264 Sara Balawajder - Building Lukas Walton's impact first food and ag portfolio

A conversation with Sara Balawajder, Vice President of Builders Vision, who leads the impact first food and agriculture portfolio, about the opportunities of regenerative agriculture and food, and specifically nutrient density, and insurance, not health insurance, but farmers' insurance.

Lukas Walton, a grandson of Walmart founder Sam Walton, established Builders Vision as an umbrella for his philanthropic, investment and advocacy work in 2021. What does one of lealing impact investing and phylantripic platforms in the US, Lukas Walton of the Walmart founders' family, think about the opportunities of regenerative agriculture and food and specifically nutrient density? What would she love to invest in or grant to? What does she feel like is missing out there and what have they already been backing over the last years?

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The above references an opinion and is for information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

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https://www.freshventures.eu/

https://investinginregenerativeagriculture.com/2023/02/21/bart-van-der-zande-2/
https://investinginregenerativeagriculture.com/2024/03/22/chris-bloomfield-daniel-reisman/

https://foodhub.nl/en/opleidingen/your-path-forward-in-regenerative-food-and-agriculture/

Transcript

Speaker 1: 0:00

What is one of the leading impact investing and philanthropic platforms in the US, the Lucas Walton's of the Walmart founder's family. Think about the opportunities of regenerative agriculture and food and specifically nutrient density. What would she love to invest in or grant to? What does she feel like is missing out there and what have they already been backing over the last years? And we end up talking quite a bit about insurance not health insurance as well, but mostly farmer's insurance and joy. What are the connections between healthy farming practices, healthy soil, healthy produce, healthy gut and healthy people?

Speaker 1: 0:48

Welcome to a special series where we go deep into the relationship between regenerative agriculture, practices that build soil, health and the nutritional quality of the food we end up eating. We unpack the current state of science, the role of investments, businesses, nonprofits, entrepreneurs and more. We are very happy with the support of the Grandham Foundation for the protection of the environment for this series. The Grandham Foundation is a private foundation with a mission to protect and conserve the natural environment. Find out more on grandhamfoundationorg or in the links below. Welcome to another episode Today with Lukas Walton's Impact Platform, builders Vision and our guest of the day leads the Impact First Food and Ag portfolio. Welcome, sarah.

Speaker 2: 1:43

Thank you, it's great to be here.

Speaker 1: 1:45

And to start with a personal question, we always like to ask what made you end up focusing on food and agriculture as a sector and also Impact First but we'll get to that as well and going quite deep into regeneration, sustainability etc. In the food and agriculture space. Why Food and Ag?

Speaker 2: 2:05

Yeah, it's a great question. I always like to start off that I don't have a Food and Ag background, but I grew up in the Midwest, in Kansas City in the United States, surrounded by farmland, and grew up on a farm. But food has always been an important part of my life and passion. But I came to the sector from a finance first perspective, always working in institutional portfolio management, and over time really saw the potential for impact, investing to grow and scale financial products to move the market over time, and Food and Ag is no different from that. I'm very passionate about climate change and particularly see Food and Ag as one of the most important tenets of solving climate change from I'm sure we'll get into what those solutions actually can look like, but I fundamentally believe if we can't figure out a way to feed people sustainably, then nothing else really matters, and so that passion has really driven my work and dedication in this space.

Speaker 1: 3:04

And do you remember I don't know if there was a moment or a movie or a process over time, or a dinner or whatever when it hit you sort of that? Food and Ag is such an important lever and also underrepresented lever, let's say, in climate change and a lot of other sectors. Like how has that been? Because I think many people start in energy, rightfully so, when focusing on climate, and some move, or we see quite a movement now in the direction of Food and Ag. How did that happen for you?

Speaker 2: 3:37

Yeah, I think, if I really think back, it was when I read the book Omnivore's Dilemma when I was in college, and I think that was.

Speaker 1: 3:46

I'm laughing because it had such an impact on so many people. Like at the amount of time somebody, people, someone mentions that book. It's great. Sorry I interrupt.

Speaker 2: 3:55

Anyway, it's totally fair.

Speaker 1: 3:57

For a book of $20,. That's a life changing experience.

Speaker 2: 4:01

It is, I think, that planted an early seed, but it was much later that I actually started to do something about it professionally. We'll get into it. But my role at Builders Vision has shifted over time. I started as a generalist on the team but over time really started to gravitate the Food and Ag projects that we were working to fund. To me it's just so tangible and affects so many people that I was just really really drawn to our work at Builders Vision and just how pervasive the problem is and how it affects literally every single person on this planet, regardless of where you live and your economic status. I think that natural inclination has just really grown over time as I've gotten deeper and deeper into the sector, just really excited about the potential, particularly in regenerative agriculture, and the solutions it could provide for a lot of these massive, massive problems.

Speaker 1: 5:00

At Builders Vision. Actually, first of all, what is Builders Vision? Let's start with that. Also, has that grown as well from more? I mean, climate change is a big focus on the energy transition. Has that food came after that or next to it, or was it always been a mix of that? Let's unpack Builders.

