124 Mark Lewis, hunting for unicorns in regenerative agriculture and food

Mark Lewis, managing partner at Trailhead Capital, joins us to talk about promising companies that promote regenerative agriculture. Tune in to learn more about their regenerative practices and how they impact climate change.

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Where are we in this regenerative transition? How far are we gearing towards non-conventional and sustainable farming methodologies? Who are the “unicorns” or Elon Musks of regenerative food and agriculture? 

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Transcript

SPEAKER_00 0:00

Searching for the Elon Musk of Regenegg, a classic venture capital structure with a deep focus on regenerative agriculture and food, and why it makes sense to have both technology and consumer-focused products in the same fund. 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 Welcome to another episode today with Mark Lewis, Managing Partner at Trailhead Capital. Welcome, Mark. Thank you. Pleased to be here. Thanks for having me on. And to start with the question we always start with, how did you end up, first of all, Managing Partner at Trailhead Capital, but focusing on this investment piece of regenerative food and agriculture?

SPEAKER_01 1:38

I was born and raised in Denver. My father was in the oil and gas business, so in traditional fossil fuel energy. And I went to undergraduate studies in San Diego, got in with the wrong crowd, started reading Bill McKibben and Herman Daly and natural capitalism and decided the climate crisis might be worth paying attention to and that we probably should transition to renewable fuels. So started with a biodiesel company.

SPEAKER_00 2:05

How did that land with your father? I don't want to open any Pandora book. boxes. We didn't prep this question, but now I'm curious.

SPEAKER_01 2:11

It has been a 20-year debate, mostly friendly, sometimes heated, but thankfully the climate science has continued to come in my direction. How

SPEAKER_00 2:22

was last week for him? Or two weeks ago, sorry. We are recording this for a background. It's beginning of June, just after the Shell case, Exxon and Chevron. I think there was an interesting week.

SPEAKER_01 2:33

I think more and more folks in the oil patch are understanding that this transition is is inevitable. And a lot of those firms are now making investments. And actually some of them have more analysts on their renewable energy desk than they do on their oil and gas desk. So, and that's honestly, I think regenerative agriculture is where renewable energy was 10 or 15 years ago. And to me, it's the same.

SPEAKER_00 2:56

What makes you say that? I always keep saying that as well. Like we could learn so much from the renewable energy space, et cetera. But as you actually, let's go back to your story. You were in renewable energies. What was that feeling that you now see or you now recognize in terms of where we are in region ag and food?

SPEAKER_01 3:11

Partly, it's just that I think the big food and ag companies are now understanding the same thing that the fossil fuel companies are beginning to understand or understood 10 years ago, which is that they have some liabilities on their books and that they no longer have the social license to operate in the same way. And they have multiple stakeholders that they're accountable to. And you can point a pretty straight line to some of their activities and how that affects our planetary health and human health. And the way in which our food is grown is by and large contributing to the climate crisis and contributing to the human health crisis.

SPEAKER_00 3:50

Do you see like we're going to have cases like Shell? Is it going to take 10, 15 years or going to be quicker with large food companies or large agriculture companies?

SPEAKER_01 3:59

I think it's got to be quicker. I think, you know, the UN says this is the decisive decade. I don't think we have 15 years. And I think the information is more readily available. available and hopefully big food and ag are more on the ball than big oil and gas were and recognize, okay, we, if we're more proactive about this and don't always resist and instead kind of, you know, lead and they're, I mean, JBS has made a claim that they're investing a billion dollars toward, you know, climate smart, regenerative agriculture.

SPEAKER_00 4:31

JBS just for background, if people don't, it's, it's one of the largest, if not the largest meat producer processor in the world,

SPEAKER_01 4:39

basically. Yeah. General Mills is transitioning a million acres to organic and regenerative practices. Cargill just made a big announcement about transitioning, to begin with, 50,000 acres of corn and soybeans to regenerative organic practices with the help of the Rodale Institute, which is a partner of ours at Trailhead Capital as well. So I think they're getting out ahead of it, and I'm hopeful. I mean, that's kind of our, to cut to the punchline, I mean, our strategy is that our portfolio companies and our venture capital fund get acquired by big food and big ag companies who become you know more regenerative and you know shift into this new paradigm through acquisition and i think that's two three five ten years away at the most

SPEAKER_00 5:22

and do you see that acquisition is the most important piece or do you see standalone like breakout companies as well that can make it on their own with enough finance and funding etc etc but like the unicorn but not necessarily an exit to quote-unquote big evil food which of course some people will have questions about and we can ask questions about the impact and we know acquisitions go very well or very wrong there's not really a middle ground do you see that standalone scenario as an option as well and then we come back i promise people listening we come back to the story of biofuels where we left off this rabbit hole but do you see that standalone as an option as well as the sector is is very interesting from that perspective like there's space to build giants potentially

SPEAKER_01 6:06

absolutely we would be delighted if one or more of our portfolio companies IPO'd and went public and built the competitor to the established players. And I think that's very possible. And I kind of joke that we are fishing for the Elon Musk of regenerative agriculture. People forget Elon Musk didn't start Tesla, but he sort of took it to where it is today. And so, yes, absolutely. I think there are opportunities for food and agriculture companies to become hundreds of billions of dollars valuations in a relatively short time frame. So I'm hopeful that that happens as well.

