157 Dan Miller on the crucial role of locally owned processing in regenerative agriculture

A check in interview with Dan Miller, founder of Steward, to talk about creating a sustainable, equitable, and profitable system that supports regenerative practices. 
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What has happened in the regen ag movement in the last 18 months of COVID, where the big centralized agriculture and food system have shown to be super fragile? What is needed to build a decentralized system—how do we finance and invest in that?

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Transcript

SPEAKER_00: 0:01

This is a check-in interview with Dan Miller, the founder of Steward, the crowdfunding platform specifically made for regenerative farmers. With Dan, we talk about what has happened in the regen ag movement in the last 18 months of COVID, where the big centralized ag and food system showed to be super fragile. What is needed to build a decentralized system and how do we finance that and how do we invest in that? Disclaimer, we're a small investor in Steward. 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 or find the link below. Thank you. Welcome to another interview, this time a check-in interview with Dan, the founder of Stuart. Last time we interviewed him, we were right in the middle of the beginning of the pandemic in, I think it was May 2020. So I'm very happy to have him back and to be able to ask everything around how to get the crowd, how to get a lot of people active as an investor in the regenerative agriculture revolution and evolution. So welcome back, Dan. Glad to be back. It feels like years ago, but it's not. It's only 18 months, but still a that has happened in that block of time. Of course, I will link the previous interview recorded below, but if you had to introduce yourself for a sentence or two and also what Steward does and is for all the people that didn't listen to the previous interview.

SPEAKER_01: 2:14

Sure. Steward's a platform to provide financing to regenerative farms. The financing raised online through our platform, so it's really about bringing new funders into regenerative agriculture and providing alternative funding that's aligned for the needs of those farmers and ranchers. My background prior to Stuart. I was a co-founder of Fundrise, which is the first and largest real estate crowdfunding platform. So I've spent 10 plus years now building platforms to raise alternative capital online, go into the crowd, letting individuals participate in funding, and particularly for regenerative ag because of the narrative and I think the social and cultural importance of the work. I find the best funders not to be institutions that always second guess themselves and want lots of data, but to be people who believe in this work and are willing to step forward to support the producers that are doing it well.

SPEAKER_00: 3:02

And what has, I mean, apart from growing, I'm imagining growing, but let's unpack that. What has changed in the last 18 months?

SPEAKER_01: 3:09

I mean, we last talked to the beginning of the pandemic. I think that really set a new trajectory for regenerative agriculture. Prior to the pandemic, it was a niche topic. People were interested in it, but it wasn't a broad base. But the pandemic led to the supply chain shutdowns, like a boom of local purchasing from farms. And I think a realization that the centralized industrial ag system was not resilient enough and did not support what was needed in a time of crisis. And so a lot of people started looking at regenerative ag and regional food systems and building regional infrastructure to support those types of farms. From our end, it's led to a boom in funders and people trying to support these projects. On the farmer side, there still were people joining regenerative agriculture. I don't know if it's necessarily led to a boom in them entering the market, but it's definitely led to more viability, more purchasing, bigger markets. And I think the state is now set for the long-term growth of regenerative agriculture and its growth to a point where it's actually competing in terms of volume and size with the broader agricultural market. It's still a tiny part of the market, but it's where the growth is and I believe where the opportunity is. And ecologically, it's where it has to be because you have to use the resources that you have available.

SPEAKER_00: 4:24

And have you seen, because we all, I think, saw the boom in the regional food systems during the first lockdowns or pandemic phases, and then And have you seen from like the producers you finance and work with that it dropped off or a good quantity of that state? Like, has it been like a good growth phase as well? Of course, a super rocky ride because it was a roller coaster, but has it been a net positive also on the amount of sales or has it disappeared again a bit when things opened up? And of course, where it then entered other lockdowns, et cetera. But how has been that ride for many producers?

SPEAKER_01: 4:58

It was a rocky road. I think March, April 2020 was just remarkable people were getting calls from customers who hadn't bought in five years you know trying to buy out everything the farmer had so that was just a huge increase in demand which the farmers tried to sustain but ultimately it's hard to sustain that type of demand without the right infrastructure without the right labor so then it kind of dropped down and I would say now it's equalized to kind of ongoing long-term demand but not that the crazy kind of panic buying that existed during that period but it has give farmers now the confidence to invest more in equipment, infrastructure, labor to scale their business because they know the markets are there. They know the demand is there, but they need some capital to scale that up.