Speaker 2: 5:17

Vision a bit. Yeah, happy to unpack that. As some may know, Builders Vision is Lucas Walton's impact platform. That platform has really grown and scaled over time.

Speaker 1: 5:30

Just one step back. Lucas Walton, you can Google him, but if you're not US focused, probably you don't know. It's the Walmart family.

Speaker 2: 5:37

Yes, the generation of Walmart family.

Speaker 1: 5:40

Lucas Food and Ag. There's a connection there. Yes, it's an easy retail connection, massive retail, but also very interesting. It's not the same generation, obviously, that started it. There's a legacy piece there as well.

Speaker 2: 5:55

Yes, but the environment has always been really important to the family and land stewardship. As Lucas started his impact platform, the first entity or group that he built out was S2G Ventures and it started with their Food and Ag portfolio. I think the starting year was 2014. I didn't join the organization in 2019, but really that was the nucleus for this impact platform of what it became today. Over time he has built out that platform with a team that has grown.

Speaker 2: 6:28

We now have over 100 people across the office allocating various types of capital to funding climate solutions in Food and Ag, renewable energy and oceans. We still have S2G Ventures, which sits on one side of the house. That's doing direct investing, mostly in venture series A and above. They now have dedicated funds in Food and Ag, renewable energy and oceans. There's a large asset management team that is managing a taxable portfolio, investing in funds across asset classes, looking for market rate returns and trying to invest for impact along our themes where they can.

Speaker 2: 7:04

But scale is often a challenge for them because they write pretty large commitments. On the other side of the office, which is where I sit, is our philanthropic team, where we have program officers who are giving out grant capital to those issue areas. There's a long legacy of funding both Food Access and Regenerative and Sustainable Food Ag grants. Then I sit on our philanthropic investment team and manage our impact first Food and Ag portfolio. But I also help manage our endowment and emerging fund manager program which are investing in fund managers across asset classes looking for market rate returns. But then everything we do is impact aligned and looking to grow and scale the impact investing community through investment product scale up.

Speaker 1: 7:52

When you look with that portfolio lens of the philanthropy, the blended finance, the impact and the market rate return seeking. When you look at the region, food and ag space, what do you see?

Speaker 2: 8:40

Endless opportunities is what I see. I think the beauty of our platform is that we have kind of maximum flexibility. As we find interesting opportunities, we can typically find a home for them from an impact perspective and a risk return investment perspective In the regenerative food and ag space. I think this is an area that we're leaning in really heavily and I think various parts of our office touch it.

Speaker 1: 9:04

Has it changed? Has it been maybe more sustainable ag and food and access you mentioned? And when has that region peace come into play? Has it always been there?

Speaker 2: 9:14

It's a great question. I feel like the region peace has come into more focus lately. I think the definition of what does regenerative actually mean has kind of called to question or sharpened our focus into regenerative as it has become more defined over time. But throughout the history of Builders Vision, dating back to 2014, sustainability has always been kind of core there and it started with funding organic.

Speaker 2: 9:44

We, s2g, was early funders into Clear Frontier, which is an organic land asset management platform run by Justin Brooks. We were the anchor investor in that fund that grew and expanded and now takes outside investments. And then S2G historically has invested a lot in ag refood tech with an eye towards sustainability. But I think, coming back to your original question, the hyper focus on regenerative agriculture has really come into a kind of keen attention of the group really within the last two years, as we've officially launched this impact first food and ag portfolio Because I think it's still really early days, but we see really exciting opportunity to be a first mover and a lot of these opportunities to help grow and scale investment opportunities to make them attractive to institutional investors, hopefully in the near term future.

Speaker 1: 10:36

And so you see endless opportunities. And how would you describe it like? Where you also say we're very early. What does that mean? As in have you seen it in other sectors? Maybe the energy access, maybe the colleagues that are working on renewable energy are 10 years ahead, or something like that? How does it feel like? Where are we in terms of, I think, in the hype cycle? A few things are definitely up in the hype cycle. Delivery still is lacking in many cases, but what do you see from the platform perspective there?

Speaker 2: 11:07

I do think the renewable energy sector is a great comparison. I think maybe 10 years, 15 years behind the renewable energy sector. I think about it in terms of kind of like institutional investor adoption. No one really questions the return profile of renewable energy at this point and you have very large institutional investors who are deploying mass amounts of capital into that sector. What we see in the regenerative ag space is potential to get there, but the opportunities are early. There's fund managers who are coming out and addressing opportunities, whether it's access to operating capital infrastructure. There's a lot of buzz around ag or food tech from a venture perspective and I think that's probably been one of the more first movers in the space of kind of institutional capital.

Speaker 1: 11:56

Have you made investments there and think of examples you can share.

Speaker 2: 12:00

I mean S2G for sure.

Speaker 1: 12:02

I mean, we've had Victor Friedberg, which I think just left at that point with FoodShot Global, but did talk about the portfolio and of course they have a massive portfolio in the food and ag space in general. But when you say venture style, what should we imagine?