SPEAKER_00 6:44

Okay, now let's go back to biofuels. You were going to the renewable energy space, ended up on biofuels, and then what happened?

SPEAKER_01 6:51

Yeah, so the first job was I was cold calling restaurants, asking them what they were doing with their used cooking oil, and we were trying to turn that into B20 and B100 biodiesel. We had a conversation with Suncor, which is the largest refinery here in Denver, and we did the math that if we gave them everything we had. Even if we had 100% market share of every restaurant in Colorado and gave them everything we had, it was going to be a B.2. So it was going to be 0.2% biodiesel blended with their petroleum diesel. So that's when I realized, okay, we've got to find something that's a little more scalable. I actually went back to my MBA in Boulder.

SPEAKER_00 7:27

Or open a lot of frying restaurants.

SPEAKER_01 7:31

Exactly. More deep frying. Exactly. And then, yeah, joined up with a group called GSSG Solar. So It was the old Global Special Situations Group that spun out of SunEdison. My family was the first investor in the GP. I then joined the team, helped to raise the first fund, raised a$46 million fund, ended up deploying all of that capital into Japan, which was not the original plan. But our timing was good. So Fukushima, obviously, was devastating to the country. They took down all of their nuclear power, which was roughly 20% of their electric load. put in place what's called a feed-in tariff, which is a subsidy for solar power. And we went in and actually purchased a couple of golf courses in the Fukushima Prefecture, where the country club members were no longer interested in playing golf in a radioactive zone. And we got grid interconnection and put solar panels on all the greens, fairways, tee boxes, assembled a 174-megawatt portfolio, sold that to the JP Morgan Infrastructure Fund for a great return for our LPs. So that was kind of my first win. in with my dad to say, hey, look, this is Boulder Hippies.

SPEAKER_00 8:42

Yeah, because your family office was the first investor. I mean, then he must have seen, oh, that's interesting.

SPEAKER_01 8:47

Yeah. And we were an LP in that fund. And that was, you know, I was able to say, you know, JP Morgan's getting in this game. This isn't just for Boulder Hippies. I mean, this is big business. So then, you know, kind of frankly had the realization that even if we turned to 100% renewable energy tomorrow globally, we still have a big problem of 416 parts per million of co2 in the atmosphere so

SPEAKER_00 9:11

do you still remember what triggered that realization was it a moment or a series of events

SPEAKER_01 9:18

i think i just kept reading bill mckibben just kept studying climate science which is a you can get into a dark place if you don't turn to hopeful solutions but yeah bill mckibben honestly is one of the bigger influences on me and his you know 350.org so you know for those who aren't familiar the sweet spot of human civilization for many, many, many millennia was about 280 parts per million. And that's the stable climate that allowed us to flourish. And we're now, you know, up above 400. So that's what's causing climate instability. And so that's where I started studying direct air capture, geoengineering, and ultimately landed on, wow, regenerative agriculture and sequestering carbon into soil is, you that a shot first before kind of quote unquote playing God. So convinced my family then to purchase a farm. So we bought what's now Lewis Family Farm in 2013, 354 acres of certified organic ground just east of DIA. So if you fly in and out of Denver to the east, we have two of the big green circles, you know, center pivots that you fly over there. First year spread 80 semi loads of composts with the soil biology. We've moved more towards perennial crops, intensive cover cropping, crop rotation, livestock integration, and all trying to build up soil organic matter. That's kind of been my objective out there is to prove that you can sequester carbon and potentially increase yield and or nutrient density of the crops grown in that soil. So our bread and butter is kind of alfalfa hay, certified organic alfalfa that we sell to local organic dairies And they pay us based on the relative feed quality, which is kind of an aggregate score of protein, carbohydrates, nutrients, minerals. So

SPEAKER_00 11:17

you

SPEAKER_01 11:17

get

SPEAKER_00 11:17

literally paid for quality.

SPEAKER_01 11:19

Exactly. And we've kind of been tracking. So as we've gone from roughly 1.3% soil organic matter on average to 2.5%, 3%, our relative feed quality has gone from 150, 180, 200. Last year, we had one cutting that was 252 RFQ. So Wow.

SPEAKER_00 11:38

And have you kept adding the organic material and compost or there was a one-time shot and then management or how has that been going?

