Institutional investors may soon be able to access the underserved mid-market via crowdfunding platforms.
Wide-ranging disruption is sometimes triggered by arcane legislative changes. In 2012, then-US President Barack Obama passed the JOBS Act, which aimed to support the country’s entrepreneurs by allowing the general public to receive equity in exchange for funding. The move gave a massive boost to a budding industry: crowdfunding. So successful has the model proven to be in the start-up world – through champions like Kickstarter and Indiegogo – that it has been imported to real estate, feeding an industry estimated to be worth $3.5 billion last year.
In agriculture, however, the trend has been slower to take off. Crowdfunding platforms catering for the sector do exist – and seem to have found a fertile ground, judging by the popularity of dedicated ventures like Barnraiser or the rapid penetration of generalist operators (including Kickstarter). But few of them are targeted at professional investors: of the four projects currently advertised on Barnraiser’s homepage, the largest is seeking to raise $20,000. Early-birds venturing higher on the deal scale, like AgFunder, have been rare.
A newcomer is proposing to sow the seeds of change, though. Harvest Returns, a one-year-old tech company, will this month launch a platform enabling accredited investors to passively back agricultural projects. Chris Rawley, its chief executive, wants to make it the “one-stop shop” of agriculture investment by listing opportunities across a variety of geographies and covering an array of crops. Importantly, ventures selected by the platform will be of a decent scale, ranging between $500,000 and $5 million.
“There is a niche there,” Rawley told us this week. “We see the middle market – that’s neither the super industrial farms nor the smaller subsistence or hobby farms – as underserved.”
At $5,000, investment minimums are low; in its inception, the platform is likely to attract high-net-worth and highly compensated individuals. But Rawley believes institutional investors will rapidly come into the fray. “In a year or two, once we expand the deal size on the platform, I think we’ll get some interest from private equity.”
Small banks may already be interested in the opportunities Harvest Returns is about to list, he adds.
The assets selected by the platform will share inflation-protection and diversification characteristics, making them desirable to institutional investors. But their risk-return profiles will vary widely, so that the platform meets investors’ diverse constraints and objectives. Row crops in the US, which Rawley says tend to generate a safe return of 3-4 percent, can mitigate risk through crop insurance and hedging, for example. In contrast, one deal Harvest Returns will soon be listing – a farmland opportunity in Brazil – is aiming for an IRR of 40 percent. In between, other projects in the platform’s pipeline have expected returns “north of 10 percent,” he notes.
So the proposal has appeal – not least to farmers, who are set to retain control of their operations after raising equity. Whether investors will flock toward it is another question. Rawley says Harvest Returns is complementary to agri funds, owing to the smaller deal size but also because they allow investors to directly choose the assets they back. “You are relying on the sponsor to be a good steward of his farm but you’re not necessarily reliant on a fund manager to make those decisions that are somewhat out of your control.”
The argument has merit. Yet in other alternative asset classes, like private equity or infrastructure, direct investments have often remained the purview of large, highly sophisticated institutions, owing to the heavy due diligence and vast industry knowledge they require. It may take a few harvests before the likes of pension funds and insurers feel educated enough to take a passive punt on a farming venture.
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