Speaker 2: 12:17

Yeah, I first. Maybe it'd be helpful to explain what our investment thesis is for this impact first portfolio. So, because we have such a close working relationship with S2G, you won't see us invest directly into companies that S2G might invest in in the ag or food tech space. Our thesis is much more focused on what are the system frictions that are preventing the adoption of regenerative or sustainable practices today, and we're also in our pilot year or wrapping up our pilot year for our portfolio, and so we've identified a couple of sub sectors that we are really excited about and seeing some interesting opportunities in. Access to operating capital is one where we have made a couple of investments. We've invested in mad capital perennial fund. Two, we've invested in fractals farm funds.

Speaker 1: 13:05

I'm wrapping fractals coming up. I think an interview with Emma Fuller is out, I agree, and she will be out probably tomorrow. I mean, this recording is obviously, but when you're listening to this listener, wherever you are, in, whatever year that interview, you can find it somewhere on the list as well with fractal and mad capital or mad agriculture, with interviewed many times and we invested personally a small, very small ticket in mad capital as well. So shout out to the mad team, the broad mad team as well, with different fields at a mad capital team.

Speaker 2: 13:37

Yeah, we think really highly of both of them and think both attracting or attacking access to capital from an equity and a debt perspective is a really interesting way to get capital in the hands of farmers who are looking to transition their lands. So, in the access to operating space, we thought investing in funds was the best way to do that An area where we think a lot about fintech solutions and you won't see us investing in kind of your average run-of-the-mill fintech solution. But what are some of the unlocking technologies that lower the bar for entry for farmers looking to transition their lands? And so one of the few direct equity checks we wrote this year was into an emerging startup called Quick Organics, which is trying to digitize the organic certification process.

Speaker 2: 14:27

Today in the US, the certification process is completely analog, which is a huge pain of entry for farmers looking to transition their land, and so what we think Quick Organics is trying to do really increases the viability of farmers wanting to transition, and starting with certifiers who are acquiring their farmers to use this platform for the certification process. And how can we standardize the certification process? And so that's an example of where we will weave invested directly into accompanying with an equity check. And then the one other ag tech investment that we've made is we recently committed to Tenacious Ventures Fund too. We really love what Sarah and Matthew are doing and think that they provide a really unique perspective and really like the idea of learning from the Australian market because we think they're further along and the regenerative and sustainability practices in the US, and so how can we learn some lessons on the ground as they're investing in some very innovative companies that have an eye towards expanding to the US markets, where the US markets are really our primary focus for this portfolio?

Speaker 1: 15:37

Yeah, that would answer a geography question. How primarily US, with some exceptions, I'm hearing.

Speaker 2: 15:43

It's some exceptions, and the exceptions are when we can make a very clear argument for an international focus with an application to key learnings for the US markets.

Speaker 1: 15:54

Yeah, it makes a lot of sense. And then you said a few themes like access to capital or what are the other themes, as you're wrapping up this pilot year, that you focused on or maybe you didn't find things in it, at least at the beginning you were focusing on?

Speaker 2: 16:12

Yeah, there's a couple things that we're really excited about. That we're doing some landscape analysis on the missing middle of the food system is a huge one for us. We have made a couple investments there. One of them is 4P Foods, which is operating in the US and the Mid-Atlantic region, really serving as the aggregation and distribution framework for farmers looking to access either or B2B businesses and some government contracts. We really think highly of what Tom McDougal and his team are doing there. But now we're really looking at kind of really hardcore infrastructure investment whether that's what Mad Capital or Mad Markets is trying to achieve or some other players.

Speaker 2: 16:53

There seems to be this groundswell of activity around the missing middle of either existing processing facilities or building out new regional programs and thinking about what are scalable models that you can start to stamp out regionally and what are some of those key lessons learned from and what is the creative capital stack needed to make these financially viable. And then the other place that we intend to spend a lot of time in the next 12 months is insurance, and how do we either fund pilots or creative opportunities to either provide the data to the federal crop insurance program in the US that they need to alter the way they think about insurance providing in the US and I know Emma thinks a lot about this as well from FACTAL and then or partnering with private insurance providers to understand what do they need to develop new products that become applicable to farmers who are farming regeneratively or organically.

Speaker 1: 17:51

Yeah, but you can just do just on the insurance piece. Why is that so important? Just for people that are not deep into the insurance agriculture, insurance space in the US. Why is insurance such a it sounds boring, but essential piece to tackle?

Speaker 2: 18:07

Yeah, it's funny. It does sound boring, but once you learn what's wrong I become very passionate about it. So in the US, the federal crop insurance policy which basically props up or provides all crop insurance to conventional farmers today is not really applicable to farmers who are implementing regenerative, organic practices, because if you start to deviate slightly from whatever their ground rules are, you are seen as increasing your risk in your practices on farms and you are no longer a viable coverage for the federal crop insurance practice.

Speaker 1: 18:42

And so to ask farmers to Huge disincentive, disincentive, it's a huge disincentive.

Speaker 2: 18:48

Yeah, you're asking farmers who are looking to transition to expose themselves to huge, huge amounts of risk, and we see that as a huge system friction for convincing farmers that they should be transitioning their practices. We ask a lot of our farmers already and then to ask them to take on a huge financial risk on top of just all everyday risk is a huge barrier to entry that we want to try to solve for.