SPEAKER_00: 5:41

And that means they might be reaching out to Stuart to get it financed. Have you seen an uptick as well in terms of maybe even sizes if they go to processing, et cetera? Obviously, it can be quite a bit of money. Has the platform processed more individual loans? I mean, I see a lot of emails coming in regularly, but it seems to be on the up also on the finance side through the platform?

SPEAKER_01: 6:03

We're definitely doing more loans. We're doing a few loans a week now. Most of our loans sell out in minutes to hours. Any loans of a few hundred thousand dollars or less sell out generally within an hour or two. We're now raising money for a loan that's$1.5 million, where that'll probably take a month or something like that. So we're seeing the loan size take up. We're seeing demand take up. The biggest change we've seen is now the demand for food systems infrastructure. So for shared processing, shared distribution. So for For a lot of these producers, livestock being a great example, the processing is available for the enormous producers, but for the small to midsize ranchers, there's not distributed processing facilities. So we're working with a handful of networks of livestock growers to finance modular processing facilities with equipment that's designed for that type of use that will give them control over processing and end markets. And then they often end up aggregating a brand under that same type of facility too, so they can all sell together. So we're seeing the like decentralized farmer networks aggregate and they need a certain amount of infrastructure to take that next step together. And now they're just building it themselves. And it works very well for us because we started by funding producers. Now we can fund the infrastructure that helps them get it to market. And the USDA and public policy in response, I believe, to the pandemic has seen the need for small scale processing. And there's a lot of grant money and kind of loan guarantee money that's now flying in. So we happen to be, I would say, at the beginning of a transformation, I think, in the kind of agricultural value-added processing infrastructure in the US and around the world, because producers want control over the supply chains. They don't want to just have large monopoly companies control processing and exclude their access.

SPEAKER_00: 7:48

And the fact that there's like all this attention for that now, I think the Biden administration made a number of announcements, of course, focused on the US. Does it mean that it is easy for these groups to find the financing or do they end up most ended up either through Stuart or friends and family. Are the banks ready to finance these things now, or talk is cheap and actually doing it is difficult?

SPEAKER_01: 8:11

Talk is cheap. The banks are not ready to finance these things, even with incentives like loan guarantees. They're just complicated deals to understand. You have a size of infrastructure they're not used to. You have networks of small-scale producers aggregating, so they're non-credit. There are a lot of scrappy operations coming together. You have a pretty big capital cost. Most of these facilities are you know, 5 million plus in reality to build the infrastructure and build the equipment and have some working capital. It's a few million dollars. So that requires a decent amount of equity, a decent amount of debt. So, you know, a little bit of grant money is not going to get you there. All we do is specialize in financing regenerative farmers and ranchers. And these are still complicated deals for us. I think the thing that we found is hardest about them is all the different skill sets they need. You know, for example, a producer comes to us, a network of livestock ranchers, and they want to build a type of facility. But in order to do it, they need real estate expertise to find the right piece of property. They need construction management to put together a budget and oversee it. They need someone with operational expertise around the processing and market sales. So there are all these other skill sets around these types of projects that don't relate to being a producer. And it's unlikely, pretty much impossible, that a producer would have all of those. So we're bringing in different freelancers and experts in those subject matters, real estate construction being two that are critical, but but not normally of the experience. And so I think what our business line will look like around food infrastructure is providing the financing for those facilities, also helping the farmers find grants and other money that's out there, but also helping make connections to people that can execute the specialty elements of these businesses that the groups don't experience. So they kind of have the local network. They have an understanding of the supply and the end markets, but there's all that other experience that needs to be developed. So by doing one of the it's very complicated. But as you do more and more, we have three that we've funded and probably five more in our pipeline. We're really starting to see the similarities amongst them and become an expert in them.