SPEAKER_01 11:45

We've done a couple of compost applications, a couple of manure applications. There's some studies out that show that that has diminishing returns once you sort of get to a certain level. I mean, we've also done green manure where you, you know, like a Sudan grass, other cover crop mixes that we've just plowed in. Everything just trying to get more fibrous material for the bug life, the microbes, the bacteria, the fungi to feast on. We've made some mistakes for sure. And I wouldn't necessarily recommend my path to most folks, but it's been a journey and really rewarding when you actually do get a good harvest and just to have the reward of knowing that you've sequestered. We're in the Nori pilot program. So I think very highly of that group. And they, if you input all of our data, which I've done with the help of the team at Matt Agriculture into Comet Farm, we've sequestered several thousand metric tons of CO2 equivalent out at our little farm. So that's what gives me hope is that this is a scalable solution and it's a bit of a paradigm shift. But the opportunity across just the US of transitioning just corn and soybean acres to a different methodology of farming is very hopeful.

SPEAKER_00 13:03

So how, because you could have kept doing that buying more farms or working with more farms, raising maybe a fund to invest in farms and to, in that way, contribute to the transition of many more hectares and acres. But you decided not to do that or maybe to do that as well somewhere else. But in this case, you helped set up Trailhead Capital and focus on another piece of the region, food and ag ecosystem. Why and how did that come about?

SPEAKER_01 13:30

Yeah, great question. So concurrently, I've kind of been doing some early stage investing through our family investment vehicle. And I've kind of convinced myself over time that technology hasn't been particularly well applied to food and agriculture and started studying software, hardware, AI, machine learning opportunities in the space and ended up reconnecting with an old childhood family friend, Trip Wall, who had been speaking to Bobby Pels about kind of institutionalizing trail head capital, which Bobby had started in 2017 as essentially kind of the venture arm of his personal family office. And so the three of us and Pete Oberle joined up and formed a general partnership and said, let's go out and raise a proper fund and do this the old-fashioned way and get this to where it can be institutionally investable and apply, seek out seed in series A stage regenerative food and ag companies that we can very verify that soil health is paramount and that soil health results from the activity, you know, the products and services of these companies. And that's what we've been up to for the last year. So we have made our first three investments into Telesense, Vents, and HowGood.

SPEAKER_00 14:55

We had two out of three on the podcast. I will link them below for anybody. If you want to hear Ethan and Frank talk about Vents and HowGood. But walk us through those and how they connect to your investment. Sure.

SPEAKER_01 15:08

So the three investment verticals are on farm, post farm gate or sort of supply chain, and then consumer. So we're very methodically trying to invest across the entire supply chain of food and agriculture because our hope and our intention is that we build an ecosystem of portfolio companies that actually benefit one another. And we're already actually seeing that with a few of our investors. initial portfolio companies. So within the producer category or on farm, that would be, you know, vents would fall into that category. So I actually heard somebody, I don't know if Frank would approve of this, but somebody was saying, oh, vents, that's like a remote controlled cow. And it's not exactly right, but yeah, you essentially put a collar around the cow and you can control their movement through GPS coordinates.

SPEAKER_00 16:02

Instead of electric fencing, just be clear. It's not that people say, oh, but it's sad for, I mean it's animal welfare etc but in terms of electric shock they would get compared to touching their normal fence with their nose just to be clear it's also quite a step up from that and of course it unlocks an enormous amount of potential i had a very interesting discussion with frank on the commons but also the amount of land you can manage and the amount of wildlife that gets stuck in fencing at the moment like if you remove exactly thousands of hundreds of thousands of kilometers of fencing emerging barbed wire the amount of animals that gets stuck in there because we want to keep a cow into a certain place and grazing it not properly, let's be honest, there as well. It's quite mind-boggling if you start thinking about that.

SPEAKER_01 16:45

Well, and it's actually a Pavlovian signal. So the cows get several sound signals as they're approaching the virtual fence. And then, yeah, if you're wildlife and you don't have the collar around your neck, there's no fence there. So for wildlife corridors, I mean, one of our co-investors is the Nature Conservancy, and that's one of the reasons that they love it. And And yes, this is a, we think a gateway drug to convert many, many more ranchers to holistic management, multi paddock, you know, rotational intensive grazing methodologies, which mimics, you know, the predator prey relationship that built the topsoil in the first place.

SPEAKER_00 17:26

Yeah, let's, I mean, it's something to keep repeating. Almost every paddock you see, almost every cow or even ruminants in general, you see will be grazing, will be overgrazing. and understocked if you look at the land. It's very counterintuitive. Go deep into the science of grazing, you'll find a world to understand, but I can guarantee you almost any animal you see grazing, ruminant, is on a farm or is in a field and is overgrazing that field and is probably understocked. And that's missing an enormous, that's first of all damaging the climate and that's missing an enormous opportunity to restore soils and rebuild soils in a very different way and produce a lot more food because stock density can go way up if we do it well.