Speaker 1: 19:12

And you think the data piece there because it's interesting, of course, that it's perceived as more risky, while we are all working to make the growing practices less risky and you think, like you've identified data as being a potential lever or potential key that could unlock the federal government to start shifting there, like what's the path to change? We all agree it should change, but what's the path to change?

Speaker 2: 19:38

I think we definitely need data to convince the federal crop insurance policy to shift, they have to pay out less if they would cover this Exactly.

Speaker 2: 19:46

It's actually we're lowering the risk by implementing these practices and then, I think, also providing the data for private insurance to provide their own products as well, and I think there's an openness to the farming community to acquire or achieve private insurance today just excessively expensive because the data doesn't exist to prove out what we all kind of already know, that this practice is actually lower the risk profile. On farm.

Speaker 1: 20:17

And then the last one. Sorry, I interrupted you before you went there. Anyway, we had to talk about insurance.

Speaker 2: 20:21

Yes, insurance. And then the last one or there's a couple, there's two actually. One is how do we work with the brands and CPGs for guaranteed offtake and thinking about premium pricing. And so we're thinking about what are some pilots that we can find? It's really how do you get the brands to the table and who's going to ultimately pay for this at the end of the day? And then the last one is we think a lot about alternative revenue streams that are also additional to sustainability practices on farm. So is that agroforestry, is that carbon credits or nature based solution credits? And then this one's a little bit off the beaten path, but Lucas is personally interested in agriboltaics. Not sure that the market's ready for it yet, but it's something that we're always kind of testing market readiness for as well. And in combines two of our focus areas in FoodMag and Renewable Energy.

Speaker 1: 21:15

Yeah, no, definitely. And then how does, if you look at it at all of course you partly are, otherwise we wouldn't be talking in this series about it the nutrient density or the quality discussion and the connection to management practices or farming practices. How does that fit into your framework?

Speaker 2: 21:34

It's a great question I'm glad you asked, because our impact first portfolio actually has two theses. Most relevant for today's conversation is our returner of ag focus, but the second part, where we unfortunately haven't spent as much time in this pilot year, is on the access to nutrition piece, and we're really focused on how do you democratize access to nutrition, particularly for underserved communities in the US and for us. We think there's a strong flywheel effect that really is founded in this concept of nutrient density, and so we haven't cracked the nut at all right now, but definitely think there's a strong interconnectedness between on farm production with end consumption by consumers, and today there's just a just a total lack of data around on farm production and nutrient density. I think there's a couple of really exciting companies, like Adatius, who are trying to prove that connection, and then, of course, there's a lot of data needed and the food is medicine space to prove that you can fix metabolic diseases with nutrition, which we fundamentally believe to be true, but we are trying to find opportunities in support of that evidence.

Speaker 1: 22:52

And so what are you missing there? What would you love to see from that angle? Like, what would things be? Projects, companies, proposals that would move that and see a gender along with move that conversation from? We all like to see it and it's not happening to us actually starting to happen, like what is a roadmap or what are paths to to action there.

Speaker 2: 23:16

I think data is a huge missing component today. But I think the theoretical question of who's going to pay at the end of the day is a huge problem that I don't have a good answer for yet. I think on the production side of who's going to pay premium offtake, we can't keep squeezing margins on the farmer side and ask them to take on all this risk for them to be squeezed on. And then there's affordability questions on the consumption side of how do you increase access to affordable, nutrient dense food In the US. That's a massive problem and historically has been subsidized either by federal programs or philanthropy. But I think the challenge is finding investable opportunities in this space. So I don't have a great answer for you yet. Is there the answer?

Speaker 1: 24:03

again insurance or like a different type one, like is that like? How do you? I think that seems to be the challenge how do you the massive societal we've seen some examples we've interviewed quite a few people on this from, I think, freshrx in Oklahoma and some other early signs of massive savings if you provide people with, especially people that cannot afford it and especially people with certain disease types, with fresh, healthy, soil grown food. But how do you capture some of that societal benefit and actually reward the people that run the program and potentially the investors that made it possible? Like insurance keeps singing around but also it's not seen anybody make like take steps with that, or maybe it's just too easy to say, oh, it should be insurance and then somehow we don't get anywhere. What do you think when else are pockets of money or where else are health costs now really growing and maybe some of that is accessible for the food space, like some of it could be gone to the farmer. What do you see as pathways?

Speaker 2: 25:10

I do think it's insurance at the end of the day, or at least that's the first step in trying to solve this system. Change that needs to happen in the food system.

Speaker 1: 25:21

What's holding it back?

Speaker 2: 25:23

Sorry.

Speaker 1: 25:23

What's holding it back? I think I felt like I feel like we and many other people have been saying this for a long time.

