Inaru

Inaru is transforming the agricultural supply chain, starting with cacao and coffee, enabling stakeholders to capture 40x the value of the raw crop by operating entirely vertically.

Janett Liriano

Co-founder and CEO

Location

Dominican Republic

Year founded

2018

Industry

Sustainable agriculture

After years building multi-entity businesses, managing highly specialized talent, and turning complicated technical industries into accessible consumer products, Janett and Erika Liriano—who come from a long line of farmers and entrepreneurs in the Dominican Republic—decided to funnel their skills into something closer to home.

Together, they are reimagining the production and distribution of agriculture—an industry that has become unsustainable both economically, environmentally, and culturally—with Inaru, a first-of-its-kind entirely vertical supply chain, starting with cocoa and coffee.

We are thrilled to back Janett and Erika’s vision to reframe commodities as essential foundational goods with guaranteed traceability across every step of the supply chain, for which they announced the close of a $750,000 pre-seed round with investors including The Helm, MarsBio, and Soylent founder Rob Rhinehart. Read more in our interview with Janett below.


Why did you launch Inaru and what is the problem that you’re looking to solve? 

I’ll start with the why and then the how. Fundamentally, we believe that food and consumer products are an essential thing. Food literally becomes part of our body’s cells for every consumer, so it’s very important to have integrity in food. But today, in agriculture, we’re living and operating in completely unsustainable economies and cultures—we have this upside-down triangle of principles and values, where we say those who do the least labor extract the most value, and those who are laboring must accept less. We treat the land very much the same way, where it’s viewed as something to extract value from for mass agriculture practices. 

But the world is starting to realize that anytime you operate businesses against the basic principles of nature, it’s not going to last. Look at what’s happening in West Africa and the cocoa challenges they’re having there, the farmers leading the cocoa industry are not making a living wage, which is reducing the productivity of cocoa with environmental blights that are attacking cocoa plantations, because they’re not properly inter-cropped. All of this “short term mentalism”—these quarterly-driven business decisions—is killing businesses and communities and ultimately, killing the product from the land that you would like to sell from in the short term. 

Both environmentally and economically, and specifically in the cocoa markets, there’s a compounding level of stress where stable supplies are very difficult to secure. There is economic inequity, the land is not producing what it could because it’s been abused for such a long period of time, but still, the demand for cocoa and especially high-quality cocoa is skyrocketing. So there’s this spiral downward against quality, valuing the producers, the land, and transparency, with massive demand and capital deployment on the consumer side for quality and for transparency. When we saw that mismatch, it became really obvious that if we can construct a business that is honoring those growth trends and honoring those principles, we have a big opportunity not only to solve the problem for the consumer but to solve a problem for buyers of cocoa who want to change things. 

How did your family history in cocoa farming inform the business? I know you uncovered some unsavory facts about Fairtrade cocoa. 

My father has a cocoa farm in the Dominican Republic and it blew our mind that he would be paid so little for premium organic, super fine cocoa ($500 per metric ton) when we knew that same product would be sold to a big buyer for $4,000 per metric ton. Where was this value being lost? 

My sister and I decided to complete a two-year study where we were able to identify that most producers of cocoa are smallholder farmers that own less than an acre of land in very remote regions across the country—they cannot get to the actual buyer, which is usually a multinational exporter. So naturally, where there’s a need, a solution arises. In the cocoa industry, the solution came in the form of middlemen. This created an informal, exploitative supply chain to get that cocoa from these hard-to-reach smallholder farmers. The middlemen show up during harvest season, pay the cocoa farmer whatever they want to pay them—the cheapest price they can get away with—collect that cocoa, bring it to a collection center, that collection center then sells or brings it to a bigger collection center. It goes on like this until eventually, it gets to the buyer (the exporter) who paid the first middleman to distribute it to all of these other middlemen. So the farmer is six or seven people away in the supply chain from the person who’s paying this so-called Fairtrade price. 

