Says Endeavor’s Entrepreneur Services Manager Ami Malaviya, “We met Sameer when we were scouting for high-impact entrepreneurs in India. Endeavor has spread out a network of banks and large corporations that have innovative companies in their supply chains. They show us their pipeline of small and medium enterprises they have looked at. When someone like Sameer comes to our attention, the first round of due diligence is done by staff who meet with the entrepreneur; visit his company; visit customers, and so on. The second round involves interviews with senior leaders in the Indian business community to understand the candidate as an entrepreneur. If he is green-lighted, an entrepreneur is interviewed by our local board of directors. Sameer passed all these hurdles and went to Turkey in June, 2008 for interviews with senior business leaders who are on Endeavor’s board in various countries. They debate the candidates they have seen, and it takes a unanimous vote for someone to be selected as an Endeavor entrepreneur.”
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| "There are many acquisition opportunities out there, especially in Europe, where the landscape is so fragmented that we can service existing customers while getting bigger footholds in other markets". |
In June, 2008, Mehra was announced as the first Indian entrepreneur chosen to join the Endeavor Global Network, joining over 300 entrepreneurs from 11 different countries. As a consequence, Endeavor provided him 1:1 mentoring; sent him to global workshops; facilitated introductions to venture capital firms; and provided advice in areas such as legal affairs and human resources.
Says Mehra, “Endeavor heard about me through a banker and they approached me. We went through several meetings, and I was quite hesitant at first because I had just raised our series A funding and didn’t have the time or inclination to go through a similar process. However, I was convinced they had a global platform for mentoring entrepreneurs to scale up their organizations. I’m glad I went through the process. There is some vindication when world-renowned leaders say you are making a difference with a unique business model that is a beautiful story and that can be scaled. It’s always lonely at the top, and I often wonder whether I am doing the right thing, taking the business forward in the best way. Succeeding in becoming an Endeavor entrepreneur boosted my confidence and helped me keep going ahead.”
His association with Endeavor has also brought some tangible benefits to Mehra. He elaborates, “They bring a lot of networks so there is a lot of cross-learning. They also generate credibility. When people hear we are Endeavor entrepreneurs, it has a huge impact. You get a lot of press coverage, global recognition, and investors hear of you through various avenues. If you go through the grind and are selected, it affects what people think about you. We were able to get a Stanford MBA to work on the entry strategy for some products we are launching in the US. And I am close to the Endeavor India management team; we talk day to day. They are very intelligent individuals, and being able to bounce ideas off people like that is an experience entrepreneurs must have. You need an ecosystem around yourself of intelligent people you can talk with who bring fresh perspective.”
2008 represented a year of transition for Suminter. Mehra comments, “When Nexus funded us, we were able to bring in experienced individuals from industry. They came from the traditional food space, and we explained the nuances of organic trade. Now everyone is up to speed, and we have a team in place that can handle this business for the next couple of years. Growth is all about people, processes and systems, and people are number one. We want to grow our talent pool while I take a back seat operationally to focus on business development and resource acquisition. I think the founding entrepreneur should provide resources and direction while operations are handled by front-line people.”
By spring, 2009, Mehra’s primary concern was scaling the business the best way. According to Gupta, Suminter’s revenues were about $5 million in March 2009, and the firm hoped to reach $15 million by March 2010, despite the difficult economic climate. Mehra notes, “As you grow, your problems grow. The major challenge now is how to scale up the business while maintaining intact our sense of mission. We have to ensure that as we grow, we don’t cut corners on quality, ethics, and ensuring that the customer is treated as the most important person out there. I tell the troops we can never forget that at the end of the day, the customer keeps us in business. We have to come out with better ways to serve customers and maintain quality. We need to remain focused on the basics that took us from $100,000 to $6 million. How to maintain those basics when you become a larger organization is the key question for us.”
One key scaling constraint was the need for field staff to work intensively with farmers. Says Gupta, “The key role in this organization is the field officer, who frequently visits farms and builds relationships with farmers. Turnover is a problem and we have to introduce structure to reduce our dependency on specific people.” Adds Malaviya, “Due to Indian land laws, farmers have between two and five acres of land, so it’s really tough to manage day-to-day inputs. It takes a lot of work.”
Adds Gupta, “I think the major challenge next year is becoming a big company. The organization structure is very dependent on Sameer. We need to be more structured and more professionally managed, since the biggest risk as you grow is compromising quality. We also need more real-time tools to analyze pricing along different cycles in the harvest.”
