172 Gijs Boers on why the biggest drive to the growth of regenerative agriculture is quality

A check in interview with Gijs Boers of Grounded on how their fair and transparent wholesale regenerative ingredient business is doing. 
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Why Gijs is more optimistic about the possibilities of building successful and profitable businesses based on regenerative agriculture practices? And why the focus on quality, taste and transparency of smaller food brands is creating the demand to make a significant change on the ground? Not all roses and sunshine though. Why even with all this experience and a significant track record is still difficult to raise capital for regenerative, agroecology businesses in the global South?

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Chapters

• 2:06 Recap on what Grounded is
• 4:07 Regen ag in Africa update
• 9:45 Grounded Zambia update
• 14:25 Grounded model with operating companies
• 16:33 Tanzania organic spices example of operating company
• 29:11 Grounded Investment Company what is it?
• 39:37 How investors respond to Grounded Investment Company
• 43:50 On the risk and returns of regenerative agriculture
• 56:03 Grounded Ingredients what has happened over the last 12 months?

Transcript

SPEAKER_00: 0:00

Checking in with Gijs of Grounded on how their fair and transparent wholesale regenerative ingredient business is doing and why Gijs is more optimistic about the possibilities of building successful and profitable businesses based on regenerative agriculture practices and why the focus on quality, taste and transparency of smaller food brands is creating the demand to make a significant change on the ground. Not all roses and sunshine. We obviously also get into why even with all this experience and significant track record, it is difficult to rate capital for region agroecology businesses in the Global South. This is the Investing in Regenerative Agriculture and Food podcast, investing as if the planet mattered, where we talk to the pioneers in the regenerative food and agriculture space to learn more on how to put our money to work to regenerate soil, people, local communities and ecosystems while making an appropriate and fair return. Why my focus on soil and regeneration? Because so many of the pressing issues we face today have their roots in how we treat our land and our sea, grow our food, what we eat, wear and consume. and it's time that we as investors big and small and consumers start paying much more attention to the dirt slash soil underneath our feet to make it easy for fans to support our work we launched our membership community and so many of you have joined us as a member thank you if our work created value for you and if you have the means and only if you have the means consider joining us find out more on gumroad.com slash investing in regen ag that is gumroad.com slash investing in regen ag or find the link below. Welcome to another episode. Today we have Gijs Boers. Welcome back on the podcast to talk about Grounded and everything that happened since March last year, March 2021, when we last talked. And in the life of a startup and a scale-up, a lot of things are happening in such a short period or such a long period, actually. So I'm very happy to have Gijs back. Welcome, Gijs.

SPEAKER_01: 2:02

Thanks, Koen, and great to be back again.

SPEAKER_00: 2:05

So obviously I will put the previous interviews, I think we called it the good, the bad and ugly of RegenAg in the links below. And also an interview we did, I think three, four, maybe five years ago even. But just to, for everybody to refresh our memories, what is Grounded and what is Grounded now? Let's say we're talking the end of April in 2022. How would you describe Grounded for somebody that has never heard about it?

SPEAKER_01: 2:29

Yeah, I think the common line over the past small decade has been, we want to scale regenerative agriculture in Africa and increase the income of farmers we started off with doing some business development around landscape restoration I think for most of you aware that agriculture is the biggest threat to healthy landscapes we entered into regenerative agriculture and tried to get a transition towards regen agri up in Africa and we found the big hurdles and challenges. So eventually we ended up with setting up a processing company that together with a group of farmers to buy produce from farmers, process it and sell it. And through that company offer a lot of support to the farmers in that transition. That is still the common thread of Grounded. Still we're taking active positions in the value chain. But how we do that in more detail that has changed a lot over time I think through many hurdles, mistakes and hard work and perseverance we manage step by step to yeah to make the model more perfect and I think like a regenerative system it's a step by step but the nice thing is once you're on the road and you start picking up pace yeah slowly but surely you're getting there

SPEAKER_00: 4:05

And... As you're so deep into the space, has something changed fundamentally, you see, in the sector or the conversations you had over the last year, like the last 12 months? I mean, I see definitely an uptick on the podcast, definitely an uptick in my email box of people wanting information, connections, introductions. And if you want to, please, all listeners, reach out. I cannot promise I answer in a few days because the flow is getting quite strong. But I see a change in the last 18 months, in the last year as well. Like there's... There seems to be more happening, or at least our bubble is growing. Do you feel the same? Or how is that in, let's say, the regen movement in Africa, in Southern Africa, or the agroecology movement? Obviously, there's a bigger umbrella there. What do you feel there on the ground? Has something been changing there as well? Or is it the same old, same old? It's still very much neglected, or at least from, let's say, abroad?

UNKNOWN: 5:02

Yeah.

SPEAKER_01: 5:03

Yeah, there's always multiple answers to such a question, but it's definitely the case that when we started, you know, if you would Google regenerative agriculture, there were a couple thousand hits. And, you know, when we started Grounded and we first started to look into regenerative agriculture, we constantly had to explain what regenerative agriculture was and every conversation you started. And after a couple of years, you would run into more people say yeah we know regenerative agriculture or we do agroforestry or we've been in touch with it and now I almost never explain anymore in most of the conversation what regenerative agriculture is and from time to time you get these people to say regenerative agriculture is that like sustainable agriculture and then you say okay and I think that explains how well you're doing your job Koen with spreading the word because we are B2B in the background and although we've picked up community a lot over the past two years. But I think big kudos to you for spreading the word and making it more familiar and bringing people more up to speed on the potential.