SPEAKER_00: 10:13

There could be hundreds basically in this space here. And for a producer, what would be simply the difference if you had to walk us through if you would have a decentralized, partly co-owned, maybe a slaughter facility, a processing facility compared to sending it somewhere? Like how fundamentally or life-changing is that for your bottom line

SPEAKER_01: 10:33

it's fundamental to the business the two things it solves for is one access you know these huge processing facilities they're not interested in someone sending five cattle you know they want huge contracts of big supply so you can't get bookings you can't get the supply slots you need or you get bumped all the time and then the second is quality and the type of cuts a lot of these livestock ranchers have buyers who want certain cuts and they want things in a Yeah, absolutely. Yeah, absolutely. to producers. And if you cut out that profit margin and instead that's shared with the users of the facility, it creates aligned incentives and also make sure the cost of the service is as competitive as it can be for them.

SPEAKER_00: 12:14

It's almost like a public service basically, but specifically for, in this case, the livestock industry. Do you see that in other sectors as well? I mean, it seems like the livestock space, maybe we saw the breakdown even more as we saw the many slaughterhouses, industrial ones had to close and whole supply chains just disappeared. or blocked for weeks and months, especially in Corona time. Do you see that in other parts as well, or does the livestock industry be sort of the cutting edge at the moment?

SPEAKER_01: 12:41

We're seeing it all over. Livestock is where a lot of it's happening because the size and scale needed and the USDA kind of inspections and the heavy regulations around it. But we are looking right now at a oyster processing facility that will do it for aquaculture and that will help regional oyster growers have their oysters processed, cold pasteurized, packaged and available for sale. We're seeing some with milling, you know, with grains, heritage grains. They need infrastructure to get the product to market. We're seeing some with hemp, particularly for fiber processing, where you have a lot of processing capacity that's needed. So pretty much with any agricultural product, there needs to be processing to get it to a stable state, but also to do value-added products. And they really need to be selling direct and doing value-added products to be viable. And so every sector in needs its own processing infrastructure. We even had a group of organic hazelnut growers reach out to us for their own processing. So that's why you need to think about serving that regional network of growers who are specialty in a certain product, who can share their capacity. And I think we're going to see hundreds or thousands of these systems, and it's a whole network of components that are needed. One company I've been very impressed with who's providing a lot of the modular USDA slaughter units that we're financing is called Friesla. They're in western Washington And they helped build the first USDA certified mobile slaughter unit over a decade ago. And now they're a leader in the market in terms of providing these kind of modular units that can be expanded or adjusted based on the size of the facility. So it's really a network of kind of infrastructure, producers, financing, ownership models, like all of it's kind of coming together to support what this looks like. And it really gives control back to producers. It also lets producers enter the market. and have more reliability to reach end markets. So I think this will let production grow to then meet the market need to really supply larger contracts like bigger restaurants or bigger purchases, let's say from hospitals. That's always been the problem. One farm can't supply a big contract, but if you have aggregated networks of farms through processing facilities, they can combine their sales to provide reliable output.

SPEAKER_00: 14:55

And then you can, of course, start to finance the farmers again, or maybe in some cases you have already because if the outlook increases or improves and the margins improve and and there is need for more scale i mean you said many of these might be ready to scale if there were more stable or better markets better margins etc and if that's been taken care of through processing and marketing then there's an enormous opportunity for the underlying farmers and ranchers to grow as well and obviously there might be there might be need for finance

SPEAKER_01: 16:14

yes it's reflexive you know more infrastructure supports more farmers more farmers need more infrastructure And that's why we've jumped into the space, because if we're financing producers who are having trouble getting their product to market, then we should finance the capacity to process it, get it to market. And then we're expanding in terms of providing kind of the freelancer expert support for marketing or digital tech or operations. So we're just kind of touching all elements of the production to end market. And even on the way back, we have a vermicompost company we're working with. And I think recycling of nutrients is an element of these systems that's often forgotten.

SPEAKER_00: 16:49

Yeah, we never tell. about how these nutrients get back to to the soil let's say and that's something there's a lot of a lot of infrastructure needed there as well And on Steward itself, I mean, you had a Series A fundraise. How did that get about? What was needed in terms of growth of Steward itself to get to the next level, more people? What has happened in Steward itself?