Inaru buys cocoa directly from smallholder farms, proving "beyond any potential doubt that the farmers are being paid what they are owed".

This is what people don’t understand when they see Fairtrade or all of the truly well-intentioned businesses using Fairtrade cocoa to try to secure and ensure ethical pay. It goes like this: to get a Fairtrade license certification, you need to pay. Most farmers don’t have the dollars required to pay to be certified (because it costs $5,000, which is sometimes the amount that they’d make for the harvest in a year), so now, there is a vulnerability. A multinational exporter will come in and say to the NGO, “You know what I’ll do? I’ll pay for the Fairtrade certification for 1,000 farmers in your cooperative, that way we can sell your cocoa as Fairtrade.” But guess what? Because the exporters paid for the certification, they own that certification. Those farmers can’t sell their cocoa to somebody else, because the exporter wants it.

Now the Fairtrade premiums, who do they go to? The exporter. It goes to who pays for the certification. So now the exporter is getting paid whatever the incentive may be for buying Fairtrade cocoa. And this is where the accountability isn’t quite there. Do those premiums get to who they need to get to in this chain of many middlemen?It’s not just Fairtrade, this is the problem with many other certifications, such as Organic. So what you end up getting is an international exporter being paid many dollars for commercializing Fairtrade goods and farmers getting paid a much smaller percentage of what they should be getting because of this middleman model. And there isn’t a strong audit trail to ensure that those premiums get to the producer—the farmer—past the point of payment to the NGO from the exporter. The curiosity ends there.

How is Inaru uniquely positioned to fix this problem?

Inaru can really prove beyond any potential doubt that the farmers are being paid what they are owed. First, we really took a long time to understand and pinpoint the uneven power dynamic: producers have no way of holding anybody accountable. If the buyer doesn’t pay them, what are they supposed to do? The farmer can’t go anywhere else, because someone else owns their Organic or Fairtrade certifications. They could sell their cocoa to someone else as not organic, but they’re going to make less money. And then maybe that guy won’t come by to pick up their cocoa. They’re literally up on the mountain with no power, even though they’re creating the product. That was the first level of inequity that we identified. 

So how do we change this? A two-way, direct relationship with producers. Inaru is an exporter in this case—the historical bad guy—but we’re an exporter that does something interesting. We partner with the NGO to form a joint venture to manage the direct contracts that we, the exporter, have with each farmer. The farmer doesn’t have a contract with the NGO, they have a direct selling relationship with the business—Inaru—which is a brand new thing. Until now, there haven’t been any farmers with an actual purchasing agreement with the seller of their goods. What we’ve memorialized in the terms of our contract is: we don’t just show up at harvest season and then confuse the farmer with an on-the-spot price of cocoa, which has nothing to do with the premium cocoa market. We are going to pay them their Fairtrade incentives, all of their premiums, plus a little bit more because, in our model, we have no middlemen. We can also begin to project what the farmer is going to produce year on year, so what we do is amortize the farmer’s payments monthly instead of showing up at harvest season.

Inaru can really prove beyond any potential doubt that the farmers are being paid what they are owed. 

This means they’re seeing us 12 months out of the year because we’re prepaying for our cocoa purchase. And in this prepayment model, we can support our producers—we can see if there are any issues with the harvest, we can ensure quality (that they’re keeping up with organic practices, for example) and we now have a much more rigid level of proof that they’re getting paid what they’re supposed to be getting paid. 

In addition to that, in their sales contract with us, we guarantee them 3 percent net profit off what we sell. That’s direct to them, the producers, not to the NGO, meaning the farmer can directly confirm payment because they’re getting these receipts. And lastly, the collective—the NGO that’s our joint venture partner—actually holds shares in Inaru. So the community, the collective is also an equity holder in this entity that grows value over time. This means that their participation, their commitment to honoring their exclusive agreement with us also gives them value as an owner in the business, which is not the case anywhere else. It’s about asking: How do we ensure that we never forget that the producer is a stakeholder? If that sentiment isn’t memorialized on multiple levels, it can change as fast as management changes. In this way, we have built a business model that makes us accountable, not just to the cocoa buyer, but to the farmer as well.

