Why We Invested in ProducePay
G2 Venture Partners invests in technologies that are digitizing traditional industries to make them more efficient. Industries don’t get much more traditional or inefficient than fresh produce:
- When you buy an apple from the grocery store, it was likely picked 6–12 months before
- Over 1/3rd of all food that is grown is wasted
- The average item on the US dinner plate traveled 1550 miles, was handled 4–8 times and the price was marked up 3–6x
The inefficiencies of this “push” supply chain are particularly costly for fresh produce, which gets worse every day after it is harvested.
Almost every other market in the world has been transformed by the internet into a digital marketplace where real-time digital information allows product to find its way cheaply, quickly and efficiently to consumers. Why is the $58 billion per year, rapidly-growing fresh produce industry stuck in the 20th century? Who is going to fix it? These are the types of problems we like to dig into at G2… and we start by talking to the customers.
Growers told us they:
- make large cash outlays for crop inputs and labor, so want (or often need) some advance payment before they ship produce
- have little visibility into supply/demand and market pricing
- often have terrible experiences with new distributors (who take the product across the border, assert poor quality, and underpay the grower)
- don’t want to spend resources to pursue legal action to collect payments (especially cross-border)
- prefer to take a lower price from a known customer than take the risk on an unknown customer
Distributors told us they:
- don’t want to use their balance sheet to advance money to growers
- don’t want to have people on the ground in Mexico, Latin America and South America to figure out who are financially constrained farmers, or fraudulent growers
- mostly just want to be sure they’ll receive the produce they need
- have limited visibility into supply/demand and market pricing
- need to pay a (lower) price to reflect the risk of purchase commitments and early payment
- have had terrible experiences with new growers (who take advance money and fail to deliver)
With that context it makes sense that the industry runs on repeat relationships — growers pre-sell produce to the same distributors every year at a discounted price in exchange for receiving some advance funding. It works, but results in a highly fragmented, opaque, many-layered value chain. There’s a better way…
ProducePay has built a platform on which growers and distributors can transact with high-quality counterparties. The platform provides participants financing solutions, market pricing information, and payment/collection services. This unbundling of services enables Preferred Network to operate as a true marketplace, and move from annual purchase commitments toward a spot market like the commodity grain markets have. It also provides a feedback loop so that only high-quality participants who meet their commitments can continue to participate.
Customers who have piloted this Preferred Network gave us glowing feedback:
- Growers successfully did business with new distributors, received market prices up to 30% higher, got the advance payments they needed (from ProducePay, not the distributor), and had ProducePay collect payments on their behalf.
- Distributors successfully purchased produce from new growers without having to make advance payments. They got high-quality produce when and where they needed it without having to have their own field personnel in Mexico, Latin America, or South America. Distributors were particularly excited about the ability to find new growers when their supply is disrupted by (increasingly common) adverse weather events.
Starting a new marketplace is hard. Particularly when the buy/sell transaction is bundled with other services (financing, market intelligence, payment collections). When Pablo Borquez Schwarzbeck founded ProducePay in 2014 he recognized that a successful marketplace would require (i) independent financing solutions (not from distributors), (ii) a digital data platform that provides transparent pricing information to market participants, and (iii) a critical mass of market participants.
Pablo spent seven years building those things: ProducePay’s financing platform has financed >$1.5 billion in produce, (ii) ProducePay’s Insights platform has 6000+ participants and >$3.0 billion/year in digital transaction data, and (iii) over 800 growers/distributors are active on ProducePay’s platform.
With that foundation, ProducePay’s Preferred Network is positioned to deliver a new, and better experience to growers and distributors, allowing them to be more efficient and profitable, which ultimately will benefit consumers.
G2 is excited to partner with ProducePay as they build the operating system for the fresh produce industry, and accelerate its path to a more digital, efficient, profitable, and sustainable future.