SPEAKER_01 18:05

Right. Yeah, one of our principles is follow the intelligence of nature. And back in the day, bison used to go in, you know, they would roam in herds of thousands, tens of thousands, tight bunches to protect themselves from predators. And yeah, you eat, they would eat a little bit of the grass.

SPEAKER_00 18:22

Anywhere, actually. Northern Africa was, I mean, the amount of deer that records show when the Romans went hunting there, like in a weekend, they shot 3,000 or something. And just to be able to have that means the number of animals we cannot even imagine were roaming. the different planes of this world. Fascinating. Okay. That's a, I can see the connection to soil region ag and tele-sense. It's much more on the food waste side, if I understand right.

SPEAKER_01 18:48

Right. So this is an internet of things, hardware device, a probe and an orb that you can actually stick into a grain bin or a barge of corn or wheat or soybeans. And it gives you real-time atmospherics data and actually uses artificial intelligence and machine learning to predict grain quality along the supply chain. And don't quote me on this, but something like 30% or a large percentage of food waste actually happened between harvest and processing. So just in the storage and transport of the raw commodity, there's times where soybeans between Brazil and China, you know, an entire barge goes rancid. And you think about all of the sunshine and water and labor and fertilizer

SPEAKER_00 19:34

and chemicals

SPEAKER_01 19:35

inputs. Yeah. So reducing that shrinkage is, we think, a regenerative play. And draw down Paul Hawkins' update now shows food waste as perhaps the greatest strategy to fighting climate change that we have and kind of low-hanging fruit, so to speak. So yeah, Telesense is actually an investment that my partner Bobby Pelz made back in 2018 in their Series A round, and he's contributing that at his cost basis into our funds So that's a nice little step up for our limited partners in the fund. And he was invited onto the advisory board, has helped source several of the largest clients or customers of the Telesense technology. And yeah, really excited about where that company is going. And then the third one is HowGood. And yeah, Ethan's been on the show multiple times. And so I don't need to rehash that one, but really exciting transparency and traceability for food ingredients to actually drill down into what are the greenhouse gases, the total water usage, the animal welfare components, the social welfare, farmer dignity components, and biodiversity. I mean, how do we start drilling down into, you know, it's essentially a life cycle assessment alternative in a way to understanding what are the, all of the environmental and social implications of a particular ingredient in a consumer packaged good, granola bar or oat milk or whatever it is.

SPEAKER_00 21:10

And so are those the three verticals? It's pretty nicely mapped. What are you missing in this space? I mean, there's so much happening. There seems so much hype around region ag and so et cetera, but you obviously are looking at many, many different deals. People listening, what are the gaps you see so far? What are things you would love to see? Because I understand you could probably not talk too much about the things you're currently seeing because you might be in some negotiation and we have to check in in six months or a year. But what are the things you would love to see over the next six months or would love to see people building and get to a Series A at some point?

SPEAKER_01 21:45

Great question. Well, the only vertical we haven't yet covered is the consumer vertical. Of

SPEAKER_00 21:49

course,

SPEAKER_01 21:50

yeah. But how good, I mean... Touches that for sure.

SPEAKER_00 21:53

It's not the consumer vertical, but when a consumer vertical, you mean much more literally get something into the house or into the home of consumers, of everyday people.

SPEAKER_01 22:03

That's right. Yep. And we have a partnership with the Rodale Institute who is the architect of, along with Patagonia and Dr. Bronner's of the regenerative organic certification scheme. And we're getting an early look at companies, you know, CPG companies that are attaining ROC, bronze, silver, gold.

SPEAKER_00 22:19

So you're going to literally invest in food companies. Is that very different from a technology company like Fence? I mean, it is, but do you see that fitting in the same fund and investment strategy?

SPEAKER_01 22:29

We do. And we are unusual in that sense, but we think that's part of the ecosystem play. We think is that it's important to actually have portfolio companies that touch the consumer. So hopefully we don't have to edit this out, but we're about to invest in Whiteleaf Provisions, which is a Demeter certified biodynamic.

SPEAKER_00 22:48

They were in the show as well. We had them on, I'm thinking December, but I might be wrong. I might be eating my words, but a few months ago.

SPEAKER_01 22:55

Yeah, Megan and Keith are doing an amazing job. And we think there's a really exciting future for that company. And they are really dedicated to soil health and rejection. practices and telling that story and communicating those benefits to the consumer. We think starting with the baby food category is a no brainer because we have a three and a half year old and a one and a half year old, and I'm much more militant about what I put in their bodies than what I do even in my own.