SPEAKER_00: 6:19

The potential and the challenges, yeah. You

SPEAKER_01: 6:21

do the potential and then we explain. We do the challenges. And to make sure that people, our communication focuses on the challenges and the hurdles that we've overcome. And yeah, and to make sure that people don't lose faith in that transition, because I think that's one of the key things in our communication normally, that it's not easy to get there. But there are ways to get it to dark quick wins. And, um, yeah it's just sometimes sad to see some people giving up and

SPEAKER_00: 7:00

what do you tell yourself or what do you tell them to not give up like people in any transition it's often the darkest just before the light or it's like it's really it can be really tough especially the first years of course depending on the soil the landscape the company but it is definitely a very rough journey in many many cases I've yet to hear a story where somebody said oh it was so easy just to switch from a heavily input dependent form of agriculture to do something that's much more knowledge intensive much more interesting but much more complex as well like what do you like internally how do you you because you're running different companies you're part of different like there are different levels let's say or different parts of their journey or different pieces how do you make sure you keep you keep going is it because you've seen some success and say okay we know at some point we'll figure out a recipe that works let's just keep going keep trying or how do you keep more while up when you're in those dark moments where stuff dies and things don't grow or things grow too fast which means you have weeds everywhere

SPEAKER_01: 8:05

to give a practical example I think in Zambia a couple of years we run a training scheme with hundreds and eventually small up in a thousand of farmers and I think if you look over the entire program the total results were not significant enough. But if we looked at the top 10% performance in that program and you see the results and you see the quick wins that can be gained and by looking at, okay, what makes these farmers successful? What other hurdles do other farmers have? And you try to hold on not to the total success or the bottom line success as a company in those early years, but I think you look a lot at the quick wins and to see what works and where it works and have a strong belief. We all know that we have to find different ways. And yeah, if you focus on the wins and you have an amazing team and we have so many people in the team that all feel, okay, we have to do it differently. It's not going to be easy, but we just keep going. And yeah, then you motivate each other. And based on the first results that you see with some of the farmers that do pick it up and that do make it into a success. Yeah, that was just enough spark to keep us going. But I think sometimes looking back, I think our biggest strength was our perseverance now.

SPEAKER_00: 9:42

And just in Zambia, just to reiterate, what is the current status of that project and that company? What did you, after a number of years of, let's say, trial and error and R&D? What have you found there that is working?

SPEAKER_01: 10:50

Yeah, in the details, Zambia is also a larger country with quite some significant differences in climate zone. The area we operated in the southern part, closer to Namibia, was a lot drier. We've seen that for a lot of farmers, they grew a bit of crops, more of an insurance on the side, but weren't really seeing farming as a business or really doing farming more commercially. And some of the younger generations that would stay in that area, they try to do it. And what we've done is we've been now trying to invest more heavily in those top performers and also aggregate them a bit. So we try to, we've picked a location with a lot of good farmers in the neighborhood and try to centralize a bit of irrigation, compost making. So these family farmers still have their own family farm But one of the family members or some of the family members come to more of our centralized farming location there, where there's more affordable irrigation because it's more economies of scale. Very super intense region farming model, I would say, with agroforestry lanes, high diversity, focused on high value crops. I mean, vegetables, crops that require a lot of labor. But we combine that with... very strong management team, a very large amount of knowledge, research, data gathering. And then there's also, for example, there's a tractor that these families share. So the best farmers now not only use the half of their time to making pets and roasts, that work is being done, but they focus on managing their crops and disease, monitoring, making high-quality...

SPEAKER_00: 12:44

And then the idea is for them to bring that back to their family farm to spread it or to expand this let's say high intensive optimized farm combination

SPEAKER_01: 12:56

yeah it's a combination of both so you want to yeah we want to scale both I think that's a relatively well developed model in Zambia to have let's say an anchor base and from there work with farmers in the neighborhood and there yeah actually production is commenced and it's actually going really well so that's the The crops look good. The soils respond very well. And the farmers respond very well. So that's a good start. And another, yeah, we've chosen location because a new connection to Botswana was opening up. There's a border, a new border post opened, a new bridge. We're tracking prices of the informal market. Yeah, I'm fascinated by these informal markets. The inefficiencies, but also the efficiencies, the trust, that's for a different podcast. But we track in prices throughout Zambia and we now at a location where prices are higher since that opening of the bridge and since that connection opening up again so it's yeah after all those years and going from challenge to challenge you're now in a position where and we see that over across grounded that we're getting more and more into positions where things are actually going better than expected and there's a lot of momentum so that's amazing

SPEAKER_00: 14:17

that's been a while yeah and then now what's your position now what's your relationship with that company in Zambia are you still very very much involved or you mentioned management team or are you also I would say on your way out because it is going or what's your your connection still with this is

SPEAKER_01: 14:34

maybe maybe to talk about the relation between Grounded and and these companies in our portfolio we refer to them as operating companies in the beginning we were very much involved we were small teams and also on the ground we didn't have a lot of resources That has changed. It was a big step for Grounded. In Zambia, we're building much stronger teams on the ground, much more staking on, whereas we as Grounded take more of a, we support finance for these opcos. We work a bit on strategy. If they export, we work, we obviously support on that. We support on the legal side, but much more of the operations happens on the ground, much more of the decisions, what they produce, how they produce it. It's supportive by our region and one of the biggest transitions we have made is that we've used our experience of building these companies from scratch and we're now working more and more with existing entrepreneurs that are in the early stage and I think that's one of the biggest transitions that we've made over the past. We said to ourselves, okay, how can we scale and how can we optimize the lessons and our failures that we've made in the past and yeah when looking for new opportunities we came in touch with other entrepreneurs and there was an amazing click mainly because we all we shared a lot of we have a lot of shared mistakes and a lot of shared challenges and so

SPEAKER_00: 16:11

you find each other in the in the suffering or in the obstacles or let's say let's frame it differently in the recipe seeking of what work in this context and of course you you have a million stories about that and and they have those as well so do you have an example of like in these journeys you you now actually are sort of switching from setting these operating companies up from scratch by grounded to partnering with already existing in many cases small but still existing company there is already something there there is an entrepreneur there's a team there's stuff being produced being sold being lost in some cases and you partner with them to say okay how do we bring this to the next regenerative level or the next business level as well? How does that process work? You meet them at a fair, you meet them at trips. How do you find these diamonds in the rough, I think is the term. How do you find them when they're not so shiny yet?