Speaker 2: 25:31

I know. To me what we're hearing is a lack of data again, and so I think either trying to get private providers or Medicaid and Medicare in the US the necessary data they need. I think with metabolic disease in the US we've seen a lot of trials around diabetes and heart conditions, also like mothers in postnatal care, and I think the challenge the best trials that we've seen have actually had continuous glucose monitoring attached to it, or like what is the actual physical data and how do you get these patients to provide the data is a huge challenge Because at the end of the day, it's behavior change, but then there's also very clear medical data that's attached to that behavior change and not all of these pilots provide that, and you have to be able to directly link cost savings to providers to that data, and so I don't know. I don't have a great answer from there, absolutely.

Speaker 1: 26:40

So what is different now, like compared to five or 10 years ago? Do you see? Maybe some of the technology, maybe it's easier now to get some of this data because we have a cell phone everywhere or it's easy. Have you seen even a shift in interest, maybe, in running trials and running double blind studies around these things? Compared, I feel like the bubble is growing, let's say, in terms of interest for this and also research. And have you seen that as well from the inside?

Speaker 2: 27:08

We are seeing definitely a growing interest in the space. S2g has also spent a lot of time there, for much further along than we are, and looking at it from an investment perspective, in the US there's a White House initiative that is looking to form coalitions between investors and providers and solution providers in this space, and so I think we're just getting smarter, the industry is getting smarter in this space and there's more interesting solutions out there, because you need food providers, you need kind of, you need patient oversight, you need customers to sign up for these programs at the end of the day, and then you need the kind of the data collection piece of it as well, which we're seeing more data collection in the space. But what's not totally clear to me is like how much data is needed for that shift to happen and when will it be enough and when will we know it's enough? I'm not sure when we'll reach that tipping point.

Speaker 1: 28:07

Yeah, because the risk is and I think we've seen that with many systems change pieces. I think in renewable energy, like it's always like okay, we need a bit more research to show that 100% renewable could be possible with XYZ. Or we need a bit more research to show electric vehicles, like when is it enough, to when is it no longer, let's say, delaying, but actually going into action? And we only know, of course, looking back, because it's not something in advance, but I just do. You think it will unlock? I'm not saying itself because it seems like it's going by itself, but the next five years will be very different from the last five in this space, or is it a 10 year thing?

Speaker 2: 30:08

I hope there's lots of progress in the next five years. I think, particularly in the US, we're also kind of beholden to the politics around it too, and currently we have an administration who's open to providing that government support to it. But of course we have a big election next year, and that could definitely shift the federal policy towards a lot of these issues, and so I think there's definitely a ground swell from the investor community. But the investor community ultimately has to work in concert with the federal policies in place, and so that is a major challenge that I think would delay progress here and what would your main message be to investors listening to this?

Speaker 1: 30:50

Let's say, I would like to say, let's imagine we do it live in a theater, we're on stage and of course, they learned a lot. But if you want them to remember one thing, if there's one seed that you would like to plant on this, what would be that?

Speaker 2: 31:06

Of course we're not giving investment advice, but one thing you would like them to take away from the evening Take you up to be patient, I think, both on the production side and also on the consumption side, to have major system shifts in the food sector. Patience is really necessary and I think that's where it becomes really interesting, of where you have venture dollars coming into the space who have to have pretty quick returns and they kind of hop into it.

Speaker 2: 31:35

Patience is not really a virtue of the venture community, and so I think that's at times at odds with the natural cadence of the sector, and so my takeaway or my advice not investment advice, which is general advice in the space is patience is important.

Speaker 1: 31:54

Hold your breath, yeah, yeah. In general, let's say when you are among your peers in the investment world or sort of philanthropy world, or let's say the larger impact, investing space, and you talk about regenerative agriculture and food.

Speaker 1: 32:13

where are you different? Where are you contrarian? This question is definitely inspired by John Kempf, who always asks us about agriculture and goes way deeper into ag than we will ever go here. But where do you think different compared to others that don't believe? What do you think the belief to be true about Regen, ag and food that others don't?

Speaker 2: 32:32

It's a great question.

Speaker 2: 32:34

Again, coming back to this concept of what is the right type of capital to fund some of these solutions, I think not only you have to have patience, but you also have to have flexibility.

Speaker 2: 32:46

There's not a one size fits all solution to all of the issue areas that need to be addressed through investment dollars.

Speaker 2: 32:55

And so flexibility whether it's the type of capital you're providing, whether it's equity or debt, your time horizon that flexibility is really important.

Speaker 2: 33:04

I think you can ultimately receive pretty generous returns over time. But having that open mindset I think is really important to investing in this space. And then I don't know if this is contrarian to people who actually have already bought into regenerative agriculture, but I think for people who are conventional real assets investors, Regenerative AG ultimately can lead to better profit margins for farmers at the end of the day, and I think we need to shift the mindset away from yield generation to profit generation to get farmers to adopt these sustainability practices. I think those of us who have spent time in the space fundamentally understand that regenerative practices can lower your input costs, lower your risk, stabilize yield and we're working on getting premium off takeover time. But I think that's ultimately surprising to people who don't spend a lot of time in regenerative and have farmed conventionally and own kind of real asset exposure, real conventional farmland exposure, that regenerative production really provides win-win solutions for investors and definitely for producers at the end of the day.

