Blackdirt Farm Management, an affiliate of Stamford, Connecticut-headquartered Blackdirt Capital, has raised $510,000 for a grass-fed cattle operation in Georgia through Harvest Returns, an ag-focused crowdfunding platform.
The capital comes in the form of a three-year term loan with an annual interest rate of 8 percent and is collateralized by Blackdirt’s cattle, Blackdirt Farms chief executive David Nicola told Agri Investor.
Harvest Returns is a Fort Worth, Texas-headquartered financial technology company that launched a crowdfunding platform devoted to connecting qualified investors to opportunities in farmland, ranchland and timberland last August. Chief executive Chris Rawley told Agri Investor at the time that the minimum investment from the platform would be $5,000 and that the average deal on the platform was expected to be valued at between $500,000 and $5 million.
Nicola said Blackdirt was introduced to Harvest Returns through one of its interns, who had been studying crowdfunding in business school classes they were taking while working on one of the firm’s properties. Though the investors Blackdirt has accessed through Harvest Returns are, like the firm’s existing LPs, largely high-net-worth individuals and family offices, Nicola said platform had connected it with others in regions far outside the firm’s own network.
“We raised $500,000 effectively from people we didn’t know,” Nicola said. “If you can raise half a million bucks or more, it becomes pretty cost-effective.”
For Blackdirt, Nicola said, the process of raising money through Harvest Returns was similar to that it uses in existing fundraising efforts, with the questions asked during due diligence conference calls being largely the same. After Blackdirt’s offering passed an initial screening, Nicola said, Harvest Returns personnel offered suggestions as to how to make the opportunity more attractive to investors; in this case extending the loan’s term from one to three years and accepting a slightly higher interest rate.
“We raised $500,000 effectively from people we didn’t know. If you can raise half a million bucks or more, it becomes pretty cost-effective” David Nicola
“We are effectively financing our cattle that way, and we make money on a per-head basis,” said Nicola. “We either own land, lease land or manage land and then we use the cattle financing as a way of making the return on that land.”
The loan Blackdirt secured through Harvest Returns is part of a larger $3 million in debt it plans to raise in support of an operating cattle-finishing farm in Georgia, Nicola said. He added that Blackdirt is also currently raising $1 million in equity financing from a group of investors it has already that has previously worked with, but would look for opportunities to use the Harvest Returns platform again.
Harvest Returns did not reply to messages seeking further detail by press time.
No longer a rounding error
Though Blackdirt Capital began with a land-based investment strategy focused on finding a role within the small-scale and fragmented grass-fed beef supply chain, Nicola said this year the firm has pivoted to a strategy with no direct land component. Instead, the firm now utilizes a wide-range of ownership and partnership structures that allow it to treat access to land as a cost of its business.
As opposed to pastureland dedicated to feeding cattle because it cannot be used to grow crops, Nicola said, Blackdirt is now focused on converting irrigated row-crop farmland in the US south-east to high-intensity grazing properties. It does so through infrastructure upgrades that allow it to triple the amount of biomass that would be produced on the same property by a conventional farmer.
While the need to deploy capital and an increased institutional investor interest in US south-east have both contributed to a greater willingness on the part of farmland funds to at least talk about adding a cattle operation, Nicola said, no such partnership has been finalized.
“Cattle investment is not a normal type of investment that an agriculture investor or family office would make, unless they have a familiarity with it,” said Nicola. “It is considered less of a rounding error or a fad than it would have been five to 10 years ago.”
Because the vast majority of US cattle farmers are family-owned operations organized around raising calves only until they are large enough to be sold to large feedlots, many are reluctant to make the investments necessary to raise cattle to the standards of the small-scale, grass-fed producers that have emerged thus far.
Nicola said Blackdirt is trying to create a system of such ‘finishing farms’ that can serve the same function in a grass-fed system as similar operations do in conventional supply chains.
“The bottleneck in the grass-fed industry is that you need a business system that looks almost exactly like the conventional beef industry from a functional standpoint, but with positive ecological, animal welfare and human health outcomes as a result,” said Nicola.