SPEAKER_01: 17:11

Yeah, via several channels. I think if you work in an African continent for 10 years, you obviously have a network work but also trade first literally you see companies supplying produce from Africa people reach out to us on how to you know we want to be far more regenerative where do we start but to give an example and maybe also links to your question that you started do you see a change in the acceptance of region agri or the more adaptant of the world to that so we had a company the first company that we we partnered up with with an existing entrepreneurial team was a Dutch spice entrepreneur and a Tanzanian spice entrepreneur they started working together he was a spice farmer and yeah the Dutch spice trader invested in him slowly buying some produce and getting it into Europe and when one of our marketing team members was talking to him he said yeah we need to I see the problems in the world. He's actually of the generation that would normally not be so interested, but I think he's a unique person and said, no, we need to work differently. I want to make an impact. And if I want to get, I see in the spice industry, the problems of using pesticides is enormous. EU is toughening regulations. So there's huge problems in India. I think in India, a lot of organic credit, a lot of organic organizations have lost their licenses because of also pesticide residues and he said yeah we need alternatives and if I want to I want to be sure that I get sustainable spices out of Tanzania I need this part to be covered and that's how we started talking looking into the company they needed to raise finance yeah and eventually we said yeah we've we've raised finance for companies that only existed on paper. Uh, you have an amazing business. Um, but yeah, that company was set up in, in a Tanzanian way. I think very pragmatic. Uh, you just start and see, and, um, uh, there was a lot of interest from buyers. Uh, they were scared about their current sourcing areas. Um, you know, it spices a lot of one sourcing main sourcing area for one crop. Uh, And they said, yeah, we want to diversify. We see the risks. So that business picked up. But when we came in and we tried to partner up and we said, okay, we don't, we're not consulted. So we want to be part of this company. And so we tried to figure out how can we become part of the company in the end, re-raised capital to invest in this business. And that's also how our investment company was born. And we'll talk about that a bit

SPEAKER_00: 20:19

later. It's a nice bridge. but let's unpack the spices a

SPEAKER_01: 20:22

bit further. Yeah, we saw this business and I think it took us a significant amount of time and effort and resources to build a strong foundation for the business to almost redo the business from scratch and some of the business fundamentals, so finance, legal, bookkeeping. One of our colleagues moved out there to live in to the factory and to live together with the entrepreneur to support him on some of the aspects that he wasn't really yeah he didn't really come across in the past so to speak so he was really good with sourcing the produce he was a spice farmer himself so he knew quality he knew how to get it how to pack it and together with the Dutch spice trader how to process it and get it EU ready but that took so much of his time that I think all the admin was just laying there and we've all redone that, asked for new permits, we supported them on getting the organic certification with some support of the Dutch government throughout that process. So that was super helpful. And in the end, yeah, we managed to get everything in order, raise some investments into this company, become a co-owner of the business where indeed we again support a bit on strategy our region agri team is supporting their own region agri team so that they set up in-house and

SPEAKER_00: 21:58

so what in the spices are the biggest challenges like what's where would you like where are they now this company or where they're sourcing from and where could that go to in terms of in terms of growing practices is that super complex agroforestry systems is it what is what do you see there to make that transition that the entrepreneur wanted to to get rid of a lot of the inputs and a lot of the risks and a lot of the fragility in the system. What do you see? Where could a spices system go to? I don't know. Describe it for us. Let's say visually because we're obviously in audio. What should we imagine when you say a spice farmer?

SPEAKER_01: 22:35

Well, then it's different around the world. But in Tanzania, what you see and where the challenges are, where the opportunity are, is first we choose spices because it's actually, in many instances, a great agroforestry crop. But that's also where the challenge is because what you see is that if you, is that, you know, natural forest would first be partly cleared for some under canopy growth of pepper or cardamom. And if you don't reap replenish that system, you will see it deteriorates over time. It's been replaced by other crops that are less high value, more of the canopy is cut, and eventually you're left with cassava fields. And after the cassava, after a couple of years of cassava, your soil is drained. Now, the advantage of these more tropical climates is that the region is generally a bit easier the more water the faster it grows the shorter the cycles you have more growing seasons so obviously the benefit as well is that if we create a market for pepper and now for organic pepper and try to work with the farmers to establish new plantations eventually in areas that were previous spice areas if we can bring them back into production you can automatically create some form of an agroforestry system now for us obviously this is a long trajectory and it starts with trying to maintain the current plantations so get up production another example

SPEAKER_00: 24:21

is there's

SPEAKER_01: 24:24

a wilting problem so Tanzanian government organizations are providing organic sprays for that so that's super helpful but the big problem is a lack of compost proper composting proper moisture management on the So I think our region, every team is working hard to find some small, yeah, make some practical interventions, you know, how you can prevent that problem from starting in the first place. And so I think these transitions and what we've learned in the past, these are very long timelines and it starts with some of the quick wins, getting momentum with the first group of farmers and then getting the same thing to a new group of farmers with your first group slowly advancing and yeah it would be great if one day we can get their cassava fields back into thriving agroforestry production areas because they would make much more money on that if we do it properly and if they don't have to sell out their pepper you know one month before harvesting because now sometimes they're selling at 30% of the value just one month before harvesting because they don't have the cash flow to get through that last month and And the

SPEAKER_00: 25:39

classic trader-farmer issue. Exactly.