Although the market for venture investing was dim in most geographies, Mehra wondered whether it was time to raise another round of capital to fuel rapid growth. Notes Gupta, “The way harvest and procurement work, you need a lot of working capital for this business. We don’t have many fixed assets, so there is not a lot to collateralize loans.” However, Suminter had raised its first round of capital in an extremely favorable private equity market. Would it be wiser to conserve funds and wait for another bull market in venture financing?
If Suminter raised more capital, what growth path should it pursue? Several alternatives lay open. One would be to expand the farming base beyond the 48,000 acres and 7500 farmers in five states from whom Suminter sourced raw goods. Another would be to expand the product range beyond cotton and a small set of foodstuffs, perhaps into higher-value perishable products. Yet another would be to make selected acquisitions downstream in the distribution end of the value chain.
Summarizes Mehta, “The company has now reached an inflection point. We can scale up and make this into a $100-$150 million company over the next five years, when we should be ready for an IPO if we choose. From day one, I have wanted us to become an institution, not an entrepreneur-driven business. We are clear that we want to be a listed company that maximizes stakeholder wealth created, not just shareholder wealth.” The key questions facing him were whether to grow organically or to inject more capital and accept further dilution, while in either case allocating resources carefully to the most promising growth path.
Mehra made the decision in spring, 2009 to seek a series B financing round targeted at about $6 million. Gupta explains, “We want this to last a couple of years, and we did a top-down analysis on the margins required and the kind of investment we foresee in the business.” Adds Mehra, “We arrived at a cash requirement that will allow us to get to the two-year revenue targets we have set out.” Mehra then expects to raise a series C round in 3-4 years before going public. Although many private equity firms are conserving cash to help existing portfolio companies, Mehra believes that enough good investors are looking for sound companies with a proven track record to make possible a new injection of growth capital at a reasonable valuation.
A top priority for scaling is using automation to help field officers cover more ground with less effort. Mehra remarks, “India is one of the world’s largest markets for mobile telephony and it has strong software development teams. We are working with mobile companies and software developers to create handheld devices for our field officers that can track where they are and help them capture data from farmers that can be uploaded to a central database. We want to create a control room to monitor the activities of our field officers and understand from the data what information and real-time assistance farmers need.”
New capital will be used to strengthen the supply chain rather than expand the company’s geographic footprint in India or its product range. Gupta explains, “We won’t venture into new products soon. Our business model is to focus on products where India has a comparative advantage. Buyers are globally connected, so it is a competitive playing field. Perishable products are a different game where logistics, timing and shelf life are critical, and we don’t think we add value there. The idea is to excel and be the market leader from India where we have competitive advantages and can cross-sell to existing customers.” Add Mehra, “We will employ an adjacency growth model. If customers ask for adjacent products, we’ll build the necessary supply chains.”
Additionally, both Gupta and Mehra believe the time is right for carefully selected acquisitions. Mehra says, “There are many acquisition opportunities out there, especially in Europe, where the landscape is so fragmented that we can service existing customers while getting bigger footholds in other markets. In the US, we have to be careful not to stamp on the toes of our existing customers.” Adds Gupta, “We would be looking for opportunistic acquisitions and we will finance those separately. Our strategy is to acquire an organic brand for which we can provide the produce. We can acquire a brand or a customer in Europe and cross-sell our products through that customer, helping them take advantage of cost advantages moving backward along the chain.”
Finally, and perhaps most importantly, Suminter intends to establish a wholly-owned non-governmental organization (NGO) to maximize the livelihoods of the farmers and communities it serves. Says Gupta, “There is no conflict between maximizing shareholder value and farmer welfare. With grant support and Suminter putting in money, we can use our relationships and farmer base to improve lives.”
Mehra summarizes, “I’m extremely passionate about the people we are working with in rural India. They have been very far below the poverty line for decades, and we can make a big difference in their lives. We will contribute part of our profits to our own NGO and will also seek external money. It’s about strengthening your supply chain. Once farmer loyalty is there, it will take years for other companies to emulate our supply chain, and that will be our competitive advantage going forward. We want to gain the 100% loyalty of farmers who are contractually unfettered by giving them so much love and direct economic gain. They face infrastructure issues in their villages, and by developing communities and making people aware of the environmental impact of what they are doing, we can improve everyone’s entire livelihood.”
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written by Chitra Sharma, April 12, 2010
written by rohit singh, March 24, 2010
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