SPEAKER_01: 17:11

That was one of the big changes. 18 months ago, the company was still self-funded. I kind of had begun starting, it was like January, February 2020, to reach out for investment partners, which was obviously terrible timing to reach out for investment partners. So it ended up taking a lot longer than we thought. But I had self-funded Steward for four years. My goal with the business was to get it to a point where, you know, we had outlined the market we were supporting. We had proven the viability of our model and we were starting to grow and we could find aligned funders who really believed in what we were doing and were in it for the long term. So we weren't interested in the traditional venture route of kind of hyper growth and exit. And so we ended up meeting a lot of family offices who were in the regenerative ag space who have, you know, intergenerational wealth and they're focused on the very long term. They care about return, but they also make sure that we're aligned in terms of values and we're uncompromising. And so we put around together, led by the Grantham Foundation, who's just an amazing organization investing in companies supporting climate solutions, but also providing grants. Their kind of whole thesis is around accelerating climate solutions. And then it was co-led by two other family offices, Triple, which is led by the Milgram family and Beck Milgram in Australia, and then Evie Steyer, who started her own venture firm, Ponderosa VC, recently, and they're all on the board. We actually have a board meeting later today. So I really was happy to find aligned long-term investors. Alongside those investors, we had users of our platform, gave them the chance to invest in the company, and that was kind of the goal from the beginning. Broad-based ownership and steward, letting individuals, family offices, high net worth funders, letting many people participate in the ownership of our company, similar to steward ownership models we're talking about. We're a network business. The value of our business relates to the strength of our farmer-producer network, infrastructure network, freelancer network, funder network. And if all the people using our platform can share in the upside of the platform, then they're not only incentivized to use it, but the benefit of our system goes to everybody. So we're also looking at broadening our ownership and providing more methods for people to share in the upside. And that was the goal from the beginning that it should be equitable. If you're going to have a solution for regenerative ag that is kind of changed the market, it has to be distributed, but it also has to be equitable and the ownership has to be shared.

SPEAKER_00: 19:39

Yeah, no, I completely agree. And we were fortunate enough to be a very, very small investor as well. And of course, Eric Smith, we had on the podcast of the Granton Foundation. I will link the interview below. And the other two new board members are quite close as well. So if they're listening, a shout out to them. And we've talked U.S. quite a bit. We talked before, I mean, 2020, everything was weird and different, but you were definitely not just building this for the US. You did a deal, I think, in Tasmania and one in Switzerland. How are the plans, let's say, beyond the border of the US and what's going to happen or what is happening there?

SPEAKER_01: 20:15

That's always been my goal from the start. I live in London, so I'm from the US and most of our companies in the US, but we're fully remote. I'm in London, our COO is in New Zealand, and we have 12 other staff in the US. So for in the beginning, the goal was to be in lots of regions, be in lots of places, be prepared to support the broader global movement for regenerative agriculture. It certainly is a global movement. The lack of funding exists across border. There's no reason why it's special to the U.S. That's just where we were based and where I'm most familiar. But we have seen demand in other countries. Recently, the kind of biggest holdup to us working abroad was around our payment infrastructure, that we have a payment platform that's U.S.-based. If we're going to fund projects abroad, we had to build another payment system, which two payment platforms is very difficult integration. And now that payment provider in the US is willing to set up a pilot and is planning to support international payments. So our hope is by the end of the year, we'll have a method for our US user base to fund projects abroad. And we'll probably bring in local family offices and funders in those markets to support them and build a syndicate of local capital with our US capital that we can replicate around the world. Canada is probably the first place we're looking at. We were in Growers& Co magazine recently, and we've done a partnership with Growers& Co called Growing Change. So we're already working together on supporting small scale ag in Canada. And that's with Jean-Martin Fortier, who's, you know,

SPEAKER_00: 21:43

I

SPEAKER_01: 21:43

have admired him for a very long time. And he's, you know, the ultimate leader of this movement. And then we're also looking at supporting some of the markets that we have investors. So back Milgram are families from Australia, they're hoping to support farms in Australia. That's a market we're interested in. And then Switzerland, too. We've already funded one farm in Switzerland, and one of our investors is Swiss-based. So that's kind of how I see us working abroad, of having an investor in our company who's willing to allocate some of their capital for local funding and us doing deals alongside that with our broad user base. I mean, we'll see whether people want to fund projects outside the US if they're US funders. I expect they would. I think they'd probably find it really interesting to be able to fund farms around the world. It will require local servicing, local diligence, local site visits. So we will have to build out our capacity, but I would say by the end of the year, we'll at least have the kind of tech infrastructure to do it.