SPEAKER_01: 25:43

So those are the gains and it's a long trajectory, but we're taking it step by step, farmer by farmer. I think the company sources for about 2,000 farmers and I think what they do amazingly and what we would have done wrong probably if we would have done it from scratch is they really work well within the current system, within the middlemen, within the traders, taking it step by step. We would have thought no this needs to be radically different which is super impressive and that's where I think the local entrepreneur and his skills really come into play and say no you know you don't want these guys you need these middlemen they know quality they know where the farmers are they know the good farmers reliable farmers and if we can incentivize them a bit and get a relationship to pay a bit more at a certain time and compensate him for that and so they're working really well within the system step by step and I think that's yeah that's super impressive and also really realistic of what they can do today and what they can do tomorrow but having this strong dot on the horizon you know this is where we're going to and we're doing it step by step

SPEAKER_00: 27:24

yeah and i will put in the in the show notes we did a very interesting interview earlier at least i thought on syntropic agroforestry or how complex agroforestry can be um but also how what the potential is of of all the different layers and also um i think good friend of the show Massimiliano sent a video on I think it was disease on coffee and how it was caused by basically having the coffee plant in the wrong spot in the height basically of the system while it was catching too much moisture and was getting sick because of that so there's so many of these little things that if a system is done properly and properly is a really weird word here but there are many things you can avoid but you have to really understand well like where does the pepper want to be and where does it thrive compared to the other plants in the system and how do you make sure first of all to keep it obviously in a way that it doesn't doesn't tear it towards cassava and then how do you make a system where the pepper actually thrives and and yeah those are questions we we've asked ourselves i mean we've asked ourselves recently and probably a long time ago but in the last 20 years maybe not so much in these systems like what what is a thriving pepper system i don't know if many people can can answer that unfortunately but it's a research that we need to do because we need to know how to and then how do we bring it back at speed to grow these systems and not have to wait 20, 30 years. It's fascinating R&D in an already, let's say, functioning system that is going and there's peppers being exported. It's not that you have to start from scratch like you used to do. That's a big shift. This is a natural bridge towards GIC, let's say, towards doing this partnering with and investing in existing companies more often. When did this realization came? Was it with this example on the pepper side like it's like wow there are actually entrepreneurs where we can add a lot of value we can skip some steps and probably actually avoid some mistakes we would have otherwise made if we would have gone into pepper organic peppers etc like when does that realization came and where is that now what what's what is gic and where where is it gonna gonna go um if it if it's up to you

SPEAKER_01: 29:31

yeah so gic stands for the grounded investment company um and it came indeed for from raising capital for this business um There's always been a bit of a push from investors to invest at a broader grounded level. But since we've always set up companies from scratch and with close partnership with other NGOs, existing partners, we've always raised that capital on an individual level. Which

SPEAKER_00: 30:03

makes running grounded difficult, I think. Like the holding company or the company above it and you mentioned your legal team, your sourcing team. Of course, now grounded ingredients, we'll talk about it later, is separate now, but there's a lot of support you give that is coming from a centralized team that has to be paid for. So if all the money flows to the different operating companies, it's going to be tricky for you guys, or it was tricky.

SPEAKER_01: 30:31

Yeah, no, a hundred percent, but it's, um, it's that, but it's also, um, uh, so it's, it's from investors. Uh, they, uh, you know, they want to be part of the, the, the, but it's also these companies now they are further down the line. So they have passed a certain stage. They have some revenue. So it makes it interesting again for a new group of investors. Uh, and it makes it also more eligible for an, an, an investment company. Uh, And I think secondly, for us, if we want to work with these organizations, they need capital and they don't need all the capital upfront, but you know, to start up and going into a new direction and expand the business. If you have some money ready and you don't have to, because with this Spice Company Trianon, the challenge was that we didn't have the money upfront. And I think it would have saved us about half of the time. So about eight or nine months in all of the trajectory. If we would have had the money or at least part of the money to make an initial investment and close a deal and get on. So the GIC is the combination of investing, but also with an active support arm. And that's what I've said in the past. A lot of investors wouldn't step into a company. Although, yeah, we see a company with a lot of potential and a great entrepreneur

SPEAKER_00: 32:02

but a spice company in Tanzania is is yeah it's far away from many literally other

SPEAKER_01: 32:08

investors see two guys that uh see a lot of risks they think okay uh they they see books being um you know there's this difference

SPEAKER_00: 32:19

admin is not there it's not the admin is missing

SPEAKER_01: 32:21

behind the books or um yeah organic certification is now pending for a while or um and uh Yeah, especially in

SPEAKER_00: 32:34

Africa. So this is like, it gives you the investor, gives the opportunity to step into a structure. Can we call it a fund? No, it's not a fund. Like a structure that then invests, in turn invests in these kind of, the spice example, the pepper example we just mentioned. And then more like you invest in a portfolio of these kind of companies and add, of course, a lot of support. I mean, it's not just obviously putting a few hundred thousand in spices and then good luck. No, I mean, what you mentioned now, it's the full thing on restructuring, on admin, on organic certification, on region, team, underground, et cetera, et cetera, et cetera. But do you call it a fund? How do you call it as a structure?

