Jul 31, 2012
From Sloan to the red hills of Russia
Back in 2002 when Dan Grotsky graduated from MIT’s Leadership in Global Operations (LGO) program, nothing could lead him to foresee he would work in agriculture and eagerly be waiting for his first tomato today. Dan’s background is in military intelligence and information technology. For this serial entrepreneur, there is a logic that connects the dots, a logic we can learn from.
Like other graduates of MIT’s business school in the early 2000s, Dan founded his first company while at Sloan and deferred his degree by one semester. ‘These were times when if you were at MIT and didn’t actually start anything, you probably didn’t have the entrepreneurial bug at all.” At the collapse of the bubble, Dan joined technical sales at Pegasystems, a business process management software company in Cambridge, before returning to his home country of Israel.
There, he started his second venture, Israel Angels, an angel group. After a few successful investments, Dan sold his shares and exited. Then, while in charge of business development at Alvarion, he became convinced that the information revolution is history and that a new revolution is on its way: clean tech and sustainability. “I realized that we [humans] were ruining this world. I preferred to be part of the solution than part of the problem. So I did some soul searching.” As a result, Dan left Alvarion to lead business development for Atlantium, a company which provides clean water.
Often in discussion with his father, Harold Grotsky, who has an extended network in Russia and Moldova, Dan began to look with his father for renewable energy projects in those geographic locations. They focused on coal mines in Russia, with the idea of collecting methane from coal mines as fuel for gas turbines to generate electricity. This had the double advantage of avoiding potential explosions and atmosphere discharges as well as not having to import gas from the nearby mining towns. The project abruptly stopped when the financial crisis severely hit Russia, the steel and coal industry being two of the most affected sectors.
“When we were working in Russia, considering biogas and coal mine methane, we were shown turkey farms, a potential spot for biogas. We drove 45 minutes out of Rostov-na-Donu. The whole time I’m thinking, ‘Wow, this is so beautiful.’ Those rolling hills [are] so green and so nice. Then, we see these chimneys coming out of the fields, with smoke. Methane. ‘We hope you can change this.’ says the driver. Behind the green hills, I see these reddish purple hills. There is a fertilization plant that dumps their chemical waste over there. And then the turkey farms’ dumping site, with piles of dejections. Now I understand why I’m here, why I’m dealing with this.” This is Dan’s eye-opening experience to the meaning of sustainability.
This is the right time to move on. Dan’s father having work experience in Moldova, they turn to this emerging market to identify the next opportunity.
Understanding the context
Moldova, surrounded by Romania and Ukraine, one of the poorest countries in Europe, has neither good resources nor a conducive regulatory environment in place, so Dan and his father reach the conclusion that it makes no-business-sense to pursue a project within the renewable energy/clean tech arena. On the other hand, Moldova is known for its agriculture so maybe biodiesel or bioethanol. No, those markets are challenging, especially in Europe. Biodiesel technology is great, “but when you’re competing with food, it’s tough.”
Understanding Moldova’s key assets
Why not look into food then? Demand to feed populations is accelerating and supply is not keeping up to pace. Prices of agricultural commodities will continue to rise. Moldova, where farmers struggle to make ends meet, possesses key assets such as a good climate, cheap water, reasonably-priced energy, competitive labor costs, an absence of duties to export to the European Union due to a bilateral trade agreement, and a strategic position right at the crossroads of the European market. Combining these strengths with the agri-tech know-how from Israel, leads to a first business plan for which Dan and his father start raising money from local angels.
Identifying sources of funding
While raising funds, they meet Rosa Kovalski, who runs World Bank-sponsored projects in Africa. She asks them why they are seeking private investors when their project is aligned with the criteria of development banks funding: operating in a poor country, developing jobs, bringing foreign currency, and promoting sustainability. Dan and his father then completely change the scope and scale of their idea to split it into one first venture, Terenova, supporting the Moldovan government in developing agriculture with funding from the World Bank, and one venture targeting private export-oriented enterprises seeking agricultural resources, Cressca, using Israeli know-how.
Terenova and Cressca
Terenova seeks to improve Moldovan agriculture by bringing sustainability, high technology and high quality to projects as well as by developing R&D centers and schools. Hand in hand, Cressca aims to become an exporter of Moldovan produce with a first project, a greenhouse twice the size of the Moldova’s largest greenhouse. Cressca’s greenhouse will supply a supermarket chain whose owner reached out to Cressca, tired of the low quality of currently available produce. The initial market will be Moldova and they will then extend to Europe and Moscow. Dan figures that despite the crisis in the EU, people have to eat. Ideally, there will be synergies between Cressca and Terenova with Cressca being a supplier to Terenova-backed projects and competing to provide systems that Terenova would recommend.
Knowing whom you can trust
Launching such ventures is not possible without the support of key partners. For Cressca, that is Yakov Tichman, one of the most successful businessmen in the country and the former deputy minister of agriculture. Yakov is also a family friend and business partner for over twenty years. “You need that kind of relationship because things are tougher than they seem and when push comes to shove, you need to know you can absolutely trust the partner who’s working with you,” Dan points out. This can take years but such a lasting relationship ensures survival in tough times.
Adapting to different cultures
So what makes working in the small eastern European country of Moldova more complicated than Dan’s earlier ventures? In Moldova, sustainability is not the strongest argument in a negotiation. In addition to this, in a five-person meeting it is not uncommon to have several languages (Hebrew, Russian, Romanian, English, French and even Yiddish) spoken around the table and not necessarily an interpreter to go along with this diversity. “At least it gives you time to think about your next sentence!” jokes Dan.
Still early-stage, Terenova’s project has just been approved by the Moldovan Government and the World Bank has accepted to devote a first tranche of $22 million to the development of Moldovan agriculture, enough to change its economy significantly.
On the other hand, Cressca, still self-funded, is ready to go. Their first greenhouse, supported by European Bank for Reconstruction and Development (EBRD) and private funds, will likely begin construction this year. “Development banks are looking for good people with good will who want to make a difference in a country,” mentions Dan. “For Cressca and Terenova, we won’t find VC-like funds interested in funding such ongoing agricultural projects with no tech start-up-like exit, development banks will take care of that.”
“We’ve been working on this longer than what we thought—two years now.” When asked about the intention of growing, Dan answers that they do not intend to grow into a large organization nor manage many people. “No more than ten employees in each. Instead, we prefer to partner with domain experts.”
Agriculture and entrepreneurship – a land of opportunity
In the 80s and 90s, agribusiness went through a development phase with ideas such as drip irrigation, GMOs and certain pesticides but it still is not the #1 field that pops into an entrepreneur’s mind. Today, agri-tech is better placed though still not the attractive field it could be. Even in Israel, agri-tech funds are small and not well known. Nevertheless, Dan mentions that there are people out there who want to establish such funds. “When food security becomes an issue, then food supply will become a priority. Right now there is a void.”
So start thinking about the next agricultural revolution.
Read more at www.terenova.org,
Article written by Natacha Hardy