SPEAKER_00: 22:37

Super interesting. And we mentioned, I don't think we talked about it last time because I don't think it was around, but there you have launched, I'm not sure if it's even called a fund, but like some kind of structure to bridge loans or to not only do individual deals. Can you share a bit more on that? Because normally when we see crowdfunding, we see, okay, something goes online, like you said it either fills up in minutes or in hours or in days but there are other aspects there that also need financing and need something to get to that point where you can go to the broader community or to your own community to raise the necessary funding

SPEAKER_01: 23:10

sure yeah so so steward from the beginning the goal is to be a broad financial services platform that's creating different financial products that are custom designed for regenerative ag so the first product we launched that's had a lot of success is the individual farm loan product so a loan to a specific farm fixed term fixed rate and you hold the loan through maturity and that's sold to participants on our platforms they buy a pro rata that slice that loan we service and administer the loan we're the lender of record we don't take a spread you know a loan at six percent to a farm gets paid directly to the farmer what we found is that there was a need from producers for quick capital for bridge loans you know they might have a property next door to them that was coming up for sale but they had to close in 30 days or they had a grant that they had to spend the money up front to get reimbursed. All types of kind of use cases where they needed money really quickly, guaranteed, and couldn't go through the time that a campaign naturally takes to do. So we decided to fill the market on both sides. We created a, it's almost like commercial paper where users on our platform are lending money to us in nine month term with a fixed interest rate, currently four and a half percent. They can withdraw that funding at any time with 90 days notice. So almost like a three month notice period, relatively liquid And then we're lending those funds as a series of bridge loans to different farm projects that need them, most of them for land purchases, some of them for advances for grant reimbursements, others for immediate kind of equipment and entities in need. And then a lot of those bridge loans end up being either paid back directly from proceeds or refinanced through our platform with a term loan. So now we can kind of do a one-two. We can move within weeks to close the deal with a bridge loan and then set up a campaign to refinance that loan through a term loan. loan and we're developing more products. So that's our goal of like, let's figure out everything a farmer needs. Let's develop a financing product around it. Let's distribute that broadly. And then let's keep listening and figure out what else they need.

SPEAKER_00: 25:08

And that means, I mean, you said something interesting on the week's part. I think the speed here in general is quite breathtaking. You wrote a really nice medium post. I will link it below as well on, I don't remember the farmers, but they had to buy, they could buy the neighbor and

SPEAKER_01: 25:22

a studio health farm in Vermont.

SPEAKER_00: 25:24

Yeah. And everybody else said no. and was very interested. And then at the end of the day, obviously said no, but you, our steward, was able to say yes or no very, very quickly. Can you talk us through that story? As it always also includes actually not just an agriculture piece, but also hospitality piece.

SPEAKER_01: 25:41

This is really a great example of like, you know, the theory of the products, but then the reality of how they're used. So Studio Hill Farm, it's a fourth generation farm in Southwest Vermont. When it was taken over by the new generation a decade ago, they converted from, They stopped spraying. They were growing grain before. There was an ecological collapse. They learned about Allen Savory. They brought in livestock. They've restored the land. And so they've grown a livestock business on this farm. They also restored an old schoolhouse that was on the property. And they were going to live in it, but they needed some extra funds to pay off the construction costs. And so they rented it on Airbnb. And since they've put it online, it's become one of the most popular properties in all of Airbnb. It's actually booked out 18 months, every single night, 18 months ahead.

SPEAKER_00: 26:26

It's crazy. They said they put it like online at the 1st of January, the full year filled up like in, I don't know, an hour or a day, like crazy.

SPEAKER_01: 26:34

The full year. Right now, all of 2022 is filled out. We're in February 2020. All of this year and then through the spring of next year.