SPEAKER_01: 33:16

Yeah, we call it an investment company because it's doing more than simply investing, but it is also a bit of fund alike. So you can, if you call it a fund, but we always try to frame it as a company because it traditional companies or traditional funds you know people thinking about x percent management fees and this but there's a lot of funds traditional funds active in Africa and I think they're missing out on a lot of opportunities

SPEAKER_00: 33:49

because they're not investment ready yet

SPEAKER_01: 33:51

not investment ready and you see a lot of western EU entrepreneurs and don't get me wrong Tecla and I are part of it that want to make an and why can you make an impact in Africa? And they have a lot of things in order, you know, when it comes to reporting, strong strategy plans, strong business plans, strong impact plan. How do you get there? But they, and also struggle on, you know, getting operations up. You know, in Africa, it's not the business plan that is the biggest challenge of making a good business plan. The biggest challenge is good execution and you need a strong local team. So, I

SPEAKER_00: 34:31

would argue that's almost everywhere the case. Everything sounds nice on PowerPoint, but especially in agriculture, like the context locally, it sounds nice on PowerPoint to do certain things in Australia, but good luck doing it if you're not deeply embedded there or in Italy or in the Netherlands, as we know well, or in Ecuador. I mean, this is not running a SaaS platform somewhere that you can almost run, I wouldn't say from everywhere, but if your internet connection is okay. you sort of can this is yeah you have to dance the local dance otherwise it's just gonna go flat on your face and we've seen many people going flat on their face I think you've seen many as well so you say they're missing out because it yeah it's not in that perfect clean order the powerpoint doesn't make complete sense yet or is not there but the business is there and the opportunity is there

SPEAKER_01: 35:22

yeah and maybe I'm also now a bit harsh but it's also our experience and you know we're very selective in the companies we work with because they have to fit exactly in the type of experience that we as a team have and we are also able to do it and able to see through and focus on these companies because we have set up very similar companies we can't do this in a different sector or we can't do it in the energy sector there's probably maybe some entrepreneurs there as well but we wouldn't be able to do it because we don't have that specific experience so it's also the experience that allows us um to make some blend between being an investment company and a business developer

SPEAKER_00: 36:11

when it's so specific are you worried that you're not going to find many like how how likely how many companies are you gonna have in this company what's your like is it five ten fifty and and and how easy is it to find the perfect one not perfect doesn't exist but like this spice example in in like the pepper one like how how big is your pipeline yet and how many do you need

SPEAKER_01: 36:36

yeah i have to say um i was frightened sometimes to say either is this just a perfect example and are there many more uh but the goal is to do about one a year two a year uh now especially in the early days about one a year and and it's two ways that we have to make sure we also get a success out of the the businesses that part of the um of the investment company. But I think we can close a second deal before the end of the year. I'm not going too deep into that, into the tea business. And I'm actually surprised. We set up a business development team or pipeline team, set up a temporary office in East Africa. So they switch a bit around Africa, set up temporarily offices and operate from that location for six to eight weeks so that's also maybe answering a bit of your question how we find them and yeah I was a bit relieved to see so many of these companies in our sweet spot and I'm now very confident that we can do more than one a year if we raise the capital but in the end it's not about the total volume I think we take it step by step company by company but I think if we would bring it up to five, six over the coming four years about, then I think we're doing very well. It's also companies with significant opportunities for scaling. So that can absorb, you know, maybe initially need between$300,000 to$500,000 investment, but eventually can absorb$3 to$5 million investment within the next five to 10 years. So because there's a huge amount of supply available in either of these companies we're looking into. Yeah, and the market for teas, spices, coffee, cacao, but also mixed farm operations are some of the operations we now look into. Yeah, these markets are so big. So for now, there's enough opportunity. And it's finding the right entrepreneur, I think, is more important. And yeah, so far, so very... Very proud of the achievements of our pipeline team. I think it's super impressive. Also how not only finding them, but also working together with them to jointly make a business plan to present to our investment board into the investment company. So that's amazing.

SPEAKER_00: 40:00

And you mentioned the investor side. How is that going? How are investors responding to a fund not being a fund and you said this was partly because investors have difficulty investing directly into these companies unless they're really on the ground unless they understand everything and then they probably potentially don't need you like how how is that been raising capital for not for one company that you've always done until now but for a different suite of companies and a number of unknown companies yet like you can raise of course for the pepper one for ground ingredients and honey bush but not for a few other Yeah, they're not known yet. Yeah, maybe T. But so how has that journey been or how has that switch been for you to start raising this capital?

SPEAKER_01: 40:48

Yeah, there's been a huge range of different viewpoints, reactions, obviously. But one of the luxuries we have is that we have a couple of partners that really walk the journey alongside. I think you once gave us a couple of years or five years ago the advice to bring some investors into your theater, keep them up, take them along the journey. And so now part of the outcome of that journey is they said, no, don't raise too much capital upfront. Go with an anchor investment, raise an investment, do your first investment and raise a bit more investment when you have another opportunity. So we do more case by case with each round, raising a bit more than we need. So slowly but surely working with larger rounds so we don't spend

SPEAKER_00: 41:40

so much time so that means you raise the one for the spices and now you're going to start talking about the tea potentially but you have a bit of time to do that but of course you want to have the money sort of almost ready when you go because otherwise you have the same problem as before where you had to wait for the money to come and the company wanted to move so it's yeah it's chicken and egg

SPEAKER_01: 41:58

yeah that's what we call the product market loop it's always what comes first and yeah you have to build them simultaneously and that's what we're doing and I think it's been yeah it's just we're just a bit lucky that you know the winds are full in the sails on the first opportunity and on the pipeline so yeah sometimes you need to be a bit lucky and and since those things going really well we can it's easier it gets more traction it becomes more tangible but we see we have a couple of investors that for which we still too small so you know there's huge amounts of money from each sources committed to Africa, but that allows for larger ticket size. We are still very conservative in what we promise. We don't want to overpromise. So we initially set about 4% to 7% net return, meaning that two out of five companies need to be successful. But given now seeing how it goes, the type of pipeline and where these companies stand, I think it's more realistic to assume that three or four out of five companies are going to succeed. or not that three out of five companies would have to liquidate after a second or a third round of investment so we've been very conservative too conservative I think in our first instances also driven by our own experiences and knowledge and we know how difficult