Speaker 1: 34:21

And so what do you say? Let's say you're at a dinner party and somebody asks maybe more, let's say from the conventional paradigm, as Ethan Sullivan likes to say, or the current and ask about this region staff. I've heard the hype, or I've heard something. What is it? Or what is I'm asking for, fred, because we get this question very often. What do you normally say if somebody on your right or left at a dinner party asks that question or ask what you're working on, and you say region, and they are like what do you mean? That's all hype, right?

Speaker 2: 34:53

I'm smiling because I feel like in broader circles I always say sustainable ag practices because people are like what's region?

Speaker 2: 35:01

But for this audience, happy to go into detail about what I mean when I say region, of course there's not a one size all definition today of what regenerative means. When I'm trying to simplify it for people who are not familiar with the space, I start with what the practices are, or I guess the second part is what the practices are. I think typically we think of no till, we think about crop rotation and lowering kind of inputs in the space, but I think overall I like to start off with describing it as a win-win, really elegant climate solution opportunity where we're generating the soil, making it more sustainable to farm longer term, where soil has been totally degraded over time. But it's also a massive carbon sequestration opportunity and so I don't know, maybe I run in some weird circles, but we often talk about what's the best carbon sequestration plan. People are really excited about direct air capture. I'm like why are you spending billions of dollars on direct air capture when we have a very easy solution that doesn't require massive?

Speaker 1: 36:10

technological risk. It's not a shiny machine, sarah. Yes, that's the problem.

Speaker 2: 36:15

Exactly, and so how do you engage with?

Speaker 1: 36:17

that, because that's, I think, an issue and challenge many people have. Like if it says, yeah, we wouldn't say, when people have your hard success in strategies, to engage with a crowd like that.

Speaker 2: 36:31

I feel like that crowd often just gets swept up in what's the sexy new hard technology, and it takes just reminding them of what are the actual implementable solutions we have today that are actually far lower costs, and so I think people who are passionate about carbon sequestration are open to that conversation, but maybe have lost sight or have been blinded by what's really attractive or sexy in the carbon markets today and so provide the-.

Speaker 1: 37:04

So what do you do? You ask them what's your price per ton, and then compare that to-. Exactly. And then what's their capital how far do they go down?

Speaker 2: 37:11

Yeah, Price per ton, and then what's your cap X? And they're like well, I have something better for you, although I mean soil carbon MRV is still a huge question mark for us, and so that's where I start to lose the argument a little bit of. We're working on it, but we don't have the precise answer for you today. But why not take the win-win solution that's ultimately lower cost for implementing those practices?

Speaker 1: 37:37

Yeah, even if it's a percentage of what we now see, and you get all the other benefits. So it's sort of the we had somebody on Marcel from the Berg who made the same argument on the cooling potential of, let's say, large scale regenerative practices applied on a landscape scale or on a watershed scale, et cetera, which is part of our water cycle series, and this is a lot of the science suggests that this is possible and it is possible. But even if it's not, it's sort of the least regret option you can choose, because you get all the other benefits regardless, which we know, and you might get the cooling and even if you don't, you don't have to believe in that now to actually, as an insurance company or large institutional player, to go deep on to this, because you get all the other ones. It's the least regret option we have and I think it's a very nice frame, especially for institutional players that don't like to have regrets.

Speaker 1: 38:32

Yeah, and I think it's the same in this, even if it's 20% or 50%. Or look at all the other potential benefits and let's say, direct air capture or any other technology. Simply, if it doesn't work, it doesn't work. And that was sort of it with your billions and your steel. So yeah, but I find it very difficult to not convince, but to break through that wall of techno optimism in some cases.

Speaker 2: 38:59

Totally. And at the end of the day, if you're not solving for the carbon emissions of agriculture, which is one of the largest contributors to carbon, you can keep installing all the direct air capture contraptions you want, but you're not actually mitigating the problem at the end of the day. So yeah, we are totally aligned on that, yeah, but it's the dense of and so much it would do.

Speaker 1: 39:22

Actually, it's a bridge to the billion dollar question I like to ask, which in this case, is relatively appropriate but what would you do if you had that? We usually like to ask the question of a billion dollars could be a lot more. Let's say, when resources are not necessarily the problem financial resources, how would you? I'm not looking for exact dollar amounts, I'm not looking for allocations and I'm looking what would you prioritize? And you're just wrapping up your first year, which is great timing what do you prioritize in terms of? Okay, I would first look at this, I would as an investment approach, it could be extremely long term. But if you had to put a billion dollars to work, let's say in the second year, with all the lessons you've learned, what would you do?

Speaker 2: 40:03

So it's a fun question to think about and, hilariously, this is actually a case study of ours when we were hiring people for our team.

Speaker 1: 40:11

So I'm very glad for sure. Yeah, great question. This is the globe of mind thinking like, anyway.

Speaker 2: 40:20

So I think a blended approach is really important here for seeing system level change, and I think we've covered a lot of it already and I definitely won't give you exact dollar amounts. But I think it's a combination of investing in land from an asset management perspective, because that is kind of an eye towards institutional investor, with the stipulation that we want to keep farmers farming their own land, and so coming up with a creative solution there, rather than kind of the historical play of acquisition and getting an operating partner on that. That is not what I'm advocating for. I think access to operating capital at scale is hugely important, and so it's a blend of debt in there as well. And then I think this question of infrastructure is another huge opportunity that you could easily spend well over a billion dollars investing in today.

