Why do Nigerian Agritech Startups Crowdfund instead of Borrowing from Banks?

A significant number of Nigerian agritech startups depend on crowdfunding to finance their operations. While this business model has proven to work for them, some critics have raised concerns, categorising agritech firms as scams/ponzi schemes. These critics have one general argument – why do agritech startups crowdfund even though they can easily borrow from the banks and probably pay lesser interest rates?

To help clarify the misconception, we spoke to Bill Kenneths, the Co-founder and Chief Executive Officer of Farmsponsor. Mr Kenneth’s company is one of the pioneers in the industry, and has over the past four years positioned itself as a leader. See his response below.

Why Nigerian Agritech Startups Rely on Crowdfunding – Bill Kenneths, CEO of Farmsponsor

If you approach any bank in Nigeria with a very fantastic business idea that has to do with agriculture, nobody will give you money. If you like, let your idea be the most fantastical in the whole world, no bank will give you one kobo. The question then is why? First, because a lot of banks are not keen about lending to agriculture. Secondly, banks are very sceptical of business ideas. Anybody can actually come up with a business idea. You can even get it online. So, besides your business idea, if you don’t have anything to show the lender that you are capable, getting a loan will be difficult.

That said, crowdfunding is actually a live saver for any agritech company that is sincere and wants to grow. Agreed, the burden is going to be so much at the initial stage. But you if you have a proper exit plan and stick to it, a time will come in the life cycle of your business when banks will be the ones looking for you. Banks go to people who are established and ready. Banks go to people who can give them value. Don’t forget that bankers are business people as well. Banks are not charity organisations; they are there to make money. If as a banker I see that you are the only one benefiting from what I am offering, then I do not want to do business with you. Banks go to people who have all it takes to create value. Why most banks are approaching us today is because if I take you any of our farms, you’d just be shouting ‘wow!’ until you leave. And after seeing that, if I ask them to borrow me a billion naira, they will willingly do that because they’ve seen capacity. But if I just take a business plan to them, how are they supposed to believe that? That’s the problem we have in the industry. And I don’t really blame the banks because they too have to be careful. So many banks have folded because of bad loans. 

https://atomic-temporary-203083154.wpcomstaging.com/2021/01/22/why-some-nigerian-agritech-startups-struggled-in-2020/

Anyway, crowdfunding is the easiest way to raise money to fund a business. But then again, Nigerians should be very careful to avoid being scammed by unscrupulous individuals masquerading themselves as agritech entrepreneurs. They should have a way of verifying that Mr A is raising money for a snail business and that the money actually goes into snail business. This is very important because as much as crowdfunding can do a lot of good for small businesses, it can also be used for a lot of evil such as funding terrorism and whatnot. And you don’t want to inadvertently facilitate crime just because you are interested in earning returns on investment. This is very important advice, especially now that many Nigerians are now open to the idea of crowdfunding and are very quick to jump on offers. One more thing is that they should be very careful of the kind of unrealistic ROIs some of these platforms are offering. One thing scammers have mastered is the act of working on people’s greed. They know that human beings are susceptible to be greedy and they often take advantage of that. If you are too greedy, that’s when you will see that one platform is offering 30% ROI in one months and you will quickly give them your money. My dear, you will lose that money because I’ve not seen that agricultural business that will give you 30% ROI in one month. It’s not just realistic. But for companies with viable businesses that have been tested and trusted, 15% in three months is very possible. 

That said, it’s good that a whole lot of agritech startups are coming onboard. A little competition is good for the ecosystem. It is also good for the economy, even as a lot of young people are becoming gainfully employed through the process. In our company, we have over 200 full-time staff and at the end of the month we pay them all. We’ve never owed anybody.  

EDITORS’ NOTE: Look out for Mr Kenneths’ full interview in our “25 African Brands to Look out for in 2021″ edition which is coming out soon.