QA webinar with Phil Taylor and Brandon Welch of the Perennial Fund and Mad Agriculture

The is the audio recording of the QA Webinar with Phil Taylor and Brandon Welch of the Perennial Fund and Mad Agriculture,  hosted by Koen van Seijen.

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Transcript

SPEAKER_01 0:00

You're going to listen to the audio recording of the Q&A webinar with Brendan Welch and Phil Taylor of the Perennial Fund and MAD Agriculture about transition finance and really partnering with farmers. For the full video, all the show notes and a lot more, go to investinginregenerativeagriculture.com and find the webinar tab. Enjoy. Music Welcome to another episode of In March last year, we launched our membership community to make it easy for fans to support our work. And so many of you have joined as a member. We've launched different types of benefits, exclusive content, Q&A webinars with former guests, Ask Me Anything sessions, plus so much more to come in the future. For more information on the different tiers, benefits and how to become a member, check gumroad.com slash investingbridge. an egg or find the link below. Thank you. A very warm welcome to this Q&A webinar with Phil and Brandon of Perennial Fund and Mad Agriculture. I think it's one of the episodes I've shared the most because you have been on a webinar before, but the episode we recorded with Benedict, Skin in the Game, Transition Finance, has been something that somehow came up so many times in different conversations with many people. And I always said, just listen to this, read the white paper, and something is happening there. And something has definitely been happening there. And so I was very happy to see, of course, the closure of your fund We're going to talk about that, but also just to check in, to see where you're at and to give the podcast community the chance to ask you questions and see what they can learn. What can we learn in other places around the world? Because you're very place and context specific, but my hunch is that we're going to see a lot of perennial fund like models around the world over the next years. And so I'm very much looking forward to that. I would love to start just with a brief. We're now in, I mean, apart from that, you have a food of snow, but just Just to give a bit of context, where you're at now, what does your days at the moment look like? We're at the 20th of April for anybody that's looking at this recording. What does a day in the life of a perennial fund at the moment look like? And where do we find you and what state of mind at the moment?

SPEAKER_06 2:41

I would say maybe some vital energy, a little frantic, you know, trying to just dig in and really do the work. We've been heads down, just delivering, finding farmers, underwriting, getting loans out, thinking about growth, we're hiring a couple of people and struggling to find, I think, a little bit of spaciousness to really think cognizantly about the next, you know, 24 hours and week and months. So we were

SPEAKER_05 3:09

just sitting down before this and sort of scrambling a little bit to even hop online. And I was like, my goodness, I'm not even sure what I'm going to say. You know what I mean? I just like just totally in the trenches. You know, there is spaciousness in the office at moments where I feel like the camaraderie and the harmonization of Our work has some really awesome moments that kind of pull us deeper into the cycle together. But day in and day out, it's a lot of turning the wheel and getting work done. I feel like we're already, you know, four months into the year and yeah, we're just in stride. That's a lot of the energy. It's just that in that stride mode, you know, I'm usually sort of, I ebb and flow personally through these more spacious moments and more dialed kind of concentrated moments of focus. And I'm in a focus mode. As the world wakes up out of COVID and as the spring comes to the Northern Hemisphere, I just feel myself awakening with the spring, you know, from the inside out. And I've started my almost daily Creek dips. I dip in Boulder Creek, a little bit of Wim Hof, a little bit of Kundalini yoga. And that has brought a lot of life back to my spirit. So I expect to see spaciousness in the future, but right now it's definitely hand over fist and getting the work done.

SPEAKER_01 4:25

And just to give a bit of context, When did, let's say, the official closing was of the 10 million and how many loans are already out of the door? What is that grinding the wheel? What does that mean at the moment? How many farmers have been touched?

SPEAKER_06 4:39

Yeah, good question. I think the official date was February 15th. So we had to kind of extend a couple times to just account for unforeseen documentation, people needing a little more time. But February 15th, we closed the fund at a full 10 million from 43 and investors, mostly US-based, but we have folks from seven different countries, Switzerland, Australia, Singapore, the Netherlands, England, all over. So it's been great to involve everyone. And yeah, we've gotten four loans out the door so far, a farm in Montana, and then three farms in Minnesota. So transitioning about 3,400 acres up in Montana this year, and then a potential for a couple thousand starting next season that they have kind of an options contract on. And then with the three farms in Minnesota, I think it totals about 800 to 850 acres that they're going to begin transitioning. So it's been really cool to dive in with these specific farmers. I'm not going to mention them by name yet until I have their full permission and such. I think we're going to see them on the news, et cetera, as well. Probably will, yeah. But they're highly diversified. They grow 10 to 15 different crops. They raise animals. They're highly integrated leaders in the movement, willing to share their learnings. And it's honestly just been a blast and a blessing getting to know them over the last few months in a deeper way as we've dug into the financials, created forecasted models for them, already started setting up crop contracts with a couple of them as well. So we're already starting to see kind of our system of change really move in and help them with financing, technical assistance, and markets. And we've even started bridging them community-wise. One was looking to buy some feed from a neighbor. They were just looking and asking us, you know, do you know where I can get some non-GMO feed? We connected them with one of our other farmers who were in the midst of underwriting. And now they're setting up a contract between one another. So we're already starting to see this community as well take shape. And that's, it's been really encouraging considering we only have four farmers in so far.