How important is it that this change is coming from within—the fact that you are Dominican women with a history with cacao farming? 

I really appreciate this question. First, we’re working with one of the most high-integrity NGOs in the country, so we’re very lucky, but the biggest thing we did was just listen: we took time—almost two years—to understand exactly how their respect and trust had been broken; every which way that someone fooled them. We spent hours talking to individual producers in the community to understand where they got hurt in a previous contract, what they didn’t understand, what things would make them feel more secure. It was a very time-intensive process where we had to hold a lot of space for their grief, frustration, and fear, to be sure we understood it and then really work with them to create solutions that address that pain. 

I think the fact that we’re women and we approach business differently helps. We are more collaborative….just deep listening, compassionate, we’re not blustering “do it my way”. We want to take care of this group of amazing humans and they can see that in the steps we’ve taken to honor their concerns. The first step is really listening versus coming in and assuming we know how we need to do this. The producers had some great ideas on the right way to do things. Most folks don’t take this level of time to listen. But you can find even better business models when you build together. And in terms of trust, we wanted them to talk to their own lawyers explaining the terms, every single term. And we didn’t move forward until folks were comfortable that they understood what they were signing. And we continue to spend time at meetings with new farmers we’re enlisting and it’s gotten to a point, and we’re very grateful for this, where they’re advocating to other producers. 

Janett (pictured left) and her co-founder sister, Erika Liriano (pictured right), spent two years talking to cocoa producers to understand exactly where they could provide the most value.

You’re proving that a values-driven business can equal profitability. 

Nature is really the best business model—when you take care of the roots, you have really big avocados. I know that sounds like a funny thing to say, but I people don’t realize that businesses are living organisms. By paying the farmers directly, all of the money that the middlemen were getting, there’s more capital available throughout the year for smart harvesting, it goes to improving future yields. On top of that, we can guarantee traceability to the buyer, meaning we can command a much higher premium than what many other folks can command for the same cocoa, because of that transparency.

Additionally, one of the things people don’t know about cocoa is that the finest chocolate in the world is sourced from the Caribbean and Latin America, but it’s all refined, processed, and produced abroad. Instead of selling cocoa beans to Belgium, we are building the capacity to create the end product with a refinery that makes cocoa butter, paste, and powder on our own soil. This not only allows us to have real supply control, but we can turn $6,000 metric ton for beans into an aggregate of $24,000 a metric ton for butter, paste, and powder. The butter is used in beauty and commands much higher margins, which means we can create jobs in the local community. We’re not putting our cocoa on a ship to cross the Atlantic, get refined over there, come back over here, and then sell it. That adds so much cost when you could just process two miles from the tree, which is what we’re doing. 

It’ll taste better too! We’re doing what the French and the Italians understand very well, making the product at home, ensuring that the value gets back to the communities who make this product, who have a lot of ancestral heritage for how to make it properly. And we want to bring that dignity that wine vineyard owners have with their very cherished fruit to cacao.

Will there be an Inaru “seal” or certificate, like Organic or Fairtrade, for chocolate brands using your cacao—an Inaru stamp of approval?

Yes and yes. We look at Inaru as a brand, a business, and a quality marker. On the economic, environmental, and social impact side, we have this concept called a positive spiral, where every stakeholder is improved and then goes on to improve. We really look at quality as a holistic concept. Currently, in the premium cocoa space, quality is measured only by taste, no one cares how you got there. But you don’t have to compromise ethical practices for flavor because if you’re doing it right, you have both. So the Inaru stamp is this positive spiral notion—a truly transparent alternative that B2B buyers can very easily add to their branding. 

What was your fundraising process like? Any learnings that you can share for other founders going out for their pre-seed seed rounds?

