(*Results may vary.)
A Counter-intuitive way to handle due diligence for grants
Grantors (and funders in general) want to get ALL of the information about your company before making a decision. While this sounds reasonable in theory, in practice it means due diligence can turn into a fact-finding mission for months and months to the point that the project you planned is no longer relevant. This is horrible for you but also a bad outcome for the funder as they missed out on an opportunity.
How to avoid the fact finding mission and get better results.
First, let's understand why funders do this even though it leads to bad outcomes for them. Why do they shoot themselves in the foot, so to speak?
Human nature. Don’t we all want to have a little more information before we make a decision? We want to look at one more Yelp review, ask one more person’s advice and have the weekend to think over which job offer to take. These are delay tactics because we don’t want to make a decision.
It’s not because grantors are bad. They are just human. And humans want to delay. Maybe, just maybe, if they ask for one more document it will make everything clear.
It won’t. In fact, the more data they get the more confused they will be. Why did the revenue spike in 2017? You wrote in your 2021 financial model that x would happen but in 2020 it said y. More data never leads to clarity. Data leads to noise. Synthesis leads to clarity. And synthesis is your job, not theirs.
Remember the grantor is the customer. Imagine if you went to the pharmacist and they said, well, it sounds like you should take Ibuprofen but here are 2 dozen research papers you can dig through to see for yourself. No.
Synthesis is your job, not theirs.
Left to its own devices, a few innocent due diligence questions lead to a sprawling fact-finding mission. More and more of your staff get pulled in to answer questions about what happened 3 years ago and distracts them from their real job of building the company. It also uses up the grantor’s time.
Your job is to coral this process for the benefit of both your company and the funder. Remember: At the end of the day, the funder needs to make a binary yes/no decision about your organization. If the information doesn’t help them make a yes/no decision it’s extraneous information.
Don’t answer questions if it wouldn’t change the funder’s decision.
But how to do this in practice? Here’s an idea: At the first meeting, in the nicest way possible, say that you have been in many due diligence processes. You know that sometimes due diligence processes can get out of hand. You want this to be efficient so that you can go back to building and so that you don’t waste the grantor’s time. They have to make a yes/no decision about your organization so let’s focus on questions that would help them make that decision.
You might think this sounds rude but it's actually direct. And people respect people who are direct with them. A big complaint of funders is that they can’t trust grantees; grantees are always brown nosing and funders can never tell what grantees are really thinking. Also, people want to work with people they see as peers. Peers don’t grovel in front of each other (seriously, when was the last time a friend of yours groveled in front of you?)
Which brings me to the next key of due diligence. Meet them in person/video call as soon as you can. If they just send you questions, ask for a meeting to “make sure you understand the context” or you “have some questions you want to clarify and it would be easier in a video call.” People work with people they like and grantors are much more likely to like you if they have seen your face (even on zoom).
Meet them before answering questions
Even though you originally stated you wanted to keep the due diligence process efficient, grantors, left on their own, will migrate back to their old ways. Don’t let them do it. Push back against excessive questions. If they send you a list of questions that seems excessive you can respond saying any of the following:
Continue to resist excessive questions.
If you can add these guidelines to your due diligence process I expect you’ll increase your win rate while reducing the burden of due diligence and reducing the time it takes to get cash in the bank.
More cash. Less effort.
What could be better?
I just saw the recent Gates Foundation announcement for new grants issued and 2 of 3 are related to training farmers! This is horrible.
You might think: How can I be against training Farmers? I am not against the training. I'm against spending the majority of development money on something which actually doesn't deliver value for the farmers. And is actually harmful TO THE FARMERS.
Let's dig into these grant awards from the Gates Foundation in detail: the first is a marketplace for goat vets. In theory, this Marketplace will educate Farmers on the different illnesses a goat could have and connect the farmer with a vet who can solve their problem. It's like an Uber or Airbnb for goat vets. But there's two big problems here.
One, Uber for goat vets is never going to work as a sustainable business. Why? The GoatVets platform will be disintermediated. Marketplaces only work when you have to interact with a different seller each time. Every Uber I get is a different driver. Every Airbnb I visit has a different host. Every product I buy on eBay is from a different seller. GoatVet will be disintermediated because once Farmers get matched with a vet once they won't go through the platform anymore. Why would they pay marketplace fees when they already know the vet? This goat platform won't make any money and it won't be sustainable. And if it’s not going to be sustainable, why fund it? It’s going to be a money pit if donors do try to prop it up. Mark my words.
Okay fine, GoatVet is unlikely to work but that’s how innovation is, right?
That brings us to the second point. GoatVet is specifically looking at training Farmers instead of helping Farmers increase their income. This is the problem with all farmer training and why I am so against this. The problem is not that farmers don't know; it’s that they've no place to sell their goods for a fair price. Shouldn’t this be obvious to grantors?
Farmers can’t make more money if they can’t sell more products for a better price. This is basic mathematics:
Revenue = #products_sold x $price_per_product
(Note that this equation is number of products SOLD, not number of products PRODUCED. Farmer training, in theory, increases number of products produced. What we need to do is help farmers sell MORE products and/or for a HIGHER price.)
