5 Things You Need To Know About Financing Your Farm
By urbanagnews
December 11, 2019
By Chris Rawley, CEO of Harvest Returns
More producers are turning to indoor farming today to meet the demand for locally-grown produce, for its environmental benefits, and as a sustainable way to transform the food system. Building a new greenhouse or equipping a vertical farm can require significant amounts of capital. Indoor growers are faced with an agriculture finance system in the United States that is anything but innovative and hasn’t changed significantly in 50 years. USDA guaranteed loans and similar debt vehicles are optimized for land loans and operating agreements for row crop farmers, because that’s where the most significant amount of money is to be had for lenders.
Equity investments can be an alternative for indoor growers. According to PitchBook, about 15% of the $2.1 billion invested by Venture Capital firms in AgTech in 2018 was in indoor agriculture. That said, very few companies actually receive VC investments. Investments of a hundred million dollars or more like that in AppHarvest are the rare exception, not the rule. For a producer who needs to raise between say $200,000 to a few million dollars, the options are much more limited.
How to Finance your Farm
Here are five things indoor producers should know about financing their farm:
1. What’s your purpose?
The first step in any project is to ask yourself why you are doing this? Are you simply in it to make money? If investors understand that you have a vision that goes beyond yourself, they are more likely to trust you with their funds. Without a doubt, investors want to make a good decision based on the math and how it increases their returns, but more and more investors are putting their money into things they believe in. A mission driven opportunity shows that you are thoughtful, focused, and determined – all aspects of a good investment.
2. What’s your plan?
You need to develop a concise, articulate business plan or pitch deck that clearly explains how you will develop or expand your farm, and how investors will benefit from it if they trust you with their money. What is your exit strategy for investors in terms of time line and sources of liquidity? There are several resources online or consultants that can help you put together a professional business plan for your controlled environment agriculture project. In most cases, a 50 page business plan with appendices is not necessary, at least at this stage. A good start is a well-structured slide deck and maybe a one page offering summary. Investors are inundated with opportunities so its better to be short and memorable, then long and complex.
3. Build your team.
People invest in people, not just ideas, or projects, or companies. Investors want confidence that they are entrusting their money with a capable, trustworthy team who can successfully execute a plan. No one is an expert at everything. You may be able to make tomatoes grow on an iceberg, but if you or someone on your team doesn’t know the difference between a balance sheet and an income statement, you’re going to have a hard time running a successful company. So if you are lacking in farming skills, or accounting skills, or marketing skills, you need to surround yourself with people who make up for your shortfalls. A team doesn’t have to be partners or employees. It can be an advisory board, consultants, or contractors. But build a team and ensure your investors know about it.
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4. Understand and control your risks.
Above all, investors are afraid of losing their money. They want to understand the ways they could possibly get burned. Indoor farms face market risks, technology risks, and agronomy-related risks. It is crucial to identify, disclose, and explain the ways you are going to reduce the impact of these risks on investor returns.
5. Engage your network.
Before even thinking about approaching an equity funding source, be it a VC or a funding platform, you should run your plan by your internal network. Building a network of industry experts is important, and can be jump-started by attending any of the large number of agriculture or food related conferences. Share your idea and practice pitching it to your friends, family members, or business savvy colleagues. Have a short “elevator pitch” ready to go to talk enthusiastically for whomever you meet about how your new farm is going. Start building your network by attending industry events and conferences. Ask your contacts for honest feedback and referrals to people who may be looking into investing what are doing. Also, don’t be afraid to ask friends and family to take a chance on investing in your farm. Many great companies were started because of these types of early stage investments.
These five items apply to pretty much any type of agriculture business, including the increasing numbers of legal cannabis growers. A solid strategy is required to raise capital whether you are producing hemp or tomatoes and no matter what type of production method you are using.