture sector, what are the key risks for potential investors in this space – and how should one mitigate them?

This would really depend on the sub-sector as they can have varied risks. As a whole, the agri sector is subject to higher uncertainty than most other sectors due to highly volatile input and output prices, unseasonal, delayed or inadequate rains and other such climatic changes, resultant crop pattern changes, regulatory policy changes such as import or export bans, and so on. These are perhaps some of the biggest risks that should go into any underwriting decision for the agri sector. Mitigants could be in the form of building a pipeline of higher value products, promoting drought resistant crop varieties, investments in AI and machine learning, etc.

We are thrilled to share the significant impact that our portfolio companies have achieved this year in our latest impact report, Building a Resilient Food System.

We are proud of the impact that our portfolio companies have achieved in 2022 and strive towards doing more for the environment and the community in the coming year. 

At Mandala, we are focused on making scalable and sustainable investments in the food and agricultural sector in India and Southeast Asia.

We believe we have a critical role to play in harnessing the power of capital to not just to yield financial returns, but to also make a positive impact on the community around us, socially and environmentally.

The theme that we have chosen for our Impact Report this year is Combating Climate Change.

The topic of climate change is all the more relevant to Mandala given that it is inextricably linked to the food and agricultural sector. The relationship between food and climate change is no doubt a symbiotic one. It is clear that the transformation of the food value chain has a key role to play in not only adapting to climate change, but also mitigating climate change.

We are heartened to be able to make a real difference to climate change and we hope to continue working towards net zero emissions with our investee companies.

These strains have led to depleting resources and resulted in long-term secondary lasting effects, often overlooked and not easily measured, such as climate change, degrading soil health, water pollution, seafood sustainability, chemical runoffs human health problems, and infant nutrition deficiencies.

We are committed to achieving the UN Sustainable Development Goals (SDGs) through our investments. In particular, our current investments are focused on SDG 2: Zero Hunger, SDG 3: Good Health and Well-Being, SDG 6: Clean Water and Sanitation, SDG 8: Decent Work and Economic Growth, SDG 10: Reduced Inequalities, SDG 12: Responsible Consumption and Production, SDG 13: Climate Action, and SDG 15: Life on Land.

Impact and sustainability are at the core of our personal philosophy and have been carried over to our investment philosophy. We have gotten better at incorporating Impact at every stage of our investment process and more importantly, we are now better at identifying ways to improve, track and monitor the Impact of our investments. We have maintained an integrated team for this exercise and the entire investment team has contributed towards the data, case studies, photos and commentary in this report.

I hope you enjoy reading our second annual Impact report and look forward to hearing from you.

Sustainable impact requires durability that ensures impact on all stakeholders beyond an investment cycle or fund life. The inherent challenge in our work is the potential for a promoter or owner of a business to have a time horizon and return expectations that are not fully aligned with the investment style and structure of a fund. As a firm, we recognize this dynamic and approach investments with the aim of balancing our objectives of optimal investor return while ensuring that investments are meaningful to the company. Often, it is only through active dialogue that these issues can be resolved to achieve an ideal outcome for all stakeholders.

Fundamentally, our relationship with the companies is built on a basis of trust that transcends the transactional and provides a foundation to influence operations post-investment. It is through our close operational involvement that we are able to closely monitor and prioritize value creating events that align EBITDA progression with sustainable social impact progression. Each of our companies are their respective category leaders in the food supply chain and, as such, innately capable of delivering positive social impact. Our investment structures are designed to ensure our companies are well poised to deploy Mandala’s investment to integrate operational adjustments as well as innovation to demonstrate return that has a correlating effect in contributing to long-term positive social impact. The developments that we guide within our portfolio are designed to be fixtures of an investee company and will amplify over time rather than truncate.

Scalable impact is impact that has a meaningful effect and that can be replicated at a larger scale without diluting impact.

Small scale start-ups established solely with the purpose of achieving impact either through innovation or geography are often dislocated from viable sources of capital and, more importantly, the supply chains that their products and services must be integrated with in order to have measurable and sustainable impact. Certainly these companies can develop and often grow into meaningful market leaders, but, as an asset management strategy, it is not a reliable assumption to expect high quality returns — financial and social — within 10 years. Instead, we have discovered that larger companies in the sector are naturally best positioned to make large scale, socially impactful, changes and bring in the private sector, government and DFI funding to grow.

In preparing to draft this impact report, we spent a long time reviewing the existing literature and practices in the space. In most instances we found at least one of two trends on display: either social impact is very loosely attributed to a fund manager’s investment or targeted impact investments show very little capability to achieve demonstrable returns. We then decided to take a slightly unconventional approach to evaluating our investments – intended to employ many of the same elements of our investment strategy – that would be focused on what our role was going to be, where we could add value and how we could showcase the sustainable and scalable impact we seek to create.

This report demonstrates our initial best effort in defining, measuring and monitoring the impact our investments havecreated and in laying the foundation for continuing to track their impact trajectory. We have defined our goals and the corresponding data points and worked with all our partners to gather the data. We have also formulated calculations that allow us to translate those data points into the monetary impact created towards each of our goals, per dollar invested into the Fund and deployed into each company.

We have taken this approach because we believe that numbers tell a complete story, removing from the results the emotion and bias that often favor less compelling and impactful investments from those which create true value. Numbers also serve as an effective bridge between our investors and portfolio companies. The trendiness of impact investing leads me to believe that the impact investing industry is moving towards a more quantitative approach in measuring and communicating impact.

Publishing and sharing Mandala’s inaugural impact report is a major milestone, both for the company and for me personally. The Mandala team – including all our partners – care about a lot of social causes and actively support and lead various philanthropic endeavors. This is in large part due to the influence of my grandfather, Mr. B.R. Barwale, who built a very large and successful business in agriculture and always emphasized the importance of giving back a significant amount to the farmers and the rural community, without seeking recognition or advertising his philanthropic efforts. Thus, from the outset, we have naturally sought partners aligned in this basic philosophy.

Mandala Capital was established in 2008 and we launched Fund I in 2014. This report is certainly long overdue, but we deliberately wanted to watch the impact investing industry mature and contemplate our role in the community of impact investors. We believe that this report reflects who we truly are while demonstrating adequate respect to the impact investing world. It is my sincere hope that you will enjoy reading it and that it will provoke new thoughts and ideas that broaden and elevate our ongoing dialogue.