After the COVID-19 pandemic rocked the investment landscape worldwide, agri-entrepreneurs all over the Middle East and North Africa are reconsidering their growth strategies and prioritizing sustainable growth over fast money. At the same time, agriculture has been the one sector that remained resilient and kept economies around the world afloat, leading to an increase in investment for the agtech sector. Shahira Yahia, Chief Marketing Officer and Co-Founder of Chitosan, sat down with us to explain how her company has been shifting strategies.
Chitosan Egypt, predominantly works with smallholder farmer clusters that focus on organic agriculture and exporting to seven industrial destinations. This business model is cash-intensive due to its cash flow cycle. To meet their strategic goals, Chitosan Egypt plans to raise around $600,000 over the next 18 months.
The company’s leadership in coordination with the WE4F MENA Hub team decided that Chitosan should prioritize debt-based financial inputs, including convertible debt (converting debt into equity at some later date), until they have fulfilled their strategic growth. This phase is an important aspect in the selectivity for equity-based deals on the MENA and global investment scenes.
“While equity investment is usually seen as a fast and solid option for young companies geared towards networking and gaining strategic insight into the industry, it also comes at the expense of ownership early on” explained Shahira, shedding additional light on Chitosan’s current investment situation.
Working With WE4F to Overcome Investment Barriers
What attracted them to WE4F is the MENA team’s in-depth sector knowledge coupled with tailored financing and mentoring mechanisms, something that Shahira emphasizes is still difficult to come by, although more and more non-traditional investment options such as WE4F start to emerge.
However, even with WE4F’s help, Chitosan faces challenges in raising funds from traditional investors as they do not have links to the agricultural sector and lack awareness of its inherent challenges, industry dynamics, and needs. This is due to the agricultural industry’s rigid nature. Going back millennia, different agricultural schemes have broken Egyptian land up into small holdings, so agri-companies are primarily dealing with smallholder farmers. This lengthens cash flow cycles and makes the sector less attractive to investors hoping for faster returns on investment. Chitosan Egypt’s faced funding gap reflects how traditional financing institutions are hesitant to fund innovative startups and small- and medium-sized enterprises (SMEs) without clear collaterals.
What Comes Next
But Shahira is counting on a mindset change. She considers it her and her peers’ responsibility to provide transparent, reliable data and make sure that investors better understand the potential of this sector and innovations like Chitosan. The company’s work-in-progress from day one has been to build a strong product development cycle, in order to be able to challenge the status quo, test the product in the field, and get it vetted by consumers, retailers and the government.
WE4F’s work with Chitosan Egypt has supported their efforts to broaden the accessible network of investors and to include strategic investors and venture capitalists who are much more open to investing in innovative start-ups. The next step is to look for potential partnerships in the value chain and team up with those that fit Chitosan’s strategy, creating innovative partnership agreements where resources and talent are pooled for optimized impact.
Though there are money challenges, Chitosan shows that access to financing is possible through innovative business models and which makes the innovator an encouraging pioneer In the MENA region. Shahira emphasizes the need for start-ups and SMEs to focus on acquiring enough data and quantifying the potential to monetize their solutions’ social and economic impact. This includes a thorough valuation of what a company can offer and the potential value in the short and long term. She advises, “be credible and transparent. Put money into the data and learn the patterns and dynamics of your industry.”