SPEAKER_00: 43:24

the journey is

SPEAKER_01: 43:26

no so I think we've always had a bit of a motto try to yeah under promise over deliver and I think we've now that's that's maybe scared of maybe we've been too conservative so we've been more optimistic there but still they're promising about a 10% net return to investors for going into in Africa that's still not super high although there is potential that it can be much higher but yeah we all know what happens it can be a regime change or everything can happen we've seen it all severe drought look at the north of Kenya if that happens in one of our areas then yeah there's not a lot we can do so but basically what it comes down to is that a lot of the huge amounts of money are basically become unavailable because they're distributed from funds to funds to funds so even if their impact and let's say two three percent or four percent return target on the top when it's filtered down to the smaller investment funds with management layer after management layer you know they already need 15 to 20 So we really target family officers, people that want to combine financial return with impact return. We are not there yet that we can provide the same financial return as the traditional private equity and deliver on the impact. We don't see that realistically happen in the short term. So that means you get a lot of impact through these businesses. But a

SPEAKER_00: 45:06

different risk profile as well. I mean, there's a different risk profile there. I think people really under, I mean, you're selling real stuff. There will be demand for coffee, tea, spices, et cetera. If you're in a private equity fund, the risk is that nothing comes back. I mean, the risk profile of certain payment app software things, et cetera, is very, very, very different. So I don't think it's very fair. Plus, I mean, in agriculture, people have to understand we're operating in very degraded landscapes where we extracted a lot of value over the last let's say hundreds or in many cases thousands of years so there is a I wouldn't say a debt to pay but there is a debt to pay there there is money that needs to be resources compost organic matter whatever you want to call it that needs to flow back into that we cannot extract immediately or maybe we cannot extract ever so there is something there on returns that if somebody promised you 25% on regen egg I would ask a lot of questions and because there is a debt to pay we have to replenish the the soils we have extracted so much and the communities we've extracted so much value and capital from. So let's not kid ourselves. And a return is possible, but it's not going to be 20 plus, 30 plus or whatever the amount is. Unless you maybe earn some technology companies. I mean, there I see some possibilities for a short amount of time. We had an interesting interview with Mark Lewis of Trailhead Capital hunting for unicorns. But then you're investing in a very, very narrow, I'll put the link below in a very, very narrow part of the region ag movement. If you're an ag, yeah, it's going to be different. I mean, I think a full-grown old forest has a growth rate of 3% or something. So that might be the optimum at some point when ecosystems are mature. That's what we can harvest. And that's it. But let's not kid ourselves with crazy returns. But I imagine it's very, very difficult for you having to explain that to investors and say, yeah, but I can go somewhere else and get this, of course, on paper. I get X Y, Z, et cetera, et cetera. So it's a, yeah, it's, it's a, it's a difficult dance.

SPEAKER_01: 47:14

Yeah, a hundred percent. But that's also why you and your podcast is so important, Kun, to, to spread this, this message over and over and that it's not only coming from us, but from a lot of different persons. So that's, that's helping us tremendously. So please, please, please keep spreading that word. And we are trying to show that risks are lower because in the end value is total return or profits and risks and with our approach we try to de-risk investors we do have investors that say yeah I was hesitant to make the step to Africa you know it's still this idea that you know that people in Africa it's difficult sometimes can you trust people in Africa if I'm sometimes at a party and say can you trust them and then I tell them well the biggest challenge that we ever had was a European company that didn't promise on buying the produce at the price they promised and later on it turned out a huge fraud scandal in that company and so I said our biggest we have ever been what's a decent word screwed over sorry apologies scammed was with a European company and if you have the right procedures in place and

SPEAKER_00: 48:43

that's of course the issue that a lot of the money is far away outside Africa we keep talking about like it's one country beyond the continent let's say because it has been extracted in the past it sits in very shiny offices very far away from the place where it has been extracted and are you working with local family offices local I mean African family offices South African Zambia Kenya like is that something that that that is happening on the impact side something that you of course would love to because they are much closer to the reality and you don't have to explain these kind of things at parties like is that something that starts to rise as well like there are local money flowing into these kind of things

SPEAKER_01: 49:24

more and more a lot of the African wealth is still first generation and I think if you look back to European family offices you see significant differences through generations actually today there's an article in the news newspaper about it and the challenge and invite into traditional family offices between generations. But especially in South Africa, you see with new generations. Yeah, you see that change. And actually, we've just raised our first investment capital from the South African family offices, one of actually the largest, I think, South African family offices. They invested in our Honeybush company with a very flexible instrument because they see they want to change how we set up businesses, how we run businesses in Africa. And they say that this Honeybush company provides a great opportunity to build a new industry and to build it in a different way. We've talked about Honeybush in the past in our previous podcast, so I won't go into detail too much. But, you know, these are family offices that, yes, for generations have been working in Africa and have been successfully investing throughout the continent. They are 100% aware of the trade-offs and they see not only the risks but also the opportunities. I've once met a family office, another Dutch family office, they were one of the first who went to China and they now look to Africa and they see opportunities. But I think that's still a small amount a smaller group but what helps is that the younger generation really sees Africa also for its potential but also for its impact potential but just the differences between the groups are huge and I think the vast majority still is probably run by people over you know that are more senior than you and I let's say more experienced

SPEAKER_00: 51:37

than let's not annoy too many people listening to this yeah but there are there is definitely in the family office business