SPEAKER_00 23:24

I still remember Greg of Farmland LP saying organic milk is the gateway drug to anything else, because as soon as you start with that, with small children, babies, et cetera, then the rest follows because yeah it's it's really such a and i see it in in my environment as well it's such a life-changing moment and even if you were paying attention before suddenly you turn it up a notch when when you have to feed your children or your child

SPEAKER_01 23:51

yeah and there was here in the u.s there was a recent senate subcommittee report pointing out unsafe levels of heavy metals in baby foods and even several organic baby food brands and white leaf you know has tested well below those levels, largely because...

SPEAKER_00 24:08

Yeah, they get their major stuff in Europe, right? That's where the ingredients

SPEAKER_01 24:11

come from. Exactly. Yep. So they have pristine soils and practices. So, I mean, we think the enlightened consumer moving forward is going to pay more and more attention to make sure there's not lead and cadmium and arsenic in their baby food or any of their food. So we think Whiteleaf Provisions has a really exciting brand and competitive advantage moving forward. Their direct-to-consumers sales are up something like 1700% since that Senate subcommittee report came out.

SPEAKER_00 24:41

Which could also be that they started really small. But yeah, it's still an impressive number.

SPEAKER_01 24:45

They did start small. Yes. But we think that trajectory continues. And again, transparency and traceability. We just think more and more consumers are waking up to the notion that you are what you eat and you are what you eat eat. And your health is inextricably linked to what you eat. and there's room for improvement in the average American diet, that's for sure.

SPEAKER_00 25:12

And so to come back to the question of what do you miss, what are big spots? I mean, you've sort of covered, if you sign this one, all verticals or all pieces, but that doesn't mean you're done, obviously, because you're hoping to raise, I think, 50 million, 5-0, and that means quite a few investments. What is it that you're not seeing enough of?

SPEAKER_01 26:03

Yeah, we hope to get to 25 to 30 investments total. Honestly, the whole carbon... monitoring carbon monetization world is exciting. And I've been singing from that song sheet for many years, but it's now, you know, there's some of us that are a little concerned that now the policy and the markets might be getting a little bit ahead of the science. So I would love to see, I mean, there's some really exciting companies out there that are doing remote sensing and that are getting closer and closer to being able to point a sensor at some ground and get carbon reading from that. Same thing with nutrient density if and when we can have more instantaneous and really reliable data on here's the carbon content of this soil or here's the nutrient density of this kale

SPEAKER_00 26:50

coming back to your transparency question yeah no there's exciting stuff happening there for sure but it's for sure yeah it's i mean the carbon piece is definitely going up the hype cycle and i mean we've done a few interviews there but it's very overwhelming and there's a lot of promising and For sure, we're going to see some scandals. On the nutrient density, I mean, there simply isn't a lot. I was just on a call before here on a conference, actually, of Pierre Wheel and Bleu Blanqueur in France, doing their One Health conference, focusing a lot on inflammatory disease, COVID, and others, and the role of omega-3 and omega-6, and the role of animal health, and the role of soil. But it's interesting how little we talk about it. Of course, the denkitriches and the Bionutrient Food Association, but that's not an investable thing yet and there are others and there's a lot of things floating around it but the real core question what is this carrot what is that carrot is still it feels like we're earlier in that but I am convinced that in five years we'll have a very different discussion on this topic and it's definitely exciting I hope it still falls in your investment period or maybe it will be your second fund

SPEAKER_01 27:58

maybe that's fun too yeah exactly oh and also I mean I think the science around the rhizosphere and how the more we're learning now about how plant roots and mycorrhizal fungi and the microbial community all interact. And I think as that science continues to advance, hopefully there are some companies and technologies or biologically inoculated seeds or something along those lines that come from those scientific advancements as well. Because I think we're just starting to scratch the surface of how soil actually functions. And the more we understand that, I think the more we can move away from subsidizing the conventional activity and move toward actually incentivizing farmers to care for this oil.

SPEAKER_00 28:46

Yeah, it's quite shocking how little we know and how often now, especially in the last years, research comes out that completely shocks, let's say conventional or the general public. But then when you look at what Elaine Ingham was doing 15 years ago, I mean, a lot of it was already known, maybe not just in 15 peer reviewed papers, but it is really, it feels so early and so exciting. but it also means how we're going to build companies on that or how you're going to build something on it that actually contributes and not just some dead end or something we discover in two years that completely changes the direction of the mycorrhizal community and focus. So it's very exciting, but yeah, it's very tricky compared to the food brand space, et cetera. I mean, we know how biodynamic is functioning. We know how it's growing, et cetera. I mean, it's a very different beast, but not meaning it's less interesting.

SPEAKER_01 29:37

Right. Again, I mean, to go back to another analogy. I mean, most people thought the internal combustion engine was that was the apex. That was how mobility was going to happen. And now the lithium ion battery and electric vehicles make the internal combustion engine look antiquated.