Let’s step back for a second and give some context for what happens on a farm. Farmers all harvest/slaughter their goats at the same time because they plan according to the seasons. This means there's a glut in the Market at one time. The poorest farmers sell when the prices are low. They have no way to preserve their food. The goat meat (or tomatoes or whatever) is going to rot if they don't sell them right away. Then because of poor market linkages there's many middlemen before it actually gets to an end consumer. And because of poor government policy and onerous laws that should be repealed, it's virtually impossible for a smallholder farmer to sell their own produce at scale or export it. There is no way for a small scale farmer to deal with the bureaucracy of aggregation and export.
And THAT is what grantors should be solving.
Let's go back to the goat farmers. If they have good meat what refrigerator exactly or freezer will they put their goat meat into? What about their goat milk? There's all kinds of government regulations which prevent Farmers from aggregating their milk and selling in supermarkets where they could actually make money. All the money that is spent on Farmer training should be spent on helping Farmers sell their product. If this grant was for something that helps Farmers get their product to customers then we might have something. At first Farmers could sell on the local market. Then once they become competitive they might even be able to export at a premium price. But that's not what this grant is for.
But it gets worse. If you train Farmers to produce better products then they will hopefully produce more of it. Yay. But now what? Now all of their neighbors are producing more of that product. Now they have more competition. Supply and demand. This is basic economics. If people produce more goat meat and there's no way to transport to market then the price of goat meat will go down. Farmers might even make a loss.
Let's look at another Grant funded by the Gates Foundation. This one for Equity Bank where they're creating an integrated digital platform, EquiFarm. It sounds a whole lot like Safaricom’s collapsing DigiFarm platform. And countless other farm apps in the graveyard like m-farm. The idea is that Farmers will get tips on farming and buy insurance products. Why is a bank teaching Farmers how to farm? Why would Equity Bank, in a centralized way, understand what Farmers need in very different parts of the country with very different growing conditions? Why are we insuring Farmers instead of increasing their income?
So why do grantors do this? Well if you look at the data you see that in developing countries Farmers are far less productive than developed countries. Like 5x less.
Source: World Bank
And this is even though developing countries near the equator get about twice as much Sunshine as farms in North America or Europe. So the grantors say “if only we could increase yield then all farmers in Africa will be rich!”
If only it were so easy!
You can't just plug numbers into Excel and magically increase farmer income. If you don't improve the supply chain to market you don't increase sales and you're doing nothing. And possibly making it worse. All the time Farmers spend in training learning "Innovative Smart Systems" (lol) is time wasted they could be farming. Or watching TV. Or drinking a beer which frankly would be a better use of their time. At least if they drink a beer at the bar they might meet someone who can buy their crops.
So why do Grantors keep doing this? The reason is that they're afraid to fund Capital Expenditures like processing equipment that can make farm products shelf-stable. To increase sales for farmers you need to somehow preserve their products such that when they pick their tomatoes they don't all rot at the same time. You need to make tomato sauce. With your mangoes make dried mangoes. With your goat you need to make goat sausage. With your french beans refrigerate them. But here's the thing. In order to do that, in order to have any storable, value-added products, you need to have factories. And factories need CapEx. And granters are allergic to CapEx.
(I should pause for a moment and say that not ALL grantors are against CapEx. I have worked with some very fine grantors who bravely went to their board to advocate for companies I work with to spend on CapEx. And they were successful. So I know there is hope for grantors to change and make better funding decisions.)
Why are grantors generally allergic to CapEx? Because at the end of the grant program some poor entrepreneur could decide to sell the equipment and actually make money. Get a backbone! If you want to solve The World's problems is not going to be easy. You're going to have to go to your board and tell them that CapEx needs to be funded in order to create value-added products in order to increase income for farmers. Otherwise, it's a waste of time and a waste of breath. And it's a waste of grant money so grantors should care as well.
Is farmer training EVER useful? Sure, but that's when (and only when) the market is buying so much produce that farmers can't keep up. And even then a little training goes a long way. We don’t need broad-based training for everything. For any given crop under specific conditions of a Farm there are one or two bottlenecks that need to be addressed; the training needs to be extremely targeted.
Further, there are far more cost effective ways to train farmers. Look at the Ugandan YouTube channel Farm Up where one guy posts videos getting close to 0.5m views each. Surely this wouldn’t cost more than $100,000. Or Shamba Shape Up TV show where you can reach 9m farmers per week for around $10,000. Meanwhile, EquiFarm training app will only reach 200,000 farmers initially. They claim they will reach 2m at scale (which I’m skeptical of) and will cost Gates Foundation around ~$1.5m. Really? C’mon people. What happened to being data-driven? What makes this even sadder is that Gates Foundation is usually considered one of the “smart money” grantors.
So let's stop this Insanity. Stop training farmers. Instead, help farmers increase their income. Finance the creation of value-added products. Pay for the CapEx needed to get these projects off the ground.
Stop training farmers. Please.
Kyle founded Grant&Co after running a biogas company in Kenya for 5 years. We raised a lot of grant capital there. And now we help other entrepreneurs raise capital.