SPEAKER_01 6:50

And also interesting that they were relatively nearby. And do you see that as these, let's say, pioneering farmers which was a very deliberate choice of you to partner with them. I'm imagining, but it's just an imagination looking at, let's say, pioneering companies and startups, et cetera, that they have choice of where to get funding from. Is that the case, actually? That's the first hypothesis. And then second, why do they pick to work with you? Or aren't there too many options for pioneer farmers like these to go faster, to do more? And do they sort of naturally flow or come to you?

SPEAKER_06 7:23

Yeah, good question. These farmers in particular... I'd say two of them had a choice as to where they could go for financing. They had an array of options that they could have chosen from, but they really wanted to dive in with us for kind of the values alignment, our understanding of just we get what they're doing and we want the future to be regenerative and organic. And other bankers that they're surrounded by don't understand it. They don't necessarily want that. And they're only throwing money at the problem, whereas we're trying to surround them with much more. I'm trying to pull up a quote here, but I'll Internet's not working.

SPEAKER_05 7:58

It's been fascinating to sort of try to disrupt the conventional banking system. I mean, we've realized that in getting closer to that moment when you sign the dotted line on a loan agreement, when the community banks get involved, it's just the power between the borrower and the lender is so out of balance. The lender has all the control and they love to have that control. And so when push comes to shove, the farmer realizes that, you know, maybe my bank will fund me through organic transition And then when they really kind of push up against the bank, the bank's like, no way we're going to do this. And so someone that's been with them for often a generation or two in their bank as a banking partner is all of a sudden sort of not able to support them. And then that's where there's sort of almost like a pivotal shift, which can happen in a matter of days where it's like, my goodness, I realize I'm part of a system that I'm deeply mal-aligned with and the perennial funds here. And then what we've actually been doing is that that in some of those cases where the bank won't, you know, free up, they have a blanket lien on the farm. They won't free up any collateral. There's no partnership opportunity. We ended up just taking the entire operating line. So rather than just doing transitional acres, like we intended to do, we just take the entire operating note for the farm. And then that gives us, that gives the farmer full freedom, you know, to sort of partner with us and that kind of vision of expression of ag and transition. And it frees them from those bank obligations, which creates a lot of liberty. taking on more risk than we had imagined doing, but it's actually part of the fund and what we feel like needs to happen.

SPEAKER_06 9:32

And I've got a quote from one of the farmers that we just funded in Minnesota. He said, it's almost surreal that we finally found people like Matt Ag and your whole team that really gets what we do and want to further understand this process of regenerative organic direct consumer next generation farming. We are beyond excited to look at the opportunities that we have become available. We've had our heads down for 20 plus years doing what we knew it was right in our hearts, but nobody cared. Like I said the other day, the local bankers have thoughts for years. They just think this is a fad and that we'll eventually give up and go the way of everybody else. It's great to be in company with you all. Looking forward to the future. I

SPEAKER_01 10:08

see applause coming from Sarah.

SPEAKER_05 10:13

For us, those kind of testimonials are everything. We live in service to our conscience, the land, and the farmer. That's what we're in service to. When the farmer is coming back with that kind of feedback, it really reinforces our approach, our philosophy, the work that's happening. And frankly, it's inspiring, keeps me up doing the good work. So when we have testimonies like that, it's becoming a long list now, which is great.

SPEAKER_01 10:38

Which is good. And with that, I think I want to open it up to questions. Definitely put them in the chat if you have them. I'm going to give the word to Brian, actually, who was the one who sent a number of questions. But you can pick one to start, right? Otherwise, we're going to overwhelm Phil and Brendan. But you had a nice list. So if you pick one, which one would you fire at them?

SPEAKER_00 10:56

Maybe just quickly a little bit of background first. Originally from Iowa, Southeast Iowa. Have a small operation there, family farm, 600 acres, corn, soybeans, pigs. as the flavor of Iowa is, of course. Based in Switzerland now, lived and worked in agriculture my whole life, mostly working in the industry, especially in the input side, crop protection, fertilizer, soil amendments, so on and so forth. So from a very practical standpoint, as a landowner, as an input supplier, as somebody that's been in the traditional, conventional production systems, that, frankly, you guys are looking to disrupt or transition into organic systems, you know, a lot of things come up as questions of how feasible is this? How scalable is it? You know, certainly for a let's say a niche product or making some connections between a producer and a processor or even consumer, retailer, you can foresee, especially the pioneers, as Cohen said, that you can really find some pioneers and fast adopters and get started. But I think the way you guys talk, your ambitions are not limited to a niche business or a niche effort.