SPEAKER_01: 51:42

because our 60 year old spice trader partner is is a front

SPEAKER_00: 51:48

line usually with age there is i mean with different generations and with age there is logically because you are older there is a certain resistance against change a certain resistance against we always have done things like this so we are always doing things like that i think many farmers who are listening can can um attest to that if they're talking to their different generations and say their parents and unless you had very very forward thinking or crazy parents you like even organic is already tricky or messy fields are not the way we do it like the season only ends in the Netherlands that's a nice saying when the plow is cleaned and stored away and all the fields are nicely dark and turned and like that's the same in family office in managing money like every shift in let's look beyond risk and return and also to impact is a very fundamental shift. And it's not going to be easy for most people to join that if you've done differently for 20, 30, 40 years. I mean, let's not kid ourselves. And if you're grown up in a different way and you've traveled the world and you've seen what other ways are there, of course, and you're 30, then it's very, very different. Not easy because you might not have the control. But yeah, you can definitely be sort of the quote unquote activist shareholder that with a very small percentage of the shares try to move the jagged company or the family office or the gigantic farm I think the models are all the same

SPEAKER_01: 53:12

yeah I think there's a big role for family offices that are so that are front runners on this to show other family office how they are doing it how they engage with the different generations the different models and how they slowly transition and we try to get them to go out and visit our businesses we say just come out and see see for yourself icons

SPEAKER_00: 53:38

yeah I remember last time we talked like there's a hundred percent success rate when people visit like then it's yeah you you cannot not invest after not that because you force them to but because it's so interesting and you you fall in love with the companies so that's but yeah South Africa Zambia Tanzania is far literally and figuratively so and especially in these crazy COVID years it's been difficult to travel but you're hopefully you're getting a few people like let's say they're on the fence to come over see it and then and then they can sign and get some money flowing back into the continent and back into the soil

SPEAKER_01: 54:12

yeah but I have to say it's what you say if people come they often invest but that's also the challenge because the people that are more that are actually thinking up front hey I'm going this is a serious opportunity they come and then but I want people to come out that are really doubting that I really think hmm I'm not sure I don't think this but getting those people to commit time out of their busy lives to visit and hopefully I can join them with a nice safari or visiting the Vic Falls or whatever try to get them out and to see for themselves and I think that's for us one of the challenges because it is so far away to see the difference between the farmers but also it is challenging because I've also been on some of these trips and have seen only the good stuff and I think we also we've also, I've also seen, yeah, family officers say, yeah, we've, we've, we've done trips of this and you only see the good things and you don't see the bad things. So yeah, this comes to the good, the bad and the ugly, but, um, to everybody bringing people out, uh, show reality, uh, because we now seriously have people say, yeah, we've, we've done this in the past. We were super enthusiastic and we super disappointed by the actual results. So it's, it's also something that's harming us as an industry. Of

SPEAKER_00: 55:37

course. And I want to be conscious of your time. We can talk for hours on the good, bad and ugly and much more. But just as a very brief recap, how is Grounded Ingredients, as we promised during this interview, how is that going? It launched after we talked last time. What has been happening with, what is, first of all, Grounded Ingredients and what has been happening the last, let's say, 13 months?

SPEAKER_01: 55:59

Yeah. No, yeah. Grounded Ingredients was for us a way to basically change a bit of the current Middles segment in the value chain the current wholesale companies these companies are especially for example in Germany there's a tremendous amount of family companies that buy produce from all over the world blend it get it up to a minimum standard and sell it now if you are they provide a great low cost reliable same tasting meeting minimum standards product

SPEAKER_00: 56:38

now we're talking about tea or what are we talking about

SPEAKER_01: 56:41

we talk about tea we talk about spices we talk

SPEAKER_00: 56:43

about coffee spices like the high-end cash crops yeah yeah yeah and

SPEAKER_01: 56:47

with coffee the good thing about coffee it's uh it's uh we you in your podcast is often referred to and we refer to it in one of our previous podcasts like the wineification of the industry so you see coffee from a certain source a certain farm a certain

SPEAKER_00: 57:03

uh you're trying to basically supply the next wineification of the things after the coffee bean, like bean to bar, the whole movement. The

SPEAKER_01: 57:12

biggest drive for the transition to Regen Agri is quality and the current system doesn't give a much better price for a better quality. We as Grounded are not a business to consumer people. So to speak, but there's amazing brands that want to play a big part in in changing the food system and over the whole sphere. So from kombucha brand to tea brands to coffee brands, and they're doing amazing work, spreading work, but they hit so many barriers for them to source. You know, a coffee company is one thing, but a tea company, any tea brands, maybe they have 50 to 100 ingredients in their portfolio. So how do they source it? And we initially set up Grounded Ingredients to provide a platform for some of the suppliers and processing companies in South Africa that we were inspired by. We've came across so many also in our pipeline work. Not all of them, you know, we work together with, but we were super inspired about the impact, the agricultural progress that they make from a super innovative rooibos farmer to a super innovative beekeeping farmer which tried to get organic, which is almost impossible for beekeeping for many multiple reasons but we wanted to provide them a platform and that was a start of ground ingredients but now it's actually that's more of a showroom but what the result has been is that especially from the US and from some EU brands we are now talking to take over part of their sourcing so we become

SPEAKER_00: 59:01

they outsource the sourcing to you basically like for this part of our portfolio of ingredients that I need to buy which is not just this type of tea but it's also all the other ingredients because i'm making this this funny mixes and infusions etc like please source it for us with the high quality standards and all the agriculture practices and the good stories because obviously these brands need stories but it's not that they can do 50 tea ingredients throughout um throughout southern africa or east africa that that's impossible for it's possible for the unilevers of this world but not for these smaller very mission focused it's not that they have people just doing that that's that's not relevant for them. So they end up sourcing from the commodity side of things, which is a shame because that's not why they started. So they need to, they basically outsource. So they basically tell you, okay, this part of the portfolio, please go and find it. And you say, okay, let's get going.