Speaker 2: 41:14

And then I think there's some really interesting private equity plays out there as well, with existing processing facilities and operating partners who either don't have succession planning in place or not operating their facilities at peak production today. But you could do some really interesting private equity kind of roll up or capital efficiency investing that I think there's opportunities there as well. And then the last piece that I think would be really interesting to allocate capital to, and we are. So maybe I'm just telling you what my strategy, reiterating what our strategy is is funding interesting pilot programs with some of the large brands and CPG players.

Speaker 1: 41:56

I would have looked like as in what would be what's an example? Or, if it's not concrete, yet a theoretical example, without naming names. But what should we imagine? It's?

Speaker 2: 42:07

a great question. So we've seen a couple examples of it. But could you come up with the blended capital stack of say I don't want to name names because I don't know how confidential these things are but some form a brand, that's in the dairy space or almonds or specialty crop, who want to add regenerative product to their supply chain and want to work with incentivized growers to transition their practices, and so maybe they're willing to pay premium offtake for it. So that's one kind of lever of unlock. But they need debt financing to provide operating capital to those farmers to train to implement those practices, whether it's cover crops.

Speaker 2: 42:49

They're not going to do they're not going to pay for it. Whether it's cover crops or pollinators, even equipment like no till drills are expensive. All of the above. Could you be the capital provider and form a partnership with you name it brand. Who's already willing to guarantee the offtake?

Speaker 1: 43:10

But only if you hit certain quality requirements and certain impact goals and at scale and certain quantities. I can imagine certain times otherwise.

Speaker 2: 43:20

So by taking that approach you've kind of guaranteed the hardest part of it to get farmers over the hurdle on, and so it seems really easy to provide that capital but we know it's not.

Speaker 2: 43:33

We know it's not, but in theory it sounds really easy. And then of course that goes hand in hand with like is there processing facilities available to process and distribute for that guaranteed offtake? So I guess one of my main takeaways for that billion dollar hypothetical portfolio is the challenge with the food system is everything has to work in concert together and there is this delicate dance of sequencing and so it's very hard to only invest in one piece of that food system where all of them kind of have to work together and there's a chicken or the egg challenge. And so I always like to challenge my peers or anyone else. Kind of thinking about investing in this space is you have to think really holistically about this and you can't just tackle one piece of it If you have that flexibility of an investor or you need to work with partners who know who could fill the capital gaps elsewhere.

Speaker 1: 44:52

And would a similar approach or similar way of thinking actually also work in in nutrition density? We've seen a lot of excitement and sort of went away around impact bonds, which weren't really bonds, but let's say outcome based payment schemes in, I think, the prison system, in. We've seen them in distance we call it here to the labor market in the Netherlands and many other places, and I know some tonic investors actually have invested in a few, I think in the UK as well. And food seems to be an ideal one as well, where somebody runs the program and we've had some of the podcasts and some others. Somebody, like a local government has the savings but doesn't want to put it like we'll have the savings but doesn't want to put it in the program up front and somebody else measures and somebody else actually provides that capital to the risk, that capital, and gets rewarded for that.

Speaker 1: 45:42

Let's not be, let's not like, have you seen it? It seems such a logical one for food and nutrition. Have you seen proposals, examples? I would love to talk to them. I'm asking for the podcast. Like, have you seen anything, any movement around these outcome based schemes where the risk is taken by an investor, the program is run by the program and some other body is paying for results, but only for results.

Speaker 2: 46:08

I think I haven't seen a ton of examples of it yet, but again, we're still very early in this space yeah, we need to start.

Speaker 2: 46:18

The place where I've seen it the most often is the food is medicine space. So you have some form of nucleus organization that is working with patients with some metabolic disease and an investor who's willing to pay or provide some form of financing for the food and operations of the study. And then there's an insurance provider who's kind of sitting on the sidelines or also willing to invest in the program to see what data outcomes happen, and so the combination of those players and of course the kind of the nuclear organization is also measuring all of the data and outcomes as well. And then there's some philanthropic capital that might be sprinkled in there to subsidize some of the costs too. That's really the only concrete example that comes to mind immediately.

Speaker 2: 47:14

I don't know if you've seen anything else. No, I haven't.

Speaker 1: 47:17

We discussed it a bit with Aaron Martin of Fresh Acts in Oklahoma that it would make so much sense and potentially make it scalable as well. But she hinted that she was working on it or thinking about it. But so far I haven't seen it yet and I know some people here in Europe are playing with the idea to sort of unlock the chicken and egg, like to show at reasonable scale could be a few hundred, a few thousand patients or people in general suffering and then maybe get to the insurance level or get to some local, municipality or regional level, that sort of starts adopting this because it's clear that the savings are there. But until we get there, this could be a relatively cheap way to get to the data and even still have a lot of results and not wait for the next five to 10 years. But if you haven't seen it, probably there hasn't been a ton in at least the US, otherwise it would have come across your desk.