SPEAKER_00: 26:42

Because it's so special or because it became such a hype as well? It's special and it became a hype or?

SPEAKER_01: 26:47

It's special. Well, I think it's two things. One, people are looking for authentic environments to stay in and visit, particularly, you know, COVID times two where there's lots of space and it's a beautiful landscape but they also beautifully restored a historic building with nice wood and timber and they have you know a sauna so i think it's also like they know the market and they provide a beautiful design aesthetic with the farm but what this property is allowed is given them the capital to support the growth of their operation and give the land time to heal so it could sustain more livestock so now they have revenue from their farmhouse their schoolhouse they have sheep that they raise and then they also but now are doing sheepskin. So they're doing all types of creative things. Most farmers have off-farm income. That's the reality of American farming and most around the world is people get jobs somewhere or a wife works in town, but this schoolhouse let them stay on the land and be farming full-time. So there was a huge benefit to that.

SPEAKER_00: 27:44

And have a lot of people come that potentially would end up buying their products and produce as well.

SPEAKER_01: 27:50

Yeah, they buy products and they learn about regenerative agriculture. So, you know, very successful farm, tons of through their bookings and farm sales, and they had the chance to buy adjacent property. But farmers are always talking to their neighbors. They're always trying to position themselves to buy more property if it becomes available. An owner who had a property for a few decades next door that really completed their property was going to move to Florida. He said he'd give them a first shot at it if they could close quickly, which was 30 days. In reality, in ag lending, it's hard for a speed is there's no speed at all, you know, normal loans, six plus months. So, the traditional routes wouldn't work for them, not just because they're not a fit, but because of the time. And so we stepped in with a bridge loan, provided a$970,000 loan for them to buy the property. They now have a campaign on our platform to refinance that with additional money to improve the buildings on that property for their farmstay business. So they've already validated the revenue with the farmstays on their current property. Now they're expanding that to the adjacent property, plus they'll be able to carry more sheep. So it's really a great story. And it shows the breadth of the products we have you know filling a short-term need but then also providing the long-term funding

SPEAKER_00: 29:40

and that's the one that is filling up now that's the one and a half million that will maybe take a month or so

SPEAKER_01: 29:45

correct so for any of you interested that that's on the platform now and it's a six-year loan at six percent interest and then they'll refinance it at maturity

SPEAKER_00: 29:55

okay yeah interesting i don't know when when if when this comes out if it's still open but we'll definitely link it below and so what is this year i mean we're sort of at the beginning of 2020. What are you excited about? What are you looking forward to? What are big milestones you want to get? By the end of the year, we already talked about one, which is some international ones through the payment system and being able to get US investors to invest overseas with ease as well. What are others?

SPEAKER_01: 30:23

I mean, the day-to-day right now is growing our US lending business, more funders. We're working with a lot more family offices now, which helps bring bigger checks to some of these bigger deals to help anchor them. The thing that I'm just every day most interested in is the food systems infrastructure. I think we're way ahead and we're really diving into learning about that, how to finance it, how to bring other types of funding together. And some of these deals, we have like five or six types of capital, our loan, local high net worth money, revenue-based financing, preferred stock, new market tax credits, USDA grants, even tax or criminal financing. So it's how do you weave together all the different types of capital out there or around these facilities that are critical for growth, job creation, the prosperity of regenerative agriculture. And so if we can build a model to align all those types of funding together, and then the operational system of how they should be built and managed, I think that would have enormous impact in the broader market and really enable the growth of regenerative ag. So I think we're at like the point where the market's moving, there's lots of interest, but it's still have to be stuff to rebuild the entire infrastructure that was destroyed over a hundred years. But I'm seeing those networks aggregate and hopefully our goal at Stewards to really propel the growth of those networks and deliver resources and connections that they otherwise need or don't have. But I am excited to see it. And then we've also had some team meetups. We're a remote team, but we had our first company meetup last October at my family's farm in Easton, Maryland on the Chesapeake Bay. We have some more planned for this year. So I love going out and visiting farms and getting together with our team and investors. And for me, that's what the point is. of this originally was around food and access and those types of experiences. And so I just love the work I'm doing at Stewart. And I feel like it's not only making an impact, but it's allowing me to use the skills I have to support regenerative agriculture. You know, I like farming, but I'm not a farmer. My mother was a farmer, but she left that, you know, as soon as she could. So it's a way to honor my family's tradition, but also use the kind of finance, tech, real estate, lending kind of skills that are needed for the market. And that's what I find at Regenerative Ag. Everybody can contribute. It's not just about being producers. If somebody's great at marketing, they can help some of these farmers create a great brand and do direct to consumer sales. And so there's really a role for anybody interested in this market outside of just becoming a farmer, which obviously is important, but there's more to creating a food system than just producers.