SPEAKER_01: 59:53

That's it. And then we try to bundle it. Obviously we pick our customers at this stage to see, okay, where's the overlap in portfolio so that one or two sourcing managers, you know, can check it. We also start providing some of our Regen Agri team capacity to these suppliers by these buyers paying a small premium on it that goes to our Regen Agri team. We've also have a, that's another thing, we set up our own Regen Agri finance, transition finance facility to do more research and more support to these type of supplies. Also subsidize that a bit where we raise some money from other family offices to subsidize that. But indeed they say, okay, this is our sourcing list. Yeah, we We want to be traceable. Two out of 50 products are now traceable. This is not. And then we say, okay, we know that these products we have in our portfolio, we know good suppliers. Or for these products, we think we can find good suppliers. And then we take on a bit of a more traditional role and we say, we buy it, we store it, we bundle it, we ship it, and we keep it ready for you when you need it. But we try to combine it with full transparency and saying, this is what we've bought from the farmers. This is our cost. This is This is our market fee. This is our fee for the region, every facility. And yeah, we've been inspired by some of the businesses to come up with a name, but they say, you know, if you source enough, you go directly to your customer, but we believe that we can add a lot of value. So there's obviously conflict between sometimes a wholesale company and you would say between some of our operating companies. But what do we see is that our wholesale companies often much better in supplying these companies and cheaper and more affordable because they bundle the ingredients, bring it all together. So then it's for our operating companies more interesting to sell via that route. But we also say to the customers, one day, if you want to buy so much of black pepper and you can get your own container, go straight. So that's a bit of where we work on. And I think these brands have, you know, if you own such a brand, you need to spend 80% of your time on telling the story, going out to the public you know that's time that we don't that's something we don't do uh because

SPEAKER_00: 1:02:11

you tried that you were you were flirting with that years ago i remember yeah you were flirting with that but decided that's not your role

SPEAKER_01: 1:02:18

no it's amazing i think for i see amazing work here in the netherlands for you know uh livestock farmers that have their bundle and have their own milk fresh to the market but with these longer chains uh chains that we are involved in uh and and the wide range of products yeah um and and because i'm not an instagram uh person, maybe. So,

SPEAKER_00: 1:02:42

yeah. That's another role in the value chain. Somebody else needs to do that and is good at that.

SPEAKER_01: 1:02:47

Everybody has a role to play. And, you know, even if we would have a successful own brand, there's so much, so much volume here. There's maybe 0.1% of the volume. But if there's hundreds of brands, you know, using our ingredients and using, well, not our ingredients, the ingredients of, you know, some of the top suppliers, and we do have the skills to assess them. We do have the skills to to support these supplies. We do have the skills to test the produce. We do have the skills to support them on certification, to support them in the transition. Yeah, let us try to focus on that. And it's also an interesting pipeline for our Opco model. Yeah, and it's

SPEAKER_00: 1:03:23

very legal. If you can connect to markets, I mean, everything changes. Markets, good prices, okay payment schemes, plus a bit of transition finance support. And I mean, but yeah, good off agreements good markets focus on quality and of course margin back to the farmers and to the land changes the game like there's no there's no question on that

SPEAKER_01: 1:03:47

yeah and last release we're raising about 300 to 400k for this for grounded ingredients and yeah it started off more as a platform but now the good thing is it's more demand driven so we take up a bit of funding you know as soon as we need more working capital and more clients come in so there's a immediate offtake so that de-risk that whole business a lot and make sure that the portfolio creation is much more demand driven. Yeah. And it's nice that sometimes, you know, the optimist beats the perfectionist. You know, we've just started this and we thought, let's put them on the website. And people started to buy samples. And actually, I think most of the sales via the website were samples. And then people say, yeah, but we actually need this and this. And then we became more of that wholesale company, but more demand driven. And I think that, yeah, that's all been in a timeframe of about six months that you were running, that you're going to this. And that is almost all, 80% of our time and effort are going to meet the demands for some of these clients. And that's a super model, yeah, a luxury to have. And again-

SPEAKER_00: 1:05:03

Which is a great problem to have, yeah.

SPEAKER_01: 1:05:04

Yeah, that's, yeah. And, you know, these companies, they value, you know, the origin. They value if there's differences and if there's a better quality. They don't mind if there's a different taste, if there's different vintage for the tea. The winification again, yeah. The winification. And, ah, it's a relief to work with these people that really dive into the details and try to understand and come to visit. And, yeah, that's... If you ask me, how do you keep up? It's also the energy of these people to make a change and to spread the word and to tell the story and to provide people with the best tea or the best products. And if they then come to work with you on their ingredients, yeah, that gives so much energy. It started a bit of an in-house trial, the small scale with a couple of team members that came up with it. And now it's growing that so that's that's just super super to see and then you see that the whole industry is changing because I think if we would have done something similar six seven years ago it wouldn't have taken off this way the brands would not have asked for this and some research if you see that that the whole top segment is that growth is taking off by these type of front runners you see that the world is changing and that the new generations they want a different product and yeah if we can get great ingredients with full transparency and support these producers with a constant you know continuous improvement on region agri because the nice thing about region agri you never finish you can always

SPEAKER_00: 1:06:55

do it theoretically means the quality is never done as well like the winification will continue into yeah you're never done reaching for the top I want to thank you so much guys for this up it's not the last time we're talking you will be back and with other people of the team as well there's so much to unpack here as this model has been and the work at Grounded has been I wouldn't say shifting but like morphing into different forms and shapes every time we talk you've made so many steps forward and a few steps backwards to learn so thank you so much for your time and good luck and we'll check in soon

SPEAKER_01: 1:07:31

yeah thanks thanks for having us again of having me in this case again but yeah I love to come back in maybe a year's time to tell more about how we're doing and keep all of your listeners informed about the progress and the next hurdles and loops that we jump through.

SPEAKER_00: 1:07:50

Thanks again and see you next time.