UNKNOWN 12:25

Yeah.

SPEAKER_00 12:26

So beyond all the success stories, beyond the initial traction, where do you see this long-term? I mean, how big a driver is this movement to organic farming?

SPEAKER_05 13:13

Great question. We know that organic farming is less than 1% on an acreage basis of the US. And so it is just sort of a blip and a drop in the bucket. However, it has double-digit year-on-year growth. And we feel like a chemical-free organic agriculture Thank you. in sort of a landslide shift over time. And so our focus is sort of trusting that grassroots theory of change where farmers look at other farmers across the fence line, they talk in cafes, and it's going to take a number of decades for us to really sort of create the seedbed for this revolution. But we feel like it's already afoot and there's a bit of a patience game with it. And I think it's hard to sort of show up and offer a solution to every farmer Right now, like you might find Precision Ag doing, there's a bunch of different kind of technological things coming out and input efficiency things. But if you're not kind of questioning and living from the deeper virtues and the desire around diversification and being aspirational, it's really difficult to change the system. So we typically focus, again, on these kind of pioneering farmers because our belief is that regenerative organic ag truly creates more financial and ecological wealth. It's a win-win for the pocketbook and for the environment. And if that is true and we can show it through farmer transformation, through science, through data, through storytelling, then that at the end of the day will win out, but it's going to take some time. I'm not sure if that answers your question, but it's sort of human approach that we take that requires a bit of patience for creating transformation at the system scale. Yeah. And

SPEAKER_06 15:21

I'd also say to build on that, though it's a really small market, I think if we can provide kind of the right community of change and system of change, to surround those who could be encouraged to change if we reduce the amount of friction that's currently there, whether that's access to the right markets, to financing, to just having a neighbor that's also doing it. We will hopefully be able to also grow the rate that the market is changing and the rate that consumers are able to access the right types of products, the rate that acres are able to make it too organic with less of a hurdle or a trough to go through. So So hopefully we can also encourage the market to start expanding significantly over the next five to 10 years.

SPEAKER_05 16:05

There's also a tremendous amount of frustration within the farm community, which is expressed in all sorts of interesting ways, whether it's deterioration of rural economy, whether it's big ag in your pocketbook, whether it's the lack of flexibility to grow what you want to grow, whether it's the inability to have livestock and crops integrated. The farm family desires something very different than what is. And I think with the farmers we work with, it takes a little while to sort of scrub that light bulb off and get to that more kind of like the heart of the matter, because it requires emotional tools, requires psychological tools, requires a really profound understanding of the self within the arc of like, you know, what it means to be in the Midwest. And our approach, which we call pathfinding, you know, after someone on boards to our capital, our markets or our kind of land and business planning, we anchor into this kind of deeper, more soulful story. story-based kind of relationship with the farmer where, you know, we know the matriarch and the patriarch and the kids and who's dying and who's getting married. And like we get texts from farmers. And what we learn is, is that there's kind of like a virtue in humanity that wants to be expressed in community and on the land that I feel like what we're offering provides a roadmap to. And that I think could be extraordinary in terms of creating rapid adoption. How we do that, I don't exactly know as we're trying, but for one thing, I know that it resonates and it resonates in a way that's more powerful than what's already out there. And so we're going to keep following that. Great. Maybe

SPEAKER_00 17:39

wouldn't mind a follow-up.

SPEAKER_01 17:42

Go ahead. And then we have a few other questions starting to come in through the chat, but we have time.

SPEAKER_00 17:47

So just maybe a adjacent question to that one. A lot of times when we're talking about the food system, especially there's a lot of negativity around that discussion, you know, it's broken Big egg is polluting this and that. Farmers are doing this wrong. It's always coming from the... This is my opinion now, but it's always coming from the producer's side. The producer needs to change. They need to produce more organic or more regenerative. And it's always... producer-first discussion. When the producers are selling into a market, obviously, and if there's demand in that market, then they'll respond to those demand signals, those price signals, whatever else. So where can the most leverage on the system be applied? Is it by changing producers and disrupting big ag? Or would it be better to work more on the demand side and get more Walmarts, more General Mills, more individual chefs and consumers to be promoting a different system.

SPEAKER_05 18:52

Well, I think Luke Smith's on this call, but he once told me I used to use the word levers of change and it's more like nodal points. You know what I mean? It's an ecosystem that requires catalytic change by hitting pieces. So it's not one thing to the exclusion of others. And so what we feel like are sort of the three big nodal points in the system are capital, community, and markets. And We try to hold those together in a holistic system of change. And I think markets, as you were talking about, is absolutely critical. We're building on our markets team now, hiring one, hopefully two people within the next two months to really try to work on that demand side. There's obviously an enormous number of brands and buyers, supplies shed intermediaries that are values aligned, but there's an extremely high friction between the folks that want to buy and where they can actually source from. Like last night, we were on a call with a farmer. It was the first time the farmer had ever actually met someone who might be buying their food and selling it for human consumption, right? Everything they've done since they can remember has been corn, beans, and alfalfa. And so these farmers we love dearly, it was like their first time getting to know a totally new opportunity in life. Like that's how disconnected the eater and the farmer is. And so, yeah, the demand side is huge. We say it around here. It's like, you know, some farmers need Twitter, some farmers need capital, some farmers need a land or business plan, but every farmer needs a market. And it is like the thing that's universal. And so we are doubling down on that as a team this year in hiring. We've got Tanner and Jane here working on the storytelling. We call mutually beneficial contracting with full transparency across the supply shed. I can keep going, but I'm going to resist so we can get to other questions.