SPEAKER_00 29:55

Oh, absolutely. We rented an electric car over the last weeks and a very simple Zoe. And then you go back to a petrol one and you really think, ah, yeah, that's why we didn't do this. This was a good reason. Like, ah, yeah, no, it makes a Right. But if there's an equivalent to the Tesla for,

SPEAKER_01 30:38

say, replacing synthetic nitrogen fertilizer, and we find something, whether it's Pivot Bio or Kula Bio or Nitricity or lots of exciting companies in the space that kind of can make the internal combustion engine look silly or make synthetic nitrogen fertilizer look really wasteful. And first thing we've got to do is start to price some of the externalities associated with that, which was, I mean, that was what I wrote my economic senior thesis on was we need a gasoline tax to price Thank you so much for joining us. the lithium ion battery equivalent of what's next. How else can you fix nitrogen and have plants thrive without all of the negative externalities?

SPEAKER_00 31:49

And do you see there a role, because I'm always interested, not necessarily worried, but you see the main, let's say proponents of a healthy soil, say at some point your soil is that healthy that you don't need, even like you've replaced the input, like, okay, it's artificial or it's chemical nitrogen. And now you're doing some kind of other solution that's maybe produced in a completely sustainable or let's say net zero way, but still you potentially have that impact on the soil, the negative impact on the soil is potentially risky. Or is there, should it always be in that path of transition? Like at some point in 10, 15, 20 years, depending on your soil, you don't need that amount of input anymore. You maybe need it every five years. Is that company sort of going to make itself obsolete? Is that your hope or how does that work? You don't want to replace the input dependency for another input, which is way more sustainable. I'm very happy for the carbon footprint of it, but it's still an input dependency.

SPEAKER_01 32:40

Great question. Huge, huge question. I think there is an argument for some of these companies working themselves out of future revenues. Again, getting back to a guy named Herman Daly wrote a book called Beyond Growth, and there are certain arguments for sure for what some people call a steady state economy.

SPEAKER_00 33:00

Until then, we have a lot of hectares to do and acres to do. I'm not saying it's a near-term problem, but it's an interesting thing to think about. think about like do you replace one input with something else

SPEAKER_01 33:11

exactly yeah no i have my eye on my the final part of my career might be exploring some post-capitalistic paradigms because i do come back to we live on a planet with finite natural resources and we have an economic system predicated on infinite growth

SPEAKER_00 33:26

yeah and what is a natural forest grows about what is it 3.6 or 3.7 i heard a quote somewhere percent a year and that's pretty much the maximal growth we potentially could do of course there's a lot of degraded land and degraded farm and underproductive, etc. But is there a plateau? Which is the same argument we always have on carbon. But it always plateaus very quickly. But also, we have a lot of space left in the bank to store carbon. It might plateau at some point, which is not necessarily a bad thing.

SPEAKER_01 33:52

So either innovation has to continue to outpace and use resources more and more efficiently, which is possible. And that's kind of the bet we're making with Trailhead. And I think that's a good bet for this moment in time, is to say there are major resource efficiency and improvements to be made, waste reductions to be made. But yeah, ultimately, does a truly regenerative future allow for the current manifestation of global markets and capitalism? I'm not sure.

SPEAKER_00 34:23

And returns.

SPEAKER_01 34:24

Yeah. Yeah. Well, in the near term, I mean, I think there's so much opportunity to just do things better. And there's so much waste and so much just bad subsidies. We're incentivizing the wrong behavior through our government act. And

SPEAKER_00 34:39

coming back to that point, maybe it's a different answer you want to give there. I always like to ask the question, if you had a magic wand and you could change one thing, what would that be in the icon food space? In your case, would that be the incentivization and pricing, true pricing, true cost accounting, et cetera, or would you have something completely different? Like, I don't know, change the taste buds of everyone and taste the real ingredients or something like that. Whatever you feel obviously appropriate here, what would be that one thing if you had a magic wand and that power?

SPEAKER_01 35:07

I think my My magic wand would probably be to price externalities and to stop subsidizing. The way in which our financing mechanisms and insurance mechanisms are designed around high input monocultures of largely corn and soybeans is infuriating. And if you just stopped, it's the same again, kind of going back to fossil fuels. I mean, we subsidized oil and gas and coal industries through taxpayer dollars for decades. And if, you know, I would get into all these debates with my dad and his buddies of, you know, solar and wind require subsidies and you need to be able to compete in the open market. I mean, the free market in the energy world and in the food and ag world isn't real. I mean, everything that the existing system is highly, highly subsidized. And I think if you, a lesson to be learned from the energy transition is, yes, you have to create a in tariffs and production tax credits and investment tax credits but also a huge first step is to just stop subsidizing the broken system

SPEAKER_00 36:17

which we haven't done in the fossil fuel and like we subsidize with a few billion here and there these new guys and girls without having the uncomfortable questions why are tens of billions every year probably hundreds of billions going towards the fossil fuel industry and that's still going on and they are still losing money at the moment because we so it's that uncomfortable question it was much easier to support something positive than to deal with the negative part and we should learn from that but it's not going to be an easy conversation unless we sue them probably

