Bringing Smart Agriculture to Farmers with GroGuru

$8.5M

Key Stats: GroGuru on Wefunder

Valuation Cap

$8.5M

Amount Raised

$1,070,000

Number of Investors

1,618

Minimum Raise

$200,000

Maximum Raise

$1,070,000

Likelihood of Max Exceeded
Start Date

06/26/2020

Stop Date

08/08/2020

Days Remaining

Closed

Security Type

Convertible Note

Investment Minimum

$100

Deal Analytics

Click Here

Summary

The GroGuru team has been selected as a “Deal to Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10%-20% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology, please reach out to hello@kingscrowd.com.

The Problem

Agriculture makes up a small part of the world’s GDP, but as an industry it’s significant in order for society to flourish. As the world’s population expands, so too will the demand for agricultural products increase. According to one source, by 2050 the world will need 50% more crops than what is grown today. One of the most significant issues affecting food production is water management and optimization. Water is a critical, sometimes scarce, resource. In addition to this, improper irrigation management can lead to suboptimal yields. 

The Solution

One company with a solution to these issues is GroGuru. Founded by an experienced management team, the firm is focused on using sensors to monitor the root zone of the crops they are planted with. Unlike existing options, which see a sensor planted at the start of a growing season only to be uprooted during harvest and replaced again each year, GroGuru proposes a more permanent solution. The actual device that conducts the data collection is planted beneath the ground with an expected battery life of about five years. It collects the data and then transmits it to an easily-removable transmitter. This transmitter is stated to have a 30 foot range, but the firm has also disclosed a mobile version that can reach up to 50 feet. Both transmitters utilize a LoRa (long-range) low-power wide-area network (LPWAN) protocol that can send the information to a base unit that is connected to the firm’s cloud network.

 

Once there, the data can be tapped immediately by the farmer or his/her workers who are responsible for planning and maintaining crops. The data can be made available via the company’s app. According to management, the information collected can be shared with a ‘smart irrigation system’. That system will take the data and use it to figure out how and when to best irrigate different crops on a farm. Since launching, the company has deployed more than 2,000 sensors across more than 80 customers in the US. In all, the technology has been tested on more than 20 different types of crop. By using machine learning and AI, GroGuru uses gathered data to ensure optimal soil health and water use. The end result, management claims, is an average increase in crop yield of 10% and a reduction in costs of between 10% and 20%.

 

Management has not revealed specifics related to pricing. But they do plan to sell the sensors and other related hardware to customers through various partners. These partners include contract manufacturers, equipment dealers, and more. Short-term, this will be a major source of the company’s revenue, but the big win for them will be its subscription plan. This plan will include data management, analysis, and cloud storage. The company currently expects margins on these plans to come up to 95%.

 

In its short life, GroGuru has successfully grown its operations rather rapidly. In 2018, revenue for the firm was just $147,048. This expanded to $674,113 last year. Because of how early stage the business is, though, it is still generating significant losses and hemorrhaging cash. Last year, the company’s net loss was $1.63 million, which dwarfed the $1.04 million seen a year earlier. Its operating cash outflow of $1.84 million was nearly double the $982,148 outflow seen a year earlier. Due to these sizable cash outlays, GroGuru has had to raise a great deal of capital in the past. As of the end of its 2019 fiscal year, it had $1.92 million in convertible notes on its books, plus $1.46 million worth of SAFEs. The conversion terms of the notes have not been made public. But the SAFEs will convert in a staggered manner, with valuation caps ranging from $2 million to $5 million.

A Niche Market

The global agriculture market is significant in size. At least in dollar terms. At $3.2 trillion, the industry employs more than 1 billion individuals globally. Despite how large the space is, it needs to grow bigger and do so rapidly. According to one source, around 821 million people in 2018 (or 1 in every 9) were food insecure. What’s more is the fact that by 2050, the amount of product produced will need to grow by 50% or more to keep up with demand. With this, the amount of freshwater needed will have to increase. One estimate is that water withdrawals will need to rise by 15% over this timeframe to meet this growth in agricultural output.

 

This is a problem because data suggests that 70% of freshwater globally is already used for agriculture. This number varies significantly by region though. In Europe and Central Asia, for instance, the figure is as low as 35.7%. In South Asia, it’s as high as 91.2%. Even within a single country the numbers can vary significantly. The US Department of Agriculture said that 80% of freshwater consumed throughout the US is for the purpose of agriculture. In some western states, this amount can reach 90% or more.

