It is not unusual to see ads asking you to invest in agriculture in Nigeria. Google “invest in agriculture,” and most of the results will be from so-called agritech platforms.
Their promise is simple: investors sponsor farms and get guaranteed returns without ever leaving their day jobs.
Investments like this were uncommon a few years ago. Today there are over sixty agritech firms in Nigeria promising anywhere from 15-40% returns. These are high returns in Nigeria’s low-growth economy and it is important for investors to be cautious.
The pandemic test for agritech
Government bonds or treasury bills are the safest assets to invest in. Outside these, the risks begin to increase.
Intelligent investors must assess risks as most promises of guaranteed returns are marketing strategies.
The COVID-19 pandemic is testing these promises as well as the optimism of some of these companies. Some investors are now reporting months of delays in payments from some of these companies.
A market analyst who spoke anonymously to TechCabal said: “the optimism of some of these [agritech] companies was right. People will always need to eat but COVID-19 came from nowhere and tested that optimism.”
“Many of them didn’t factor in scenarios that the pandemic brought. We had a long pause on the economy from all sides. Demand shock, supply shock, oil crash and then all the layering effects.”
Yet this is only one side of the story. Another more delicate side is that COVID-19 has given some companies a reason to renege on promises to investors.
But some investors are taking to social media to accuse some agritech companies of failing to deliver on returns.
In November, *Victor, a Nigerian who works in the healthcare sector invested in the agritech firm, Menorah Farms.
He told TechCabal: “They said the investment would yield 40% return on investment and would be due on May 30, 2020.”
But the company told investors in March about a possible delay in payments.
After an email in March, Victor says Menorah Farms did not reach out again until June 1. In an email sent on June 1, the company said it will only repay the capital which he invested. He will not receive any returns on investment.
Despite the change in terms, Victor says the company is giving “ambiguous and unclear time lines” on when he will receive his capital.
The ambiguity is at odds with what the company says on its website. Its website says that all farm projects have insurance “to mitigate any unforeseen risks that could lead to the loss of the sponsor’s capital.”
When TechCabal reached out to Menorah farms via email, they said they do not guarantee a 100% success rate in a farming season and that this is a term investors agree to.
“We do not think we have in any way deliberately reneged on our agreements with contributors on our platform as they have been well informed months back about possible issues and what would be done due to the COVID-19 pandemic which has affected our operations, marketing and financial projections.”
Another agritech company that has also reneged on its promises to investors is Growcropsonline.
*Dipo and *Mary told TechCabal they invested in the company’s farms in November 2018.
According to Dipo: “the business model was to plant and sell pumpkin leaves. Then along the line, they said they wanted to start processing the vegetables into serum. They said this will increase our returns.”
In several emails Dipo shared with TechCabal, Growcropsonline says it had paid many of its “early bird” members.
But Mary, who booked an “early bird max” plan to get priority payments before other investors disagreed.
She told TechCabal: “they should have started making payments in August and concluded in December 2019. But in July, they sent an email telling us there was a delay in the processing. Payment was then shifted to November and December.”
In December 2019, the company moved the date again. This time, it said it would be unable to make payments until February 2020.
Mary adds that, “they also suggested we collect the serums and sell if we didn’t want to wait for the money. At this point, they claimed we gave them the right to do whatever with the vegetables so they had not breached any agreement.”
In an email to TechCabal, Growcropsonline clarified that they’re a “farming services company” and not an investment company.
In the same email, they also shared that their investors were aware of the inherent risks.
“This is only for those interested in the farming and processing experience, risks and profits. We will send you a proposed timeline as soon as work begins on the field. Our ultimate guarantee is that you would not lose your money no matter how long the process takes,” the email read.
While investors accuse Growcropsonline of changing the terms midway into their investment, the company has now declared force majeure. They cited COVID-19 as the reason they would be unable to pay.
The experience of investors like Mary, Victor and Dipo are becoming commonplace. Yet, it is not an indictment on the agritech sector as a whole. It is a marker for investors to be more cautious and for regulators to draft clearer crowdfunding rules.
And also begs the question: how can prospective investors tell the bad actors from the good ones?
Seun Oyajumo, a private wealth manager, tells TechCabal that even though due diligence is difficult, there are things to look out for.
One of the easiest is the promise of outrageous returns. According to him: “Returns of 20% and above are not realistic, because if it was that easy, everyone would be a farmer.”
Another important note for investors is to ask for evidence of supporting documents. These include insurance, the identity of the project/company sponsors/directors, financial statements and evidence of track record. If you can, you should also visit the project site.
Even with the proof of insurance documentation, Oyajumo says investors need to know the scope of insurance.
“You should watch out for projects that claim they are insured. What portion of their investment or project does their insurance cover? It is also possible that the insurance is fake.”
“Check the policy number and call the insurance company to ask for details of the cover. Review the investment agreement to be sure you have adequate protections.”
But these may be difficult tasks for people looking to make small investments.
Regardless, Oyajumo’s position shows the need for regulations within the crowdfunding space. While many of these farms call themselves agritech platforms, it may be accurate to call them crowdfunding platforms.
SEC’s protections for investors
In April 2020, the Securities and Exchange Commission put an end to years of talking to create a regulatory framework for crowdfunding platforms.
Discussions on regulating the crowdfunding space date back to 2015. Oyajumo thinks that although these regulations are a step in the right direction, there’s still some way to go.
“The draft exposure [the SEC] released this year still has some deficiencies and is in some respects burdensome. The government needs to involve the leaders in the sector and not draw up rules that are not fit for purpose.”