SPEAKER_00: 32:55

And do you get, what are the biggest critiques or do you get pushback on the relatively, I mean, between brackets, high interest loans Is that something like, oh, 6% and four and a half, et cetera, et cetera. How, because agriculture is such a low margin business, et cetera, et cetera. What are the biggest critiques that people come to you or do you get a lot of farmers that don't want it? Or is it mainly like, I cannot get financing anywhere else. I'm really, there is margin here. Let's get going. What are the biggest pushbacks you get on the whole piece of sewer?

SPEAKER_01: 33:27

Sure. I think interest rates, definitely one of them, but it's really an anchoring question. You know, the market is used to subset So subsidized interest rates, subsidized food prices. We don't take any spread on our capital. We're just trying to build a market of, you know, what does it take to attract funders, mission aligned funders, but people who still are putting their money at risk and expect some return. And then what rates can the farmers actually afford to pay? And so most of our loans are between like five to eight percent, you know, five being better revenue, more collateral cash flow, eight being, you know, scrappier earlier in their business cycle, equipment and less collateral but we're finding most farms work with it realize like over time that it's not just about rate it's about having the right type of funding that arrives when you need it with design for your need so most of our loans have six to twelve months of interest deferment up front to give them time to use the capital generate revenue to start to pay it back so I definitely have the view that like the custom design financing for that specific farm is the best and another way we counter the interest rate thing is we also try to bring other funding to farms to bring down the cost of capital. We have a grant writer who writes grants for farms. We've gotten a lot of value out of producer grants or local food promotion grants from the USDA. So if you blend a grant with a loan, that brings down the cost of capital. And we are also working alongside the FSA and banks on loans where they take the first mortgage. Normally, they kind of say they'll do it and they don't end up doing it, but sometimes it does happen. So I view us as really creating more of a capital market for generative ag, a true market of people providing funding and who need funding. And then that's going to be the cost that it's going to be. And the more people you bring to the market, the lower you can bring the funding. But there is some balance. So I think for our model, it's just that we're having to prove the viability, not just of the way we do financing, but of regenerative ag. And I think most of the questions still are about, are these businesses profitable? Agriculture is so hard. How do you make them successful? And that's what we're learning every day. It's about doing direct sales. It's about controlling your processing in markets. It's about having the kind of labor and equipment you need to grow the operation. It's about really just dialing in all aspects of the business. So it's definitely hard. It's not easy for any farmer to work with. There's no farm that just all the time everything's fine, but there is viability. And so that's what we're trying to prove, that there is viability in regenerative agriculture. There are people who want to support these types of farms. There are people who are interested in doing this type of work. And if we can prove viability outside of the kind of subsidized ag system, then sure, Surely if the policy shifted to provide more resources to these farms, it's easier. But unfairly, regenerative ag has to prove it on its own, you know, while conventional ag is cynical, while they're just living off a subsidy. But that's just how it is. That's not going to change for a long time. I

SPEAKER_00: 36:19

think the people in the renewable energy space, they have a few stories on that as well. Like, why do they get subsidies and the fossil fuel industry is like incredibly subsidized left and right. And yeah, they had to prove and now they are definitely on the good side of things. And luckily there's a bit of money coming, but it took quite a while. Hopefully this goes faster.