Fundraising as a woman and then as a woman of color is always a tragedy of errors. And when I say errors, I don’t mean on our side! For other women of color founders, I would say the world is still trying to figure out how to pattern-match new innovators that have our appearance, so there’s going to be a level of difficulty that has nothing to do with you. Don’t take it personally and don’t take no—keep going. 

Secondly, as fast as you can, find investors who are aligned and who offer strategic value or an ethical matchup. For example, my background is in highly technical industries, so most of my investor network is from that space. When I came around saying, “Hey, cocoa,” they all looked at me like I had a sixth sense, they didn’t understand the concept at all. Even with our friends and family round, it was a lot of explaining how we can modernize agriculture. It was a really big push. One of the things I would have done differently is to instead, prioritize finding strategic investors who were completely aligned with the mission of the company, to spend less time talking to people that would add friction early on and spend more time talking to who would add momentum.

Do not miss the opportunity to take someone's misunderstanding as a way for you to practice a new way of communicating. 

That being said, friction can be good. While talking to folks who did not understand this industry, it really sharpened our communication of what we’re doing and forced us to make a business that’s inherently complex, very simple. So on one hand, yes, find people who give you momentum, but sharpen yourself with the friction, do not miss the opportunity to take someone’s misunderstanding as a way for you to practice a new way of communicating. I think a lot of founders can take criticism personally, but we used it to make our language accessible to anyone, everywhere. But still, find the right investors as early as you can—join communities, women’s groups, whatever communities you identify with, and just ask, “Hey, I need to talk with you.” Have no shame. I’ll bother anybody about anything—when you’re building a business, this is not the time to be shy. Talk to people, because you’d be surprised at their willingness to connect you with whoever, if you’re bold about it; bold yet respectful. Lastly, remember that your attitude with investors should also be oriented in a spirit of generosity. Like, “how can I help you?” And really mean it. 

I probably need to write a book on how to fundraise and not want to jump out a window, but these are my three rules of engagement. It’s worked for me so far. Fundraising is always stressful. Anyone who’s like, “It’s fine, It’s easy” is lying. It’s not fine. It’s not easy. But it can be fun if you roll with it. I don’t think I’ve ever stopped fundraising and building relationships for the next round. And I found, which is not surprising, women investors move the fastest. They’re the most thorough in their diligence, but after the diligence is done, they move quickly and I’ve had the most strategic support from my female investors. No disrespect to the male investors on the cap table!

What is your plan for this round of funding? What will it be used for?

We raised $750,000 which is what enabled us to start building our pilot refinery. It should be completed in four months. We’re also going to hire some people because we’re a team of three and I’d like to sleep! And then we’re actively talking to leads for our next round, which will be a growth phase, buying more cocoa, listing more farmers into our exclusive model, and eventually building the larger scale refinery.

This pilot refinery is really to show that with very little cocoa, we can create a tremendous amount of financial value, not just for investors, but the impact this direct relationship with the producers can create in terms of community change. We want to show that we can really deliver on multiple sides of our business through the pilot refinery—show the margins—before we go out and raise a substantial round to build the big refinery for Inaru’s eventual global takeover [laughs]. Not takeover… global expansion into making food happy.

We’ve very excited for that! This nicely segues into our next question on your five-year plan and the future of Inaru.

We’re very interested in moving the same model over into coffee. We have the same, pretty much identical terms with the largest coffee cooperative in the Dominican Republic, but we’re not building that right now because we’re focusing on cacao. Then we can move into other industries that have their own idiosyncrasies and then eventually, past year five, expand what we’ve done into other countries.

Ecuador is a place we’re very passionate about, so we plan to expand across Latin America to provide that same value opportunity. And then of course, have more market share as the premium producer of agricultural goods. Basically, if we’re successful, people will reframe commodities as essential foundational goods, because food is not a commodity. You need salt, you need cacao, you need sugar. And because you need these things, they’re important. And because you need these things, they’re valuable. So the world needs to shift its mentality on that. And hopefully, in five years, Inaru is a global brand that has really started that transformation.