Speaker 2: 48:15

Yeah, we've seen a couple of them, but it's really hard to blend that capital stack and a lot of those kind of intermediaries between providers and menu planning and patients are venture backed. And so the question becomes why aren't the venture companies paying for these outcome information and why are we subsidizing either with impact first capital or philanthropic capital? Because ultimately the venture companies benefit from the successful outcome of the study at the end of the day. So yeah, we've seen a couple of them, but we haven't really moved on anything yet.

Speaker 1: 48:54

Too bad. And as a final question, I would like to ask if you had a magic wand and you could change one thing overnight, what would that be?

Speaker 2: 49:03

That is a great question.

Speaker 1: 49:05

Are you also asking that in your job interview process?

Speaker 2: 49:09

Yeah, I should.

Speaker 2: 49:10

I really should start asking that in our job interview question. I think this might be a cop out answer, given kind of what our strategy is, but if I could wave a magic wand, it'd be figuring out how to lower the bar for farmers looking to transition their practices to regenerative. Again, we asked so much of our farmers at the end of the day, and they are so integral to our food system. They are our food system, they are the starting point of our food system, and without them we couldn't feed the global population, and so, now that we're putting this pressure on them to transition, we have to find win-win solutions that put farmers first and also put soil health first. And so how do we provide that necessary downside protection for them that they need to get comfortable transition? How do you provide that carrot or that upside for them, as well as a lot of what we think about. And so there's no silver bullet here, but we're trying to figure out how do we pull all these levers to make that easier for them to say yes to transition.

Speaker 1: 50:21

And when you look at the wrapping up this first part of the year, what's your biggest surprise?

Speaker 2: 50:29

I have been really surprised at how collaborative the sector is, and maybe it's because I come from the traditional finance space, which is a bit more competitive, which is known for being super Some fur palbals yeah. I've been really heartened by how collaborative investors, solution providers, farmers, philanthropists in the space are, because I think we're all trying to roll in the same direction and work on solutions together. Time is of the essence. I think that's what I've been really taken back by and really pleasantly surprised by.

Speaker 1: 51:08

Yeah, it's very interesting to see even investors giving up allocations for others to step in and things like it, which is sort of ignorant. It's not a feature, but it happens more often in the impact investing space in general because it means you can do something else with a piece of the allocation. But yeah, in the extreme end of the financial first investment world, that would never happen, because why would you ever even consider. So that's a fascinating point, and so what would be? I mean, you're in the midst of figuring out what the next years look like. What's the thing you are doing most differently, let's say, from this pilot here. I don't know if you can say already, I don't know if you're in there, this is what we learned and now we're going to do this. But what's a big shift or what is a shift?

Speaker 2: 51:59

I don't think there's any major strategy shift. It's continuing to landscape some of those emerging trends that we're interested in. They're not emerging to the industry but emerging to us. So, shifting away from things that we feel like we have done justice to with our funding and really starting to focus on some of the areas that we find are going to be super challenging but really important to lean into, and so, for us, I think, really focusing on the missing middle and this insurance piece of it, we have some early indications of what we might find, but we also think we might have to build some solutions to at the end of the day, and so just trying to figure out that fundamental understanding and then also figure out who else is interested in funding alongside of us will be an important piece of it, because we very much acknowledge that we cannot fund this alone and the shift for these subsectors and is important for the overall sector, and so we're hopefully we're confident that others would be interested in funding this alongside us.

Speaker 1: 52:59

And is there any wish or vision to go beyond the US? I mean Australia, but with a very clear focus of bringing it, or learning and bringing it to the US. Is there any? I mean, there's enough to do, let's say, but any, any vision to go beyond?

Speaker 2: 53:17

It's a really fair question, I feel. I think the natural response is we feel like there's enough to do in the US right now and we're just barely scratching the surface. And so, because this sector is so relationship based and we feel like we need boots on the ground, we're going to focus on the US for the time being, but acknowledging that there's major ripple effects and implications and the need to transition much more broadly than the US are our expertise and just geographic location. The US is kind of our obvious place for deploying capital for the time being.

Speaker 1: 53:56

Yeah, that makes a lot of sense. Let's focus and not go global immediately and all of those things. And so now I want to thank you so much for your time and, of course, the work you do and coming on here to share about that and also agreeing on as we're in such an early space in neutral density, we're all to come on and talk about it, even though it's not that you have a full fledged portfolio in it and we have a lot of deals under our belt and things like that. But it really helps to shape what we miss, what we would like to see and how to move this space forward. So, thank you.

Speaker 2: 54:34

Of course. Yeah, it's a space that we have a lot to learn in, but really excited to dig in and find new opportunities and to fund. So thank you for having me.

Speaker 1: 54:55

Thank you so much for listening all the way to the end. For the show notes and links we discussed in this episode, check out our website investing in RegenerativeEgrCulturecom. Forward slash posts. If you liked this episode, why not share it with a friend or give us a rating on Apple Podcasts? That really helps. Thanks again and see you next time.