Company Profile: Farming as a Business (FAAB Invest)
FAAB Invest is one of the startups in India which allow retail investors to get exposure to the agricultural sector and given how popular the agri-investing article became on our blog, we decided to do a quick company profile on FAAB Invest. If you haven't read the earlier article, please give it a read here.
To write this article, we had a first-hand call with one of the founders who walked us through their investment vehicle structure and answered all questions we had. This article is based on that conversation along with our opinion on the company. It should not be construed as investment advice or any attempt to malign the name of the company.
FAAB Invest (FAAB Invest Advisors Private Limited) is relatively a new brand in the agri-investing space. As per MCA, their company was incorporated on 21st Dec 2022. But it appears that the company was operating through another entity before this called Flosbela Garden Private Limited which was incorporated on 2nd July 2018 and is still active.
- Ashwin Anand (Click here to access Linkedin Profile)
- Thejas Pera (Click here to access Linkedin Profile)
FAAB Invest is different from other agri-investing startups because they don't continuously collect money through their LLPs. Instead, they only gather funds for certain projects they create, research, and set up a specific LLP for. This means they launch 1-2 projects every 1-2 months, not more.
Till now, the company has set up the following LLPs and will set up more as and when they identify more projects.
In every LLP, the co-founders Pera Thejas and Ashwin Anand are the designated partners with an intangible contribution. All the returns from each LLP are split 50-50 between FAAB Invest Advisors Private Limited (FAAB-Invest) and the investors in the LLP based on their proportionate share of investment.
To clarify FAAB-Invest doesn't make any investment (put in money) into the LLP, instead, it brings intangible contributions (also called as sweat equity) by managing the end-to-end agriculture processes like sowing, maintaining, harvesting, selling, etc. The profits are shared equally with investors and FAAB. Since until and unless investors earn a profit, FAAB also earns nothing.
Sample Deal Details
Let's look at one of the deals that is not yet live on the FAAB app, but gives us all details on the investment. This deal is for 36 months and FAAB suggests that IRR starts from 21% p.a. with a minimum investment requirement of ₹25,000.
Each standalone LLP acquires some fixed assets from the parent company FAAB-Invest. This machinery can be anything essential like mini weather stations, solar fencing, precision farming equipment, etc to grow crops. At the end of the term of the LLP, all these fixed assets are sold back at the current market rate to the parent company or any other interested party. The LLP agreement you sign would give this decision-making power to the designated partners.
This deal suggests an expected IRR of 21%, however speaking to the founders they have suggested that this is an indicative number based on their financial models and their experience over the past 5-7 years. In the event of any crop loss due to diseases, flooding, or extreme weather events, the returns might be less than 21%. However, the team of agronomists monitor the crops for these issues daily and take preventative actions. This point is also mentioned on the FAAB FAQ Page.
Another thing to note is that the deal would make you regular payments every quarter with the first one generally starting 90-180 days after the investment. This money will be put in the FAAB wallet and can be withdrawn by the investor into a bank account at any given time. The cash flow is generated after every crop cycle is complete and sold in the market.
As per the founders, you can also exit as a partner from the LLP at any given time, they will need 30 days to find another partner to take on your stake and will return initial capital after deducing ₹2000 INR as legal charges. This point is also mentioned in the FAQs.
Post Investment Transparency
This was our biggest concern when we were speaking to the founders. Having personally invested in another agri-investing platform, I was frustrated by their transparency. The other platform offered me fixed returns on my investment but gave me no details on where and how my money was being spent.
FAAB appears to be taking a different approach, they want every investor to feel like a virtual farmer. Once you invest you can see the following details of your investments:
The geolocation of the farm, where your investment is put to use. You can visit the farms without giving notice to the company and they will be happy to have you. Note: We haven't personally done so, but this is coming from the founders.
The live temperature, humidity, and wind speed at the farm.
The soil type, water source, average rainfall and other details of on-farm infrastructure.
The lifecycle of the crop with actual images from the farm are all available on the app.
Here are some sample images shared with us by the FAAB Team.
Other Questions we asked the Founders
We also asked the following questions to Thejas, All these questions come from our Agri-Investing article which can be read here. You can click on the arrows below to read the answers to the questions.
