💡 Investment Notes: Why we invested in Aqua Spark
Redesigning the aquaculture food system across the value-chain.
Here are the facts: the world is eating more seafood.
According to the FAO, between 1961 and 2017, global fish consumption increased at a rate almost twice that of annual population growth. With per capita food fish consumption growing from 9 kg in 1961 to 20.5 kg in 2018, the consumption of seafood certainly outpaced all other animal protein foods, such as meat and dairy.
To meet this growing demand, total fish production has almost doubled during the last 20 years in Africa and Asia. And over half of global fish production comes from aquaculture, amounting to $250B of fish in 2018. And this growth in the aquaculture sector is only set to accelerate as wild fish stocks, faced with increasingly more environmental threats, continue to decline.
What are the social and environmental implications of changing the way we source the world’s seafood? The picture doesn’t look optimistic, with less than 7% of the seafood produced globally at the moment is certified as responsibly produced.
Aqua Spark is looking to change that. Their fund is transforming the entire aquaculture value chain for the better, beginning at the farm, but also looking at other segments of the value chain, including feed ingredients, health technology, and farm management systems.
Here is why we’re invested in them.
1) Industry Expertise
In order to fix a broken industry, you have to first understand where its cracks are. The Aqua Spark team relies heavily on it extended network of experts in sustainable aquaculture to inform its investment approach, from both the financial and impact perspectives.
To name just a few of these experts, their advisory board includes the Chief Editor of the journal “Aquaculture Research” Marc Verdegem, as well as Stephen Hall, the past director General of WorldFish, which is an international research institute devoted to reducing hunger and poverty by improving fisheries and aquaculture. Their Global Expert Network also includes the likes of Randall Brummett, Senior Aquaculture Specialist at the World Bank, and Kevin Fitzsimmons, President of the World Aquaculture Society.
Being able to drawing from this extensive network of experts has enabled the team to identify the three striking factors they would like to tackle across the aquaculture supply chain to achieve true sustainability -
the lack of coordination between sections of the value chain;
the seemingly impenetrable opacity of the industry; and
the absence of outside financing, likely caused by the first two factors.
2) Long-term, Ecosystem-Building Approach
Aqua Spark provides investees with more than just capital - they provide mentorship and long-term support, and facilitate partnerships and collaborations between their investments.
As an open-end fund, Aqua Spark is able to invest in impact-focused players with longer term visions, by focusing on companies which pay out dividends by year five. The fund targets high enough stakes in all of its investees to have sufficient influence and sit on their board of directors, without taking ownership away from the entrepreneur.
Related to the first factor the team is working to address - the lack of coordination between sections of the aquaculture value chain - they’ve held portfolio gatherings to allow company members to meet one another and find ways to collaborate. They’ve already started using each other’s farm management systems, animal health products, and more.
In this way, their portfolio acts as an ecosystem for sustainable aquaculture, accelerating industry-wide change by improving value-chain coordination.
To catalyse further investments into the space and grow the ecosystem further, they are now also sharing their industry knowledge with the public through their open-access Aqua Insights series.
3) Strong Commitment to Impact
The team’s focus on water and biodiversity conservation is made clear with explicit impact indicators that are reported on an annual basis.
Aqua Spark’s impact isn’t just theoretical - it’s measured. The team has come up with impact metrics that go beyond traditional ESG measurements, so that investors can evaluate them on more than just financial returns.
4) Track Record of Success
Aqua Spark has been first movers in the sustainable aquaculture space, with an extended track record of success.
When we first looked at the fund, it had a 5-year track record with estimated IRR of 14%.
They responded well to stay afloat amidst Covid, too, providing a Covid facility which allowed their portfolio companies to continue to grow and support all the players in their network, down to the level of the small scale fish-farmers.
As an example, eFishery, an IoT, data and marketplace platform with smart feeding technology moved quickly to offer discounts and delayed payments to fish farmers for their feeders so that could sustain their production while supply chains faced severe disruptions. They even bought the fishes off the farmers to process into frozen products with the help of local governments, to provide the farmers with liquidity and time for eFishery to find new markets in the buyer. In two months, eFishery not only got their revenues back to pre-Covid levels, they also grew their margins and helped keep the farmers they work with in business with a 100% retention rate. Their non-performing loans are still lower than 1% - no mean feat amidst the challenges of Covid.
At Silverstrand, we seek to partner with industry leaders that have deep industry knowledge and strong impact mission alignment. Aqua Spark has proven itself to fit this profile perfectly. We look forward to continuing to support them as they grow their portfolio further.
You can find more about the Aqua Spark at their website, or on Linkedin, Twitter, Instagram, Facebook, and Medium. Read more about their portfolio here.
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