SPEAKER_01 37:02

well the other fun thing about food and agriculture is that unlike renewable energy or traditional energy it can be delicious and you can create community around it i mean that was one of the things i didn't love about being in the energy world is electrons are hard to build community around

SPEAKER_00 37:19

they do it with i mean the co-op movement obviously i mean especially renewable energy but then Yeah, it doesn't change. I mean, if I switch on this light bulb or the computer, it doesn't change a second. Just my feeling, if this is coming from a coal plant far away or from a solar panel on my roof. Yeah, you're absolutely right. It's a very different, that's why I'm very hopeful of impact consumers can have, especially when nutrient density starts becoming more transparent, et cetera, because it's delicious and potentially a lot better for you.

SPEAKER_01 37:47

We have the opportunity to break bread three times a day and build community and recognize that we feel better if we eat this food versus that food and our body and our mind and our spirit functions at a higher level. That's what I'm excited about with food and agriculture. And I think it can put as big of a dent, if not bigger, in the climate crisis as energy or the built environment or transportation. I mean, food and agriculture accounts for roughly a quarter of global greenhouse gas emissions. So it's a big piece of the pie to be So that's where we think there have been more advancements in the built environment, in the transportation sector, in the energy sector. We think it's time to shine a light on improving the greenhouse gas profile of the current global paradigm in food and agriculture.

SPEAKER_00 38:43

So why, with all due respect, such a small fund? Like why aiming for 50 million? And it's a question I always like to ask, what would happen if you have control over, let's say a billion, let's say a lot of money in terms of investment? thing is it because potentially investor interest is there not enough deal flow or not enough is there not enough quality deal flow is it a mix of things what is the reason i mean 50 million it's a lot of money it's absolutely not easy to raise it but it's also in terms of the grand scheme of things of the food and agriculture sector it's a drop in the bucket like it's very very small and i understand the acupuncture effect of a few investments very specific investments here and there what made you choose to not go for half a billion or or more? And then I'll ask the question, what would you do if you had access to that?

SPEAKER_01 39:28

Yeah. Our intention is to have over a billion of assets under management at Trailhead Capital in the next several years under various strategies. We think we will have a series of thematic funds centered around regenerative agriculture, but we're looking at fund two could be an infrastructure-based fund or a real asset fund or more growth equity strategy. But we thought long and hard about how do we come out of gates and you know we think we're in the first inning of regenerative agriculture so now is a good time to do seed in series a investing in place bets

SPEAKER_00 40:03

do you see that like is there a lot of deal flow in that space and do you have a lot of competition like is it because the hype is going people are starting to say all kinds of things about investing in this space we see that in the podcast obviously like do you have to work your way into deals or is it still okay ish to do

SPEAKER_01 40:20

yeah over the last nine months we've looked at four 481 distinct investment opportunities. Like

SPEAKER_00 40:27

just to be clear, US, Australia, mostly, right? That's your...

SPEAKER_01 40:31

US, Canada, Australia, and Israel are our four geographic focus areas here in fund one. So 400 plus is a lot. Yeah, I mean, so we think that's pretty good deal flow. And, you know, 126 of those sort of moved into the next stage of diligence. And 14 of those are in various stages of advanced due diligence. three investments made, two more committed. We feel like that's a pretty good filter and a healthy amount of deal flow and a healthy amount of opportunities that we're passing on. And yes, the best deals as in any...

SPEAKER_00 41:07

The valuations

SPEAKER_01 41:09

are... Yeah, valuations get out of control and or you have to prove to the entrepreneur and the company that they should take your check and not somebody else's. And we've been very fortunate thus far to have been invited into several of these rounds because of the perceived benefit of our network our subject matter expertise and we've actually been delighted that they've taken our investment and in some cases over some big name silicon valley shops because those groups are more generalists and don't have the on-farm experience don't have the network that we do in this particular sector and thematic area

SPEAKER_00 41:47

so what would you okay so i understand the logic of the 15 million if you get there obviously but at least the logic of of a number of tens of million investment fund and then potentially going to real estate real assets etc so what if tomorrow morning you wake up and you have that billion under management or 10 billion what would you focus on now as you have to invest it let's say over the next few years could be any range it could be that the time horizon is completely flexible the returns as well but they are investments what would be your top priority list of things to put money to work

SPEAKER_01 42:18

yeah i mean just to put a finishing note on the previous question i mean 50 million is goes pretty far when because our seed stage investments are only a couple hundred thousand dollars a piece series a stage investments are a couple million a piece so 50 million stretches across 25 to 30 investments which is statistically a good shot at having a couple of those you know be home runs that return the whole fund i mean that's kind of the venture capital game is

SPEAKER_00 42:46

so it's a classic relatively classic fund in that way right

SPEAKER_01 42:50

that's right yep 10 year fund life will be investing over the first three to four year two and 20 model. We kind of thought about getting creative with how do we innovate around that structure.

