Phoenix Africa Development, an agribusiness holding company, is raising $1.5 million in order to start operating a small pilot plot of land under its Sierra Leone-based project Lion Mountains Agrico.
Lion Mountains, a rice farming project, is seeking $22 million overall, and has already raised around $4 million of that target, but the project’s managers want to start operating soon in an effort to attract further commitments.
And after receiving an undisclosed commitment from Sir Mark Moody-Stuart, special advisor to the Phoenix Africa board and former chairman of Shell, the pilot project is set to go ahead in September, with or without the full $1.5 million.
“We will develop a size of land area according to the final amount raised; we don’t need 100 hectares to start, just enough to plant various rice varieties and test how they grow under the conditions,” Paddy Docherty, chief executive of Phoenix Africa, told Agri Investor.
“Even a relatively modest pilot phase makes it easier to raise the rest. Numerous investors – from private equity outfits to DFIs – have been circling the project for some time, so when we go back with the pilot phase under way it will be a different story. This is because we will be developing a track record and will have some data about the kinds of yields we can expect to show, along with some revenues.”
Phoenix Africa joins other emerging market agriculture investment managers in pursuing this method; Miro Forestry, the Africa-based timberland investment manager, started operating with just $25,000 of capital committed by the founders and family and friends.
“It made a huge difference to be able to tell investors that we are operating rather than we plan to operate but haven’t yet started,” said Andrew Collins, chief executive, at Miro. “A number of companies have attempted to raise very significant sums prior to starting any field operations. In today’s market this is extremely difficult.”
“A more robust strategy for project developers is to first secure private investment from individuals to develop pilot operations, thereafter seeking slightly larger sums to expand initial operations to pre-agreed targets,” he added. “The track record gained by successfully completing this, demonstrating project traction and achievement of targets over a sustained period facilitates the later raising of institutional funds.”
In this way, private investors can act as the pioneers for the asset class by facilitating start-up projects, unlike venture capital and private equity firms that tend to follow once there is a track record, added Collins.
“Our initial investors, prior to us having any track record or having established physical operations, invested on the basis of trusting in us, believing in the business plan and recognising our alignment of interest having personally invested alongside,” he added.
Caribbean Sustainable Advisors is another firm that has pursued a similar path after initiating joint venture projects alongside farmers in Belize in order to prove the business model and viability of Belize as a country in which to grow and sell conventional crops.
Investors in the special fundraise will be issued shares that are technically ordinary shares but with a guarantee of receiving 15 percent of the Phoenix Africa share in Lion Mountains’ cashflow; this makes them feel more like preference shares, said Docherty.
Should Phoenix Africa raise the $1.5 million for Lion Mountains, it will account for 7.5 percent of the project’s holding company.
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