 

The market for agriculture is massive, and the issue of water is significant. Even so, the market for sensors in the US and globally is still quite small. In the US, the market was estimated to be worth $1.37 billion last year. By 2026, the expectation is for it to rise to $2.56 billion. Globally, the market is expected to grow by 13.5% per annum. This would take the industry from $8.61 billion last year to $18.41 billion by 2025. Another source, looking at precision agriculture more broadly, estimated the market to be worth about $4.85 billion in 2019. At the expected 13% annual growth rate, it should reach $12.9 billion by 2027. Since the sensor space is a segment of precision agriculture, this figure implies that the sensor industry is smaller.

Terms of the Deal

In order to continue growing the business, the management team at GroGuru is seeking out more capital. As part of this, it’s issuing new convertible notes with the objective of raising up to $1.07 million. At the low end, the firm can close the round with as little as $200,000, but that won’t be a problem. That’s because, as of this writing, it already has received commitments of $1.07 million. GroGuru is still accepting investments despite having reached its limit for this raise. This is likely due to Wefunder’s practice of using waitlists when commitments exceed the amount a company can legally accept. The notes for this raise bear an annual interest rate of 6% and will convert at a 20% discount of the company’s next raise, up to a valuation cap of $8.5 million. For how rapidly the business is growing, this valuation looks slightly low. Or that would be the conclusion if it weren’t for the high cash outflows of the business. With those factored in, the valuation appears more or less appropriate.

An Eye on Management

The management team at GroGuru is stacked with highly-qualified, experienced individuals. Case in point, consider the top brass at the firm, co-founder, President, and CEO Patrick Henry. Prior to his time running GroGuru, Henry was the founder and CEO of QuestFusion. Before that, he was the President and CEO of Entropic Communications. This business focused on semiconductor solutions for the connected home. During his tenure, the company went public, eventually reaching a market value as high as $1 billion in its prime. Before that, Henry was the President and CEO of Pictos Technologies, and prior to working there he was the CEO of LinCom Wireless.

 

There are currently four other noteworthy individuals at GroGuru. One of these is co-founder Farooq Anjum, the company’s VP of Engineering and its CTO. He has a PhD in Electrical and Computer Engineering and has at least 15 patents to his name. In the past, he served as an Advisor for Manifold, and prior to that he was a Senior Director at On-Ramp Wireless. Jeff Campbell, meanwhile, serves as the Chief Scientific Officer at the business. He has 19 patents to his name, as well as a PhD in Physics. Some of his patents include soil sensor technology. Another key member of the team is David Sloane, GroGuru’s Chief Agronomist. He, too, has a PhD (in Agronomy), and in the past he worked as the Principal Agronomist for Metos USA. He held the same role at AquaSpy and Agrilink International in years past. The final person of interest is Vince Ferrante, the VP of Sales for GroGuru. Previously, he was employed as a Director of Sales for Quantenna Communications. His role before that was as the Director of Sales and Business Development at Ethertronics.

The Rating

GroGuru is an interesting company. They have successfully taken a technology that already exists and improved it in a way that should reduce costs and optimize returns for its users. The industry they operate in is sorely in need of any help it can get. While GroGuru will not solve all of the industry’s challenges, it could prove an integral tool in the war against food scarcity. Additionally, GroGuru’s industry is experiencing rapid growth, and it has a stellar management team at its helm. With all of this taken together, it’s clearly worthy of a rating at least as high as a Deal To Watch.

 

There are, however, some issues we have spotted that warrant consideration. For starters is the extreme cash outflow and the high levels of debt on the business’s books. At some point it has to start becoming cash flow positive. Otherwise, incoming shareholders will end up being hit with painful amounts of dilution in the future. Also at issue is the low market size. It’s not a super small market, but today, especially in the US, it’s quite small and competition could be fierce. This alone is not a dealbreaker by any means, but it’s enough of a concern that investors should keep these issues in mind.

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About: Daniel jones

Daniel Jones is a graduate of Case Western University with a degree in Economics. He has spent several years as an equity analyst writer for The Motley Fool where he focuses primarily on the Consumer Goods sector but also likes to dive in on interesting topics involving energy, industrials, and macroeconomics, in addition to contributing equity research to publications such as Seeking Alpha.

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