CO_Capital Invests in Verqor to Finance Loan Portfolio Growth

Verqor is an ag fintech which offers a cashless loan product to purchase agricultural inputs to small and medium-sized producers, which subsequently are connected to large Consumer Products Goods (CPGs) company Agricultural Buyer Company (ABC) purchasers, strengthening their supply chains, solidifying market access for farmers, increasing transparency, and reducing commercial and credit risk for Verqor. It has raised a syndicated structured financing with CO_Capital and Addem Capital to finance the growth of the balance sheet loan portfolio.

The company provides financing primarily to small and medium farmers, in northern Mexico, the Bajío region and Mexico City. According to the Centro de Estudios para el Desarrollo Rural Sustentable y la Soberanía Alimentaria (CEDRSSA), in Mexico, within the primary sector, agriculture is the activity that generates the highest value; it generates an average of 10.5% of the value of the economy. According to the last registered agricultural census, 68% of the more than 4 million producers are considered small producers, despite the precarious conditions in which they find themselves to produce, the lack of governmental economic support, and only 10% access to financing. In addition to this, they generate 63% of the jobs in the sector and provide more than 40% of the food we consume in Mexico.

Verqor was founded in 2018 to address these challenges. Over a period of trial-and-error to find product market fit, the Company started its go-to-market in Q4 2020 and launched its tech platform in 2021. The founding team has been very visionary in developing the model, strategic in bringing in the right partners and senior team, and deeply execution oriented, showing fast traction and growth over a short period of time. Hugo and Valentina founded Verqor shortly after graduating from university, and both have focused their efforts on growing the team with the best talent possible. Accompanied with Spre-seed and pre-Series A raisesfundraising, the team grew from 9 to 30 people to increase operations, with the rest of 2022 focused on building out processes with hires from other fintechs like Konfio and Covalto.

"For Verqor, this synergy with CO_Capital y Addem Capital is catalytic for our growth. With this credit line, Verqor transitions into converting itself into a direct lender, impacting directly in levels or origination and underwriting criteria, aiming to be the most useful solution for the Mexican agricultural sector." Hugo Gardu?o, Co-Founder, Verqor

“We’re delighted to have closed on this structured financing alongside our partner, Addem Capital. We’re inspired by how Verqor’s product is solving for multiple problems of various actors within the ag value chain, from socio-environmental and also commercial and financial angles. It’s ability to be a transformative force towards more just financing as well as regenerative agriculture cannot be underestimated. Alongside this credit line per se, the value add that Addem can bring from an institutionalisation of the financial-credit process and strategy, and CO Capital from an impact angle, can bring means we’re also excited to participate in the Company’s growth and development. Finally, we’re very pleased to be collaborating with Addem in this financing, and look forward to working together in the future.” Phil Price, Investment Director, CO Capital

Background, Challenges & Opportunities

Lack of Adequate Financing for Agricultural Sector in Mexico and LatAm

Latin America and the Caribbean (LAC) is an agricultural powerhouse, accounting for 16% of global food and agriculture exports. Per the World Bank’s 2020 Agriculture & Food Systems report, “[t]he agricultural sector in LAC plays a vital role in producing food and ecosystem services that benefit not only the region but the entire planet”, where the world population passed 8 billion in November 2022 and is expected to reach 10 billion by mid century. The demands on the ~15m regional farmers are large and increasing, where the FAO in its How to Feed The World report projects that food production will need to grow by 70% by 2050 to meet increased demand.?

Latin America and the Caribbean (LAC) is an agricultural powerhouse, accounting for 16% of global food and agriculture exports. Per the World Bank’s 2020 Agriculture & Food Systems, “the agricultural sector in LAC plays a vital role in producing food and ecosystem services that benefit not only the region but the entire planet”, where the world population is expected to reach 10 billion by mid century. The demands on the ~15m regional farmers are large and increasing, where the FAO projects that food production will need to grow by 70% by 2050 to meet increased demand.

As described by the World Bank report on LAC, “[w]e need an agriculture sector that can satisfy the growing food needs of the region and the world at large while avoiding further damage to our environment. With better policies and new technologies, the region’s agri-food systems can contribute more to growth, reducing poverty and food and nutrition security”.

However, there are various challenges that face the industry, including lack of access to formal financing, small and medium farmers lacking access across multiple axes, fragmented contact with value chain players and buyer uncertainty, and lack of transparency for buyers in supply chain.

Verqor operates fundamentally as (1) a distributor of ag inputs of pesticides, fertilizers, seeds, and agricultural machinery which are wrapped inside, and (2) a financing product and affiliated value-add offering of insurance and additional ag-related products. It provides a single platform for farmers to access all other players - farmers, lenders, input suppliers, and buyers - in the ag value chain. Starting as an ag input marketplace, the Company has evolved into an ag fintech to solve for the lack of adequate financing options for farmers. It works with producers across a large variety of crops, with a particular focus on high value crops, although it also works with cash crops (e.g. wheat, barley) producers who form part of the large ABC buyers.

Underserved Small and Medium Farmer Segment

It is estimated that 93% of farmers don’t have access to the right type and quality of loan products to finance the agricultural cycle and improve productivity. Traditional financial intermediaries perceive farmers and ag supply chains as risky, and face high costs to reach and serve farmers. This leaves them in the hands of coyotes with high interest rates and unethical or dangerous collections tactics. unlike larger estates and landowners, small and medium farmers – particularly prevalent in Latin America, lack access described from various angles: to financing (fertilizers, seeds), to machinery, to market (integration into supply chains vs coyote intermediaries), to security (e.g. insurance policies) to technological solutions (software and hardware), all of which decreases their productivity and ability to compete.?

As growth is achieved, Verqor becomes more relevant to suppliers (command lower prices / higher margins), increasing access to and conditions for farmers which can be more productive (more inputs, lower price, better conditions, more buyers), increasing relevance for ABCs’ supply chains (larger purchase volumes across more product lines, intros to new farmers) improving credit quality, where higher volumes and better underlying credit risk expands access more attractive financing lines which can be passed onto the farmer.

Addressing a Lack Transparency Across the Supply Chain

With an end market that demands increasing transparency and the increasing relevance of CSR and ESG initiatives on all aspects of supply chains, ag supply chains continue to be opaque in terms of production processes and quality, actors / intermediaries in the chain, etc. Verqor’s 100% productive cashless credit not only helps grow incomes, but protects against disaster (via obligatory insurance coverage) thus building resilience, and offers educational content, empowers regenerative practices and agronomist advisory to its farmer base. Whilst eliminating the most toxic inputs from its palette, Verqor is still a company of transition in the shift towards sustainable and ultimately regenerative agricultural practices.

Looking Forward

Verqor is looking to convert itself into the leading specialized financing layer option for the agricultural sector, first in Mexico then across LatAm. Aligned to its theory of change, over the next six years, Verqor aims to spearhead the regenerative transition in Mexico’s agriculture sector by implementing a comprehensive strategy around customer education and strategic alliances with NGOs and other key players in the agricultural sector. The company intends to leverage its technology to empower growers with knowledge, resources, and support, collaborating with influential partners to create a powerful catalyst for the regenerative transition in agriculture. We look forward to support the strengthening of the company in financial and impact areas.