Khula Raises $1.3M Seed Funding for AgriTech Platform | South Africa

Addressing Challenges in African Agriculture: Khula's Innovative Approach

The numerous obstacles confronting farmers across Africa – including limited access to funding, educational resources, and essential agricultural inputs – continue to significantly hinder agricultural productivity throughout the continent. However, a wave of startups is emerging with groundbreaking solutions to these longstanding issues, and South Africa’s Khula stands as a prime example.

Khula's Recent Funding and Growth

Launched in 2018, Khula is establishing a strong foothold within the rapidly expanding agritech sector. The company recently announced a $1.3 million seed funding round to facilitate the expansion of its operations nationwide.

The Expanding Agritech Landscape in Africa

While it might appear that agritech adoption in Africa hasn’t mirrored the exponential growth seen in other technology-driven industries, this isn’t the case. The agritech sector experienced a substantial 44% year-on-year growth between 2016 and 2019. Furthermore, the continent boasts the highest concentration of agritech services in the developing world, currently reaching over 33 million smallholder farmers, as detailed in a report by Farmers Review Africa.

The Founding of Khula: A Response to Market Needs

Karidas Tshintsholo, Matthew Piper, and Jackson Dyora established Khula three years ago. The company provides both small-scale and commercial farmers with the software tools and a marketplace platform necessary to enhance their business operations. However, a simple description doesn’t fully capture the depth of the complex problem Khula is dedicated to resolving.

From Consulting to Agritech: The Founders' Journey

Prior to Khula, Tshintsholo and Piper were both classmates and business associates. After temporarily leaving college a year before completing their degrees, they engaged in various consulting projects. While this experience allowed them to interact with clients across diverse fields, they found the work lacked a certain level of fulfillment.

A Desire for Impactful Change

“We consistently sought an opportunity to contribute to something more impactful, more meaningful, something that could genuinely transform the way the world functions,” Tshintsholo explained to TechCrunch. Over time, agritech emerged as a promising avenue, aligning with the founders’ accumulated experiences.

Africa's Agricultural Potential and a Pivotal Insight

Africa possesses 60% of the world’s arable land. Research also indicates that the agritech sector in Africa is projected to achieve a value of $1 trillion by 2030. However, a visit to Israel prompted Piper to question why a country with a largely desert landscape could produce more agricultural output than many African nations.

Identifying the Root of the Problem: Exploitation of Farmers

“It seemed illogical that we have more land than any other continent,” Tshintsholo stated. “And yet, a significant portion of the population relies on importing food rather than exporting it. We questioned how this was possible, given agriculture’s inherent competitive advantage.” Further investigation and direct engagement with farmers revealed a critical issue: the exploitation of farmers by intermediaries.

The Imbalance in South Africa's Agricultural Industry

The agricultural industry in South Africa traditionally favors large-scale, industrial agriculture. Similar to many other African nations, smallholder farmers encounter numerous difficulties, spanning from marketing and sales to the transportation of their goods and produce.

The Consignment System and Lack of Transparency

Farmers commonly deliver their produce to large warehouses, where major aggregators collect it and sell it on consignment. This arrangement offers no guarantee of a sale for the farmer. Perishable goods are also susceptible to price declines, and a significant lack of transparency allows middlemen to unfairly profit at the farmers’ expense.

Uncovering the Profit Margins

“The realization dawned on us when we began investigating,” Tshintsholo recounted. “We tracked these farmers and observed what publicly traded companies were doing: visiting these physical markets, acquiring the produce, and then selling it into the formal market. They would purchase it for R3.50 and sell it for R11.00, adding virtually no value beyond transportation.”

The Multi-Layered Profit Structure

In some instances, farmers sell their produce to processors, who then sell it to supermarkets at a considerably higher price. The supermarket further profits by selling to individual consumers. Consequently, a product initially sold by a farmer for R3.50 ($0.24) could ultimately retail for R30 ($2.07) to the end consumer. Farmers also face commission payments to middlemen and local municipalities.

Khula's Mission: Addressing Systemic Issues

“This is when we understood the magnitude of the problem and the need for a solution,” Tshintsholo said. “However, we didn’t immediately launch a product. Agriculture is inherently complex. What we have developed is what we now refer to as the Khula ecosystem, recognizing the interconnected nature of the industry.”

The Khula Ecosystem: A Comprehensive Solution

Khula aims to address these challenges comprehensively, providing farmers with improved liquidity, access to resources, and a direct market. The platform is built around three core products.

• The Inputs App: Enables farmers to access approved agricultural inputs and services from both local and international suppliers.
• The Fresh Produce Marketplace: Specifically designed for farmers facing the challenges previously mentioned, allowing them to sell produce directly to local and international bulk buyers. This aims to reduce the influence of intermediaries and prevent exploitation.
• The Funder Dashboard: Connects institutional investors with farmers who meet their specific funding criteria.

A Sticky Business Model for Sustainable Growth

“Our ecosystem approach is designed to create a more sustainable business model,” Tshintsholo explained. “We want to empower farmers to utilize our platform to procure the products they need and access the services they require.”

Traction and Recognition

Khula has demonstrated promising traction since its launch. The company has onboarded over 3,000 farmers and established partnerships with more than 100 suppliers. This year, the startup was selected for participation in the Google for Startups Accelerator Class 6, alongside 14 other African companies.

Strategic Investment and Partnership

While the investment was finalized last year, Khula is now publicly announcing the funding round. It was spearheaded by AECI, a leading agrochemical company in Africa. South African impact investor E Squared Investments also participated in the round.

Leveraging AECI's Distribution Network

Beyond the financial investment, Khula will benefit from access to AECI’s extensive distribution network to scale its inputs app. With 132 depots across the country, Khula anticipates being able to deliver products to every province and major agricultural region.

A Long-Term Partnership Focused on Execution

Tshintsholo emphasizes that AECI represents the type of investor Khula sought: a long-term partner focused on execution rather than short-term performance metrics. “We didn’t want an investor solely concerned with quarterly results. We desired a partner committed to long-term collaboration, possessing a strong industry reputation, an extensive distribution network, and whose success is intrinsically linked to a business model like ours. AECI perfectly embodies these qualities.”

AECI's Perspective on Khula's Potential

“Khula possesses compelling fundamentals, a substantial addressable market, robust app development capabilities, established agri-business networks, and a management team eager to collaborate with AECI as their preferred agri-input and technical advisory partner,” stated Quintin Cross, Managing Director of AECI Plant Health.