Five ways to spot impact investment opportunities in agrifood

Agrifood service providers can help lift smallholder farmers out of poverty, increasing incomes and benefitting the whole supply chain. To maximize their impact, service providers need funding, but they can seem a high-risk proposition. Below we share five crucial factors to assess their investability.

Are you looking to enter the impact investment sector? The fast-growing sector offers exciting opportunities which combine financial returns with social impact, but it can be challenging to identify investment-ready businesses. 

How to do an investability check

Agrifood service providers are often based in remote locations and may have limited experience talking to potential investors. Keep these five points in mind when checking their investability:

  1. Ensure the service provider has a strong business plan. It should be tested and confirmed, and include realistic financial projections.
  2. Look at the service provider’s relationship management. Interactions with farmers should be frequent and proactive as well as reactive. The best ones will reach out beyond their customer base.
  3. Customer productivity should show an upward trend, reflecting the service’s effectiveness.
  4. Is the service provider dependent on donor grants or moving away from it? The annual revenue stream should not rely heavily on subsidies and grants.
  5. Check the capitalization ratio. Is the requested debt a realistic share of shareholders’ equity? Strong candidates will have internal investment capacity.

Wider reach, higher quality thanks to funding

Agrifood service providers play a crucial role in the food supply chain. They can improve smallholder farmer livelihoods by bringing good farming practices, farm inputs and better market linkages within their reach. But service providers often underachieve for lack of funding. They need investment to professionalize their services and to reach more smallholder farmers.

Sharing best practices

To match investors with agrifood service providers, Solidaridad is running an ambitious impact investment programme. We have just released a report on best practices to help drive momentum in the sector. The report: Best practices on investment readiness of service providers in the agricultural sector includes dozens more insights into identifying investable agrifood service providers, distilled from years of experience in the field. Read the report to discover them all.