SPEAKER_01: 36:39

Yeah. And that's where I think a lot of people, they just want wholesale change overnight. It's not going to happen. It's going to take decades. It's a real climate crisis, but you just, you can't create a whole new agricultural system in a few years. And it is very hard to convince conventional farmers to change their ways and change the system that they're locked into. They might not love it, but it works for them. And so it's about building viability and regenerative agriculture not trying to rush too quickly and make lots of claims that then get undermined when these businesses can't sustain themselves so we're in it for the long haul

SPEAKER_00: 37:12

and do you see like what has been the success rate in the sense like is it working in a like how many loans have gone into trouble is it something you publicly share or maybe none or what has been like the difficulty rate let's say on that side

SPEAKER_01: 37:27

yeah we are we are public about it we've made over 50 loans under our participated loan program two of them have been in default But those are more of, we're just adjusting payment schedules and helping the farms resolve issues. So every farm run into challenge, they have a labor issue or they had an equipment breakdown. Some of these, they lost a key customer, say the repivot for markets, or they were on a piece of land and the land owner became problematic and they had to move land. So we're generally finding that like the end markets are there, the demand for the product is there, but in any business operationally, you know, things can get out of whack and there's support. So generally what we do on those is we accrue interest for a period, come in with our consulting expertise to help figure out where the problem is for the business. We've even provided some bridge loans from our balance sheet to help cover gaps and then get them on the path. Often the solution for those challenges is more funding to help fill the gap that they have. And one of them was a farm that was selling into Chicago from Milwaukee, was only delivering 200 orders a week, but the capacity they had could do 600 orders a week. So they ended up basically with a lot of sales and not enough margin. And they needed a direct consumer digital assistance to drive orders in Chicago to get 600 a week. So they now would have really high margins. And that really doesn't relate to production that relates to, you know, digital marketing and logistics. But the farmer doesn't necessarily have that expertise. And so we had a team member who went out there for a week, stayed with the farmer went through, you know, the whole business, visit customers and help kind of figure out where the where the problem was. And then We've provided him with a technical assistance and a freelancer who's helping him solve those challenges. So I'm of the belief that you're going to have to accommodate. That's our model. You're going to have to adjust for the circumstances of the farmers. We find our funder base. We communicate transparently, give them a chance to speak with the farmers. And by having those direct links, they tend to be more forgiving of, OK, there's a plan in place. Let's do this to try to adjust it. So we don't pretend that there won't be any defaults. There is risk in this market. But we're learning what challenges farmers are running into, how we can get ahead of them, what kind of expertise and capacity we need to deliver to help them. And that's how our business has grown. You can't be a passive lender in this market. That's why banks are scared of it. You can't just lend money and hope that it's fine. You have to be involved in assisting these businesses. And that means you need to build an expertise in financial reporting and in grant writing and in direct consumer sales and in online logistics platforms. So you'd end up having to know everything about all aspects of the market in order to help these farms be successful. But every time we run into a challenge, we learn something new that we can replicate elsewhere. So we're learning a lot, and I think we'll be able to prove the viability of the model. But this is why originally I self-funded the company and self-funded the loans. Nobody was going to fund these types of deals without any sort of track record. Now we have a four or five-year track record, and there's more people funding, but it's still people who are are early in the curve of acceptance and really willing and hoping that regenerative agriculture can be viable. But the kind of traditional funders that want all the data and want everything proven for them, the market's not there yet.

SPEAKER_00: 40:46

No, it's definitely early. And at the same time, I wouldn't say late, but we're definitely on our way. So I want to be conscious of your time as well. And thank you so much for sharing this update. We need to do it sooner than 18 months, but we'll definitely check in before that as a I think it's going to be a very exciting year, very exciting end of the year, I'm imagining, with potential outside US deals, which will be super exciting. So let's keep in touch. Let's hope to have you back soon and share more on how to get the crowd, how to get the general audience, how to get the quote-unquote normal people to buy this stuff actually involved in the investing side of the regenerative agriculture revolution as well.

SPEAKER_01: 41:27

I would love to. I enjoy our conversations. You're about as knowledgeable and well-connected in the regenerative ag world as anybody, so it's always an check in and to kind of hear what you're seeing and what we're seeing but it's definitely the market's growing the interest is there and now it's about proving it and it has to be proven and I think that should be expected that you have to you have to show that it works and show that it can be viable ecologically and economically and I'm confident of it although there's still definitely things to work out

SPEAKER_00: 41:52

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