SPEAKER_01 20:34

I want to first go to a second question or a question that came in on the chat of Danica, which is an interesting issue. She's working with a farmer that seems to be too far along. Basically, the problem... that people want to help the transition and have this beautiful before and after picture, which means before should be pretty bad and after should be pretty biodiverse, full of trees, et cetera, et cetera. I mean, we all know those. And you partner with the pioneers that are 20 years down the line already. Any advice, creative ways, retroactively reward a farmer? What's your response there?

SPEAKER_05 21:06

Yeah, a couple of thoughts. One, you know, I really like what Regen Network is. I'm not any big ecosystem service sort of markets person. It's the word services, utilities I think we've got to philosophically evolve beyond the whole thing. But a regen network is doing the idea of sort of selling aggregate ecosystem expression, right? Like selling, sort of monetizing the biodiversity, monetizing the carbon, the water, the wild and cultivated spaces, I think is a really holistic and kind of ambitious way of trying to capture the full economy of place. And so I think for someone that's well down the journey, the regen network, it looked like a coon might have popped off, but I'll keep going. You know, I think that there are things coming online. Soil Heroes is a great European outfit. Mioran and Gina and team who I think aspire to do something very similar. So it would support that. The other way is maybe a little less clear, but we're playing with it is I think a big piece of us is what is that community of change and practice? How do we look to the wisdom keepers, the elders that are already sort of, you know, blazing the trail, such a colonial word but that's what I mean, sort of out there in the front that we can invite to reach back into the movement and help. You know, for farmers that are already sort of fully organic and regenerative, we invite them as a part of our community to share with others and we can pay for that. And so, you know, I think there's a lot of ways to sort of monetarily reward those farmers. I think there's also ways to probably even more importantly, socially and culturally reward them. Many Many farmers that are on the front edge as a first mover or first kind of early adopter, they often feel really isolated because of their rural, they're geographically isolated, they're ideologically isolated. And so when they connect and find people in the movement, it's very, very rewarding to share those successes, those challenges. And so I think there's some social, financial, and cultural ways to reward them that are built around community and possibly around monetization. There's probably a

SPEAKER_02 23:28

bunch more, but those are the ones that come to mind. also matters to some extent if a farmer is struggling financially. Thank you so much for sharing some ideas. I'll let somebody else take the floor.

SPEAKER_05 23:54

I would add one last thing too. For farmers like that, I feel like they're the best farmers to pilot the Soils Heroes platform. You're going to monetize ecosystem value at the system scale. Let's work with those farmers where we know what's possible. I feel like that's one angle. I also feel like for farmers like that that have that story and have everything in place, they're also the best to start with finding premiums in the market spot. We work with farmers through Colorado where we're pretty selective about, okay, we want someone to grow dry beans. We have a buyer. We go to those farmers that we feel like need to be honored for their commitment and service and practice and stewardship. We use those market opportunities to flow more money back to the farm whenever possible. That market market demand side, you know, which Brian was also talking about, I think is a really high potential. And farmers aren't often, you know, there's so much to manage a farm ecosystem. It's very difficult to be an evangelical about your product in the marketplace. And they need help. And that's a lot of why we're building our markets program is to connect farmers to buyers and brands and brands to buyers and work on all those supply shed logistics, because that's outside of the farm gate and really really difficult to manage time-wise, know-how-wise, community-wise, and quite frankly, contracting-wise, right? Like it's hard to negotiate proper value for your crop. So we act as kind of a third party to do that. So those are some ways that the market thing can also be brought to bear for those lead farmers.

SPEAKER_01 25:50

Like you said, everybody needs a market. That's for sure.

SPEAKER_03 25:53

Yeah.

SPEAKER_01 25:54

And then moving to Cole Allen, how do you go about finding farmers? Is that like, do they find you or you find them Or is it a mix? What has been like these four or like the, let's say the pipeline that's happening now or the most successful ones, the ones that you end up underwriting. How did you, is there any general way if you find them or they all have a different story?

SPEAKER_06 26:15

Yeah, good question. So at first nobody knew about us. So we had to really hit the pavement and just cold call tons of people, like start building partnerships, started to, you know, I would just get on the organic integrity list, which every, you organic certified farmer has to publicly list a location of their farm, crops they grow, phone number, email. And I just started calling people and I was just getting people on the line, floating the idea by them, seeing if this seemed reasonable or if we were out of our minds, mad, thinking that transition financing was just too out there. A lot of people really liked the idea. So it started with the idea. Then it started, we found a few farmers who said that they'd be interested in using our financing. Once we had those few in and we really had those conversations, they started introducing us to a few of their friends, a few of their connections. From there, it's really just been a spider web of us continuing to try to build authentic relationships with partners, with farmers we think would be a good fit, and as well as word of mouth. I'd say word of mouth has so far been the biggest means of our growth channel of getting out there into the world. Now that We've kind of built some good partnerships, have great investors, have our first loans out. It's real. It's happening. It's not just an idea now. So it's been easier to reach out and say, we have financing for your farmers who are transitioning to organic. And we want to do that. We're not going to shy away like the community bank because finding those ways of finding farmers is really important because you can have, we could create the most useful product in the world, like the perfect transition financing mechanism. But if nobody knows about it, it's completely useless to actually integrating it into transitioning more acres. So I've been thinking in these two main domains of create the best transition financing package that we can that is the most useful to farmers, testing revenue shares, standard APR, term lengths. Is it a line of credit? Is it an operating loan? All of those nuances. And then at the same time, testing all of the different distribution channels, ways of getting this product in front of farmers. So that's, you know, referral programs, word of mouth, sending little postcards to farmers. I sent 6,000 postcards out to the Midwest recently, cold calling people, just trying it all to see what will stick because ultimately if our goal is to start moving billions of dollars into regenerative organic farmers' hands and to truly transform the food system, we're going to have to know what the best way of accessing the right types of farmers that would find this useful is. So we're testing that early on because, you know, we have ambitions of growing in 2022 and 2023 into this second vehicle of sorts. Hopefully that answers your

SPEAKER_01 29:13

question. We definitely want to know more about that, but let's continue to move with some questions. Thijs had one, or actually two, and the first one is actually answered. How do you find the farmers get on there? How do you get them to lift their head if they have been 20 years with their heads down working on their soil? But the second one is interesting as well. How did the investors respond when in some cases you take the full operating loan of the farmer and not just the transition piece or they don't know yet maybe they find out on this call

SPEAKER_06 29:40

yeah no good questions so the first one we haven't had to do much convincing you know it's been just really leading with I think wearing our heart on our sleeves and being super values first and just showing that this is the future we're trying to create and that's just inspired people who this is the right fit for to come along a side of us instead of trying to project what we think the future of their farm should look like. So like that farm that I read the quote from in Minnesota, when they saw it, they kind of knew they wanted it. And it was something that, you know, might have been kind of a cloud of maybe, you know, confusion as to why exactly they wanted to partner with us. But over the course of five, six, seven phone calls, it gets much easier to build trust to show that we are here for the long haul. We want to work with them until they retire we want to work with their kids i mean this is a partnership it's not just us giving them money and then to the second part of the question the

SPEAKER_01 30:38

investor part yeah how did they respond to the opportunity and the risk of taking over a full operating loan or the full financing basically of a farm and not just a transition piece which obviously was in the name like we're going to transition actors to or acres to xyz

SPEAKER_06 30:54

well though it is a little different than the initial intention we're responding to the market in real time our initial intention of going out and funding only transitional ground, funding just those transitional acres is a good idea. I think if we could find the right mechanism of convincing community banks consistently to work with us, but we have found it very hard to have them share risks. So whether that's with a document that we've been creating in partnership with Iroquois Valley Farms called an inter-creditor agreement, which is sharing collateral on a pro rata basis based on outstanding balance on the loan, which, you know, let's say we fund$200,000 and the local bank funds$800,000 on a million dollar loan, we would have rights to 20% of the collateral. Sounds totally reasonable. Sounds like we're sharing risk there. Not many banks are comfortable doing that, it seems, even after numerous conversations and trying to find the right mechanisms of just truly partnering with these farmers to help them transition. So instead of us basically, you know, having 10, 20 conversations to convince the bank anchor, their board, their CEO, all of the folks that need to say yes, go ahead for that to happen. It's much easier and much less friction for the farmer and for us to just finance all their organic acres, their transitional acres, and then conventional acres that are soon committed to beginning transition. Because at the end of the day, all of the farmers we're working with are committed to going 100% organic with soil health in mind. So that reduces the risk because then we're able to actually properly collateralize. We don't have to deal with other parties who could have, you know, aren't understanding exactly what we're shooting for here and how we're trying to help these farmers. And it just kind of cleans up the relationship management. But we are still pursuing opportunities of finding the right ways to partner with other banks. We just haven't been able to do it yet. And we probably just haven't found the right bank, haven't found the right mechanism. It

SPEAKER_01 32:56

doesn't reduce the amount of farmers you're going to be working with, like from the plan to... Does it reduce the amount of the number of farmers you can be working with, with the 10 million, basically? Potentially, you know,

SPEAKER_06 33:07

initially we came out saying we were going to fund 20 to 25 farmers. It's probably looking like more like the 15 to 20 type range, but it doesn't change a whole bunch because one assumption we had made was that farmers would only be servicing, let's say 20 to 30% on the loan that we were outlaying during transition to fund their loss during those transitional years. Many of these farms are actually able to service significantly more on the loan than we had anticipated. We have some farms that are going to pay us back in full every year from year one. Like we just gave out a loan to two of those farmers. We'll pay back the note in full this year and then we'll continue financing them because we've made a commitment to them for at least the next five years. And then hopefully, you know, we have the second structure set up as to where we can make a longer term commitment into the future. Introduce the amount of farmers at the same time. Yeah.

SPEAKER_05 34:01

And

SPEAKER_04 34:02

we've

SPEAKER_05 34:04

got, we're going to be able to revolve that capital that comes in the first couple of years back into financing. So we've got in a way more capital to work with, probably more acres to touch. Maybe the numbers of farmers goes down because it's a little more capital intensive,

SPEAKER_06 34:19

but yeah. And I'd say it also reduces the risk because, you know, we're able to put more capital, we're able to revolve more capital consistently. And then there's also a, there's more touch points with the farmers. You know, we're constantly receiving most of the loan back and then redistributing it again into the next season for them to continue funding, you know, their production costs. So it also just more touch points, more consistency. It'll just be a more active relationship of us being engaged, understanding what's happening on the farm instead of just touching those transitional acres, which, you know, would be a smaller portion of their operation. Now it's more of a, it's a deeper partnership at the whole farm level as well. So that's What's been really exciting for many farmers is, I mean, they're saying like, we want to work with you for the next 20 years.

SPEAKER_04 35:06

And

SPEAKER_05 35:07

that's great. The other thing it does is it opens up their entire farm for us to think about what to sell into the marketplace. You know, if you're just thinking about marketing transitional crops, it's usually not the time to try to be squeezing economics out of your farm. It's a time to reinvest. And so we can look to those organic acres and say, hey, what are you doing over here? What are you aspiring to? Let's work on a more full rotation because a lot of transition years in the Midwest is, you know, alfalfa with a nurse crop of oats. That's probably the best way to go if you've got an alfalfa market. And so it limits our creativity to really regenerate the land, which is diversity first. I mean, diversity and perenniality are the big perspectives and ways of regenerating. And we do that more effectively by having access to the entire farm ecosystem. So, you know, what felt like a hurdle has now become the massive opportunity that we're really excited about.

SPEAKER_01 36:01

You mentioned a couple of times in the 20 years and second vehicle, et cetera. What is in the thoughts there, if you want and are able to share, obviously? We're

SPEAKER_05 36:10

first going to get money back into the bank from our investments. So it is like just to calibrate the pace, we're still living, learning and deploying. But yeah, I don't know. Maybe we can speak to it a little bit. It's sort of just horizon gazing, but we realize the need, right? Like a fund might not be the best structure for long-term partnerships. And so I don't know, maybe you can speak at a high level around what we're thinking,

SPEAKER_06 36:34

but yeah, I'll try to keep it really short because we can talk about this for an hour. So there, you know, there are various vehicles that we're exploring because we're realizing the inherent limitations of a 10 year fund life, which is pretty, this is kind of, you know, cookie cutter standard, you know, easier to raise money around and, you know, say we'll have your money back by this time period. That doesn't match like the length of time that we're able to commit to alone doesn't match the underlying asset being a farm, which takes generations and is multi-decadal and is going to be there for hundreds of years. So we are intending to create something that's much longer term so we can make a longer term commitment to our farmers, make a 10, 15, 20 year commitment to our farmers and recycle capital more consistently without worrying about having to hold onto it. And let's say year four, five, and six to make distributions to our investors versus continuing to kind of retain those really strong relationships and farmers we've been able to bring in. So an evergreen fund might be a solution to that. Maybe it's a CDFI. We've also been kicking that idea around to access really low cost capital from the US government, which just gives money out these days. Or maybe it's some sort of another mechanism where we're kind of like a platform or a conduit for connecting, let's say, banking partners and individual investors. to farmers that are, you know, MAD certified or that we've done underwriting on and due diligence, and then we've brought onto the platform, and then we're just kind of the connecting point, and we take some sort of a vig on the top. Those are the leading ideas. It might be a bank. That's another idea we're throwing around, but the amount of regulation and permitting and the difficulty of actually getting, you know, certified in the U.S. is pretty burdensome. So we're trying to think through how to balance the relationships that we hold with our farmers, which is really common. of our moat and thing that is just non-displaceable with using modern technology, ability to get capital in the hands of farmers who need it. And then as well as align the length of capital to the values and virtues that these farmers want to embody in the way that they manage their farms. So there's these multiple factors that are all kind of dynamically competing for one another. And we are pretty agnostic as to how that turns out. Right now, we're just in full bore list to investors and to farmers to see what is the most useful and practical to creating enough inertia and getting this flywheel spinning to where we can help the market grow. We can help reduce the amount of friction. And every farmer who wants to transition to regenerative organic ag has the financing they need, the markets they need, and the technical assistance they need to do so. I

SPEAKER_01 39:23

think it's a topic we'll come back to over the next couple of years and see how it develops. Let's see as we're slowly getting close to the top of the hour if we can get through a few more questions. Willie Webb asked one or actually two on the buyer side, which we sort of covered, but then also something like how do the buyer contracts and offtake agreements fit in with crop insurance and other ways of reducing risk, guaranteeing income and offering a safety net? Is that something you have been exploring, touching upon?

SPEAKER_05 39:50

Yeah, just at the tip of discussing, you know, the crop insurance thing is tough. We know if you're growing corn and beans, you really need crop insurance. Price loss protection is kind of the American version of that. We encourage whole farm protection, but that also has its kind of hitches. And then once you get above growing six or seven things, usually you don't need insurance. From a statistical perspective, usually there's enough on-farm resilience that you actually don't need to purchase insurance. So right now we're kind of in this in-between where in some farms we're really insurance focused. They might be sort of still in the corn, bean, alfalfa system and taking their first steps into decommodifying with a specialty crop. And so we'll do that in a very calibrated, low acreage way. The way we de-risk that is by creating what we call a mutually beneficial contract where we have the buyer put money down with skin in the game on their commitment. So it's not a total loss, but we do have active gods in place for the farmer so that if they can't deliver, then that's okay as well. So we've been playing around with that quite a bit. Honestly, we're just growing into this space and I think we're gonna be learning a ton over the next year I'd be happy to report back on our learnings. But we're hiring two people right now to actually really tackle this area in full and deal with all these issues.

SPEAKER_01 41:09

And how do you find the buyers? A question from Willie as well. Do they find you? What's on the buyer side of this market?

SPEAKER_05 41:16

Yeah, again, just kind of coming in. It sort of fits and starts and nothing that organized. I mean, I think, you know, the work of TerraGenesis, the work of Regen, the work of HowGood, those are all sort of comrades in the movement that I'd And they've been, you know, I've been, I don't know, underneath their wing in many ways, sort of getting to know brands and buyers. And we've done our own work as well. Boulder here is kind of the epicenter of the natural food movement in the world. Well, I don't know if the world, but in USA. And so there are a lot of mission aligned brands here. Not a lot of big buyers. That's the problem. We can sort of sell a bag of beans for a good price to brands and also to institutional procurement. But to get that long contract, contract where you're selling 250,000 bushels of something is kind of new territory for us. We're going to need to figure that out because that's what the land base that we're working with is going to need to have as a market. And so we're just at the beginning. I know that there's a lot of energy within General Mills and Kellogg's and Pipeline Foods, Nature's Path, Cliff Bar. Everyone from those to Patagonia Provisions has ambition to push in this direction. And right now, as I said, there's an enormous amount of friction between those brands and the farmers that are actually growing. And that's where we really feel like we can step in and help in a variety of ways. So I think as you track our progress, Kuhn, and we're on the podcast, let's come back to these issues and kind of track our progress. Be happy to share with your community what's going on.

SPEAKER_01 42:47

And for the next one, actually, we're shifting gears a bit to the investor side. Like how did you find investors? And it connected to your first question, like how accessible was or is this fund? Is there a lot of regulation around it in the US to or things like this. This comes from Daniela Denis, who's operating in the Netherlands. Like how tricky was that? Or is that actually? Just Silverstrand.

SPEAKER_05 43:10

And I mean, I feel like a lot, I mean, we have a big shout out to Silverstrand. I mean, Silverstrand was our anchor investor. Calvin and his team, Patty and Chen, now Rachel, or they just in the best of ways put us through the ringer. You know, we're first time fund managers and, you know, their due diligence on us really improved our game and homecoming came Capital and Tin Shed out of Patagonia also came underneath their wing to support as lead investors. And just a huge shout out to them for living and learning with us over the two years. And I think Brandon can speak a lot more to how that kind of initial work led to a whole community of investors coming together.

SPEAKER_06 43:48

Yeah. I mean, initially meeting them was total happenstance. I just happened to have an email from Kelvin, had met him in person. We really got along. And as he was growing his team You know, we were starting the fund and we were kind of put through, like Phil was saying, like, you know, it felt like we were training for like fund Olympics or something. I mean, we were going for, you know, first time and they had really helped us dial in all the documents, PPM models, and really just started, they were pushing in the right spots to have us question our assumptions and then put specifics and rigor behind them to make sure that they were, you know, validated in some way. So that really prepped us to have a, what I think was a pretty good offering when we went to market to investors. It was during that time period, as we were creating that with Silverstrand by our side, it was just slowly, we had some investors reaching out. Every time they reached out at the beginning, I would ask, you know, do you have one other person in your network that you'd be willing to introduce me to? And then we slowly just started propagating just through word of mouth. And I think your podcast back in mid-2019, as we were kicking off, the idea was an incredible catalyst for the entire effort because we did not know any investors you know we knew a few but we didn't know the couple hundred that we know now even a year and a half two years ago so it's a lot of uh just community development and just really trying to bridge those gaps and talk with people

SPEAKER_01 45:18

and this investment daniel says uh says hi but this is not a not super accessible yet in terms of like it is just for high net worth individuals accredited investors in around the

SPEAKER_06 45:33

world, but predominantly the U.S.?

UNKNOWN 0:00

?

SPEAKER_06 45:59

folks who are not accredited will be able to access the fund. That was just another layer of complexity in a first fundraise that would have been over the top for us right now. But it is the ambition to allow anybody to participate.

SPEAKER_01 46:12

Yeah, that would be extremely interesting, I think, to Daniel as well. We're not going to get through all the questions, but I'm picking just one from Rosalie, because I think it could go down a rabbit hole. But what are your thoughts on the exhausting of the bubble.

SPEAKER_05 46:30

You mean just sort of... What

SPEAKER_01 46:32

do you mean, Rosalie? In general, the hype cycle we're going up and then we fall off the cliff again? What are your thoughts behind that question?

SPEAKER_07 46:40

Hi. Well, I'm thinking that you were just a little while ago talking about the big food companies and I'm thinking about like they use the word region to get the good feeling for or for everyone yeah

SPEAKER_05 47:02

yeah they set their own standards and live by them and yeah no it's that is I mean yeah exhausting is one word to describe it you know and And I think regenerative ag, I have two kind of competing feelings about it, right? Like I think in one light, regenerative ag in its truest essence is about aspiring to listen deeply to what the land wants us to be and asking the question of what does the indigeneity of this place require of us as humanity to aspire to? A very place-based understanding of the evolutionary and ecological expression of every unique place owner And that aspiration is so far away from what is that it's sometimes hard to even feel like we're moving the needle toward it. At the same time, I feel like regeneration is a process and not a destination. And so any step toward healing our relationship to ourself, to others, to any living thing and non-living thing is also a regenerative effort. And so I don't begrudge anyone in that process. And if that's a regenerative value, And so I sort of see regeneration as a word or a concept much bigger than any single paragraph, book or sentence or idea can hold. And, you know, the word is being exhausted and cheapened. But I think that it's a word that will that best describes where we are and the need to reimagine our relationship to Earth and others. And and so we're holding tenaciously on to it. And there's some great other people in the world who are doing it. that are also holding fiercely into it have actually been at this work much longer than I. I mean, I feel like as being fully cognizant of being a white male in Colorado in the front range, not too many generations in on colonializing, like we're a relic of that and in many ways perpetuating it. And so I feel like for me, as much as I aspire to what it is, I feel like I'm really entering every day with a beginner's mind and probably know as little as anyone else else about it. So I don't know. I'm just, I think humility and is kind of required the whole process. So I don't know. We have kind of a non-judgment thing here at MAD-AG. That's kind of a cheap way of saying it, but we really try to welcome all to the movement, but we end up being pretty specific about who we work with.

SPEAKER_07 49:31

Yeah. Sounds good. But I think at least for me, my fear is that the big food companies will use it to look good for us all when this word is getting more and more used and familiar to the general public and that's kind of like I can say we're working with so and so many farmers and we have so and so many acres and we're doing regenerative but are they really? I

SPEAKER_05 50:11

hear you I hear you. Yeah, I mean, regenerative ag has become kind of boiled in America, broadacre sense. Commodity sense, it's sort of like the five principles of soil health, you know, that the National Resource Conservation Service, quote, created, which has been popularized by Gabe Brown. Nothing against any of them, but that's sort of what it's boiled down to. And that is like just a piece of the regenerative

SPEAKER_01 50:36

paradigm.

SPEAKER_05 50:38

It's a starting point, yeah. So anyway, you're right. Rosalie, you're totally spot on. And let's hold to that word and paradigm tenaciously and hopefully call ourselves and everyone up to a more emergent way of being. I

SPEAKER_07 50:52

think it's great what you're doing. I'm looking forward to doing something similar in Sweden and Europe.

SPEAKER_01 51:02

Excellent. Thank you all so much. I want to make sure we stop on top of the hour more or less. Thank you so much for your time, calling in your questions, whatever time zone we're in. And thank you so much all for listening to the podcast, reaching out to me. I'm sorry if I'm not always responding. As fast as we used to, but we're growing fast and that's amazing to have, but it's also an issue sometimes. We'll definitely keep sharing content like this, webinars like this to try to connect the community around the podcast more and more. We have a lot of plans and you'll be hearing from us. But first of all, I want to thank Phil and Brandon for taking the time to share in a very, very busy time. So thank you so much. Have a great day all and we'll be in touch soon. Cool. Awesome. Thanks

SPEAKER_06 51:47

everyone.

SPEAKER_01 51:48

Thank you. Thank you so much and see you at the next podcast.