Q1. What happens to your invested amount if the LLP faces a loss, how will they still honor the fixed interest mentioned in the LLP agreement?
Q2. Since you are a partner in the LLP, do you have access to all financial transactions of the LLP?
Q3. Can you physically visit ALL farms/agri-projects and see the technology they claim to have? If not, can they share the official rent agreements for such land?
Q4. Can they see any paid invoices or evidence of agri-crops against any purchase orders they might have received from a 3rd party?
Q5. What is their dispute resolution mechanism within the LLP you will be a partner of? Which jurisdiction will this be solved in? Is this mentioned in the agreement you sign?
Q6. If the investment is via LLP, in which cases would they consult existing partners to make decisions on behalf of LLPs?
Q7. How did the founder enter this industry, do they have prior experience or did they take any help from experienced consultants to set this up? Check their history
Q8. Ask for their audited financial statements, try to assess whether their statements make sense of the scale they claim they have.
Q9. Ask for a formal full LLP agreement to be sent to you via courier so you have a physical copy.
Things we like about FAAB
Post-Investment Transparency: Knowing where your money is utilized, where is the crop in its cycle, and how much money is budgeted for equipment, legal costs, etc are good things to know. Personally, I would value this.
Sustainable Growth: FAAB is not growing at an exponential rate, they rather want to take it slow and focus on existing assets and make profits for investors. All money is raised for specific projects and the highest they have raised for any deal is 1.34 Cr for a 3-year project which is a fair amount.
Tax-Free Returns: Because this will be proper agri-income it will not be taxable.
No Lock-In Period: You can take your money out anytime with 30 days notice and ₹2000 INR penalty. You get to keep all the returns you have received so far.
Things we don't like about FAAB
You cannot access the LLP agreement before your investment is done. If you want it you will have to speak to their support but in my opinion, it creates that pre-investment lack of transparency. Having read the agreement myself, there is nothing bad, so FAAB can consider making it available freely.
High Returns: This is generally considered a good thing, but as we demonstrated above, FAAB-Invest is 50% owner in the LLP and to let's say give investors a 21% IRR, FAAB Team needs to generate 42% IRR on the crops which sounds a high target to achieve, but I am not from agricultural background myself so maybe this is the norm in this sector but something you should still consider.
Regulatory Risk: This is a common point from our Agri-Investing article because this closely resembles a CIS structure but is not. So this investment falls under the unregulated space. Maybe in the future SEBI would allow Farming REITs and all these structures can fall under that framework.
IRR figures can be misleading. IRR calculation assumes reinvestment of the cash flow received at the same rate which is not possible in this deal, hence your actual return will be lower. Taking the above example mentioned in screenshots, if you invest ₹1,50,000 INR in the deal, your total cashflows will be ₹2,45,565 INR in 3 years, which gives me 17.86% CAGR.
Calculator Courtesy: ICICI Direct
What do I think about FAAB?
Well speaking to Thejas, I think he was very detailed in the things their team undergoes with every crop cycle i.e. how diseases are mitigated, floods, etc. He has good on-the-ground experience in the area.
If you as an investor intend to get exposure in agri-assets, out of all other options available, I would put my money with FAAB given the post transparency offered via their app. That would personally give me a lot of confidence. But I am still a bit wary of the pre-investment transparency, if FAAB can work on the area, that would be ideal.
Finally, some more transparency i.e. financial details on how the crops are marketed/sold might add more confidence. But I do understand the fact that these details if shared with multiple investors can be put to improper use and lead to a disadvantage to the business. Maybe FAAB can make you sign an NDA to disclose information, but I can again understand it's not easily enforceable.
Hope this was helpful and will help you make the right decision whether to invest in FAAB or not. Just to clarify again, we didn't get any commission/payments/incentives from FAAB to write this piece. If you think something is factually incorrect in this article or I should add some more info, please feel free to email me at email@example.com
Please note that this is an opinion blog and not official research advice. I am not a registered RIA in India, and none of these views reflect those of my current employer. This blog aims to promote informed decision-making and does not discourage you from investing in any deals.
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