SPEAKER_00 43:01

Oh, I've had this conversation so many times and every time, not every time, often it comes back to let's not innovate on too many things. Regen ag and food is already quite a stretch for many investors. That's right.

SPEAKER_01 43:14

Yep. Yep. But yeah, if I had 10 billion tomorrow, I mean, I think, I don't know if I should just name specific companies, but I mean, I think,

SPEAKER_00 43:23

Whatever you feel comfortable, I don't want to put you in, but also it's pieces of the puzzle, places that you think that should really, could be even a small part, could be lobbying. I mean, feel free to open it up. I mean, some people see that as investments as well, and definitely we don't do that enough. Sure. But where would you put it?

SPEAKER_01 43:39

Oh, I think policy. I love the idea of, yeah, putting some of that to work in, as we've talked about, changing policy, stop incentivizing the bad activity and start putting, I mean, if we could put incentives, subsidies tax credits towards regenerative practices, pay farmers to cover crop, which actually is just now starting to happen here in the US, pay farmers to move toward no-till methodologies, pay farmers to recouple animals and use livestock integration with their cropping systems.

SPEAKER_00 44:14

Or set up like an activist hedge fund or something and try to do the same as is happening with some fossil fuel majors to change board seats, etc. It would be an interesting investment as well. But sorry, you were going to name companies I don't want to take you away from that if you have not changed your mind what would you do with 10 billion

SPEAKER_01 44:28

I think you could say let's recruit executives and leadership from other industries and put them to work in food and ag and say you know here's

SPEAKER_00 44:39

like the Theo mentorship but then for regenerative ag that's interesting

SPEAKER_01 44:44

yeah say here's you know put together a dream team fund it with hundreds of millions of dollars and say go solve this problem go solve the synthetic nitrogen fertilizer problem. Go solve the remote sensing carbon verification and measurement problem. Go solve the herbicide pesticide dependency problem. Throw a couple hundred million dollars at Dan Kittredge and advance the ball substantially on understanding nutrient density in our food. Throw money, I mean, this wouldn't be as much of an investment opportunity, but at the scientific community and at researchers who better understand the rhizosphere and how plants and the microbial community really interact and glean those insights. And I mean, from that, I think you for sure could see some startups come out of that new intellectual discovery. My hope is that we're just at the beginning stages of understanding how nature actually is interconnected in every way and how we can actually farm more resiliently and more profitably by harnessing those natural systems and those natural methodologies instead of trying to... We've bet on man outsmarting nature, which to a certain extent has worked remarkably well. But I think we're now understanding the negative side of that. And I'm excited to see where we can go as a society and a global community if we harness the intelligence of nature and begin to create products and services and markets and methodologies around that instead of trying to dominate nature.

SPEAKER_00 46:28

Yeah, I think we're starting to learn that nature is running a marathon and we are just sprinting and this is a long game we're playing. I think it's what is it 3.9 billion years of R&D that the biomimicry community keeps throwing at us and they're right. This is very different timescale we're playing on and we're just starting to understand obviously most indigenous tribes etc knew that and know that and knew that since forever and we just forgot it for sure

SPEAKER_01 46:56

some of this is we just need to rediscover from our ancestors for sure

SPEAKER_00 47:00

and it's a nice segue into my final question what do you believe to be true about regenerative agriculture that others don't like why are you contrarian definitely inspired by a question that john kemp always asks

SPEAKER_01 47:10

yeah i was about to just i think think another john kemp quote is nature doesn't make mistakes i was just about to say that as well i think it's all about healing i think regenerative means healing and we need to heal our bodies we need to heal our society and our institutions we need to heal our planet natural systems and to me soil is the only place where you can find all that healing in one place and i guess that's i mean i don't know if that's

SPEAKER_00 47:39

it's a perfect answer

SPEAKER_01 47:40

too contrarian

SPEAKER_00 47:41

oh i mean how can you be too contrarian. That's impossible.

SPEAKER_01 47:45

Yeah, that to me is why I'm dedicating myself to regenerative agriculture. I think we are in need of healing and soil uniquely can heal planetary health and human health in one fell swoop if we do it

SPEAKER_00 47:59

right. So that's the way I do it. Thank you so much, Mark, for your time. It's a perfect end of this interview. Probably not the last one we do. I'd love to check in to see the other investments you've made by then and of course to follow the fundraising. But thank you for now for your time and all the work you do

SPEAKER_01 48:15

yeah thank you my pleasure thanks for all that you're doing to advance the ball in regenerative agriculture as well